Apple Earnings Q2 2013: The 2 Big Things To Listen For On The Call

| About: Apple Inc. (AAPL)
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The world's second biggest company in terms of market capitalization will either become the biggest again or languish even further after it reports earnings on Tuesday after the bell. Apple (NASDAQ:AAPL) is set to report FY13Q2 results and investors will all be watching for a few key numbers to decide the next three months of investing momentum. Those key numbers are margin results/guidance and the revenue guidance.

The number of iPads or iPhones should not drive the momentum this time around unless it really misses. If the number is within a "few" million, attention will immediately turn to the margin and revenue guidance. Remember back to January when Apple reported earnings to see why. Management said they had lower Gross Margin or GM typical because of two things. They indicated factors of refreshing 80% of their product lineup and how the iPad mini has a substantially lower margin than typical iDevices. (Interestingly enough, tear down estimates from six months ago on the iPad mini ranged anywhere from $188 to $198 cost for a product that starts at $329, which equates to 42.25% margin on the low end.)

Management guided GM to be between 37.5% and 38.5%. See this article to get a primer on Gross Margins. This is very significant when you are about to compare year-over-year results. During the FY12Q2 quarter, Apple guided to 42% GM and reported a whopping 47.4% GM! The bottom line for earnings this time around: Don't expect anywhere near the $12.30 EPS they got in the year-ago quarter. In fact according to Yahoo! Finance, analysts are expecting $10.07 in earnings.

The lower GMs are baked into the stock price down here below $400 per share. Any guidance above 40% GM for FY13Q3 will be a big boost for the stock and prove that management was right when they stated 80% product refresh was why they missed analysts' earnings expectations for the Christmas quarter.

Turning to revenue, guidance will be key for this conference call. Accelerating revenue growth or ARG is the crack cocaine for Wall Street junkies. It is truly what drives big money into or out of a company's stock. Apple has proven just the opposite lately: decelerating revenue growth. It is still growing, but it is decelerating in its growth rate. This is somewhat baked into the stock because investors have realized Apple is fighting the law of large numbers where a $1/2 billion company can no longer sprint like a small-market-cap company.

Revenue for this past quarter was guided to $41B to $43B in January and the current analyst estimate is slightly greater than $42B. CFO Peter Oppenheimer said that they shifted from a "reasonable confidence in what the company is capable of achieving" and now guidance will be based on "our belief of what we're likely to achieve." He said they are likely to report within the range of guidance they provide. In the year-ago quarter, FY12Q2, Apple earned $39.19B. If it comes in at $42B, that equates to 7.17% YOY revenue growth. Not bad, but also not great considering what Apple investors are used to for YOY top-line growth. (59% YOY growth in FY12Q2, 35% YOY growth in FY12Q3, 27% YOY growth in FY12Q4, 18% YOY growth in FY13Q1) You see how the numbers are progressively lower each quarter. This quarter will not have the implications that FY13Q1 had with the 14 week to 13 week quarter.

The average analyst estimate for revenue next quarter (FY13Q3) is currently $38.91B. Revenue in FY12Q3 was $35.0B. If they guide to that number, that 11% YOY growth would reverse this decelerating trend. Stay tuned when FY13Q2 earnings are released.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Long AAPL common.