Apple Q4 2014 Earnings Review

  • Apple reported Q4 2014 EPS of $1.42, handily beating Wall Street consensus on both the topline as well as bottomline.
  • The 20% YoY earnings growth continued the second quarter in a row, driven largely by the share repurchase program.
  • Our Apple stock analysis assigns a buy rating to the stock.
Apple Q4 2013 earnings review

Apple (AAPL) announced its Q4 2014 earnings after market close yesterday. The company reported a solid growth in topline as well as bottomline, with the iPad sales being the only sore spot in the earnings release apart from the expected deceleration in the iPod segment. The stock was trading up 2.1% (at the time of writing) in pre-market trade after closing the last trading session with a gain of 2.1%.

Apple Q4 2014 Earnings Summary

Apple reported a 12.4% growth in revenue and a 20.3% YoY growth in earnings per share (EPS), which was a significant improvement over the 4.2% revenue growth and 5% EPS decline in the year ago quarter. The EPS grew more than proportionately majorly on account of the share repurchase program currently underway at Apple. Apple’s Q4 2014 performance is summarized in the table below.

Apple Q4 2014 performance summary (in millions of $, except per share numbers)

Q4 2012

Q4 2013

Q4 2013 YoY growth

Q4 2014

Q4 2014 YoY growth







Gross profit






Operating Income






Net Income












Apple Topline Driven By iPhone Sales

Apple revenue growth of 12.4% was the highest reported YoY growth in the last 7 quarters. The iPhone segment was the major revenue driver at Apple, with a YoY growth of 21.4%, which was the highest growth in the segment for FY 2014. The revenue growth by product segments is summarized in the chart below.

Apple Revenue Growth

Apple revenue growth by product segment

However, while the growth in iPhone segment was widely expected, the growth in MAC revenues continued to trend higher, following the solid performance in Q3 2014. The MAC segment growth of 17.8% YoY was another significant driver of topline growth.

The impact of the iPhone 6 on the iPhone revenues was significant, which is indicated by the increase in the iPhone average selling price (ASP) in Q4 2014. The increase in the ASP was a reversal of a downward trend which was prevalent across the product segments.

ASP YoY growth

Q1 2014

Q2 2014

Q3 2014

Q4 2014





















Another major driver of the iPhone sales was the solid increase in the iPhone unit sales. Apple saw unit sales of iPhone rise 16.2% on a YoY basis, higher than the 12.7% growth in Q3 2014. On the other hand, iPad shipments continued to decline, falling 12.5% in Q4 2014 as compared to a 9% fall in Q3 2014. It will be interesting to see if the latest iPad product refresh, announced last week is instrumental in stopping this decline. The iPad shipments and revenue in Q1 FY 2015 will be closely watched.  The MAC unit sales rose 21% YoY, partly making up for the lacklustre iPad sales and iPod sales.

Apple Gross Profit Margin Expands

Apple gross profit margins saw an expansion, which can be attributed to the increase in iPhone ASP. The YoY profit margin changes are displayed in the table below.

Profit margin analysis

Q4 2013

Q4 2014

Q4 2014 YoY growth

Gross margin




Operating margin




Net Income margin




The profit margin expansion was attributable to the higher sales of iPhone 6 devices, leading to gross margin expansion by 100 bps. The contraction in operating margin was due to a 44% YoY growth in research expenses, which outpaced Apple’s revenue growth by a huge margin.

The gross profit margin expansion and increased op-ex (operating expenses) had an overall impact of 10bps increase in the Net Income margin. However, the YoY EPS growth came in higher at 20.3%, a reflection of the Apple’s share buyback program. The diluted share count reduced by over 391 million from Q4 2013. The share repurchases over the course of FY 2014 totalled a whopping $45 billion.

Apple CFO Luca Maestri stated on the conference call:

“We launched our fourth accelerated share repurchase program at the end of August spending $9 billion. We also spent $8 billion to repurchase $81 million Apple's shares to open market transactions, paid $2.8 billion in dividends and equivalence and utilized over $300 million to net share sell vesting employee RSUs. So, we've already taken action on over $94 billion of our $130 billion capital return program including $68 billion in share repurchases with five quarters remaining to its completion.”

With $36 billion left under the firm’s capital return program, the buyback program will continue to fuel earnings growth at Apple over the next five quarters.

We now take a look at the Q1 2015 guidance provided by the Apple management.

Apple Q1 2015 Guidance

Apple’s management provided the following guidance for Q1 2015.

  • revenue between $63.5 billion and $66.5 billion
  • gross margin between 37.5 percent and 38.5 percent
  • operating expenses between $5.4 billion and $4.5 billion
  • other income/(expense) of $325 million
  • tax rate of 26.5 percent

The revenue guidance is higher than the analyst consensus estimate of $64.4 billion. The introduction of new iPads could lead to an upside in Q1 2015 sales and hence, it will be important to see the demand for the new iPad models to more accurately estimate the impact on Apple’s next quarter performance.

In conclusion, the combination of higher iPhone sales (have higher profit margin), continuation of Apple’s huge buyback program and the launch of iPad new models will continue to drive Apple earnings growth over the long term. We reiterate our positive long term outlook on Apple stock, as reflected reflected in our Apple stock analysis.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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