Apple reported after the market closed on January 27, 2021 it earned $1.68 per diluted share in the quarter that ended on December 26, 2020, up 34 percent from earnings of $1.25 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
This post compares the quarterly Income Statement published by Apple to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Apple's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Apple became one of the world's most valuable companies by designing and selling stylish, easy-to-use computers, tablets, smartphones, music players, and watches, as well as software and media. Services for these devices are also a lucrative and growing business for Apple, but selling iPhones is, by far, the company's largest single revenue source. The transition to 5G mobile technology may serve to boost iPhone sales even higher. Apple is now selling laptops with fast, power-efficient processors it designed, replacing chips made by Intel, and they expectation is that other Apple-designed chips will be included in future products. Apple's shares split 4-for-1 on 28 August 2020; they had split 7-for-1 just six years earlier.
The following table is a simplified version of Apple's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided for comparative purposes.
Revenue in the December 2020 quarter totaled $111.4 billion, 21 percent more than last year's $91.8 billion. The iPhone business was responsible for 59 percent of overall revenue, and this unit's revenue grew by 17.2 percent compared to the year-earlier result. The Services business contributed 14 percent of revenue, and this unit's revenue increased by 24.0 percent. The Mac unit supplied 8 percent of revenue, and this business's revenue rose by 21.2 percent.
I was expecting Apple to report revenue of $97.1 billion for the December 2020 quarter. The actual amount surpassed my estimate by $14.3 billion (14.8 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $67.1 billion in the latest quarter, which translates into a Gross Margin of 39.8 percent of revenue. Since it was higher than the 38.4 percent Gross Margin achieved in the year-earlier quarter, it signifies that Apple sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 38.2 percent in the December 2020 quarter, and Apple exceeded that prediction by 1.6 percent.
Apple spent $5.2 billion on Research and Development in the latest quarter, up from $4.5 billion one year ago. I had estimated that R&D expenses would be $5.1 billion. R&D was 4.6 percent of Revenue.
Sales, General, and Administrative expenses totaled $5.6 billion in the December 2020 quarter, up from $5.2 billion one year ago. SG&A expenses decreased from 5.7 percent to 5.1 percent of quarterly revenue, which shows Apple spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 5.8 percent of revenue, and Apple spent less than that percentage.
Apple's Operating Income was $33.5 billion in the quarter, up 31.2 percent from the year-earlier period. Operating Income exceeded my $26.3 billion estimate by $7.2 billion.
Interest and other non-operating items summed to a net income of $45 million. My estimate was $50.0 million.
The effective income tax rate rose by 0.2 percent to 14.4 percent, which had a negative effect on net income. I expected the tax rate to be 16.0 percent.
Net income in the quarter attributable to Apple was $28.8 billion, $1.68 per share. The figures for the year-earlier quarter were $22.2 billion, $1.25/share. My earnings estimate for Apple in this quarter was $22.2 billion ($1.30/share).
In summary, Apple earned in the December 2020 quarter much more than I had expected. The company had better than predicted Revenue growth, Gross Margin, Operating Income growth, and Income tax rate.
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
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