Apple sales likely to fall again despite Samsung woes

Apple Inc. is expected to report earnings at the high end of fourth-quarter guidance after the market closes Tuesday, buoyed by the iPhone 7 launch and a flurry of new customers switching from Android in the aftermath of Samsung Electronics’ exploding Note 7 saga.
But analysts are projecting the third-straight quarterly decline in iPhone unit sales, as the company grapples with oversaturated developed markets and lower-priced competition in emerging markets.
Apple AAPL, +0.90%  has shifted the tone of its earnings calls this fiscal year to focus on software and services in addition to its flagship hardware. Apple CEO Tim Cook has referred to services as a “large and important source of recurring revenues” for the company. Analysts believe revenue from services will grow as the company’s installed base expands, and that their lower overhead will drive improvements in profit margins.
While the iPhone remains Apple’s biggest top-line contributor by far, services, such as Apple Care and Apple Music, surpassed the Mac earlier this year, and are expected to surpass $6 billion in revenue for the first time this quarter.
Here’s what to expect
Earnings: Analysts expect Apple to report earnings per share of $1.66, down from $1.96 in the year-earlier period, according to FactSet. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages and buy-side analysts to predict earnings, has Apple earning $1.71 a share. Apple beat both consensus numbers last quarter but fell short of both in the quarter prior. It has a long history of topping the FactSet guidance, beating it 11 quarters in a row from June 2013 to December 2015, but has a mixed history with the Estimize consensus.
Apple Inc. (AAPL) Street Actual & Estimate EPS - Last 5 Quarters
Earnings per share as calculated by the majority of analysts following the company
Q3 '15
Q4 '15
Q1 '16
Q2 '16
Q3 '16
Actual EPSEstimate EPS
Source: Zacks Investment Research. Show details
Zacks produces data in the areas of company financial statements, consensus earnings estimates, sales estimates, target prices, analyst ratings, institutional holdings, insider transactions, splits, dividends, and industry/sector classifications.
Data Sets:
Earnings.
Revenue: Sell-side analysts expect Apple to report revenue of $47 billion, according to FactSet, down from $51.5 billion in the same period last year. Contributors on Estimize are forecasting revenue of $47.2 billion. In July, Apple set its guidance in the range of $45.5 billion to $47.5 billion. The company beat both the FactSet and Estimize consensus estimates last quarter but missed both in the quarter prior. Revenue from the iPhone is projected to fall by 14% to $27.8 billion, after declining by 24% in the quarter prior, according to FactSet.
Stock reaction: Shares of Apple have been on a tear since the company’s last earnings report, fueled by an earnings beat and less-than-feared decline in iPhone sales last quarter, and improving expectations after its biggest rival, Samsung, issued an unprecedented recall for and stopped production of the Note 7. The stock has risen 19% in the past three months, vastly outperforming the Dow Jones Industrial Average, down 1.8%.
Also see: Apple’s bearish ‘harami cross’
The shares have underperformed for the entire year, however, declining by 1.4% in the past 12 months, versus a 3.3% improvement for the index. The average rating on the stock is the equivalent to buy, while the median stock target among a poll of roughly 40 analysts surveyed by FactSet is $120.96, implying 22% upside to Thursday’s closing price.
What to watch for: This will be the first quarter that reflects the new iPhone 7 family of phones, though only the first two weeks of sales will be reflected. Analysts expect Apple to ship 45 million phones during the quarter, down from 48 million in the year-earlier period, according to FactSet.

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