Overnight AEST hardware giant Apple Inc. reported its financial results for the quarter ending June 30, 2o19. Below is a summary of the results with comparisons to the prior corresponding quarter.
- Net profit of $10.04b, compared to $11.5b
- Total hardware sales of $42.35b, compared to $43.09b
- iPhone sales of $25.98b, compared to $29.47b
- Services sales of $11.45b, compared to $10.17b
- Total sales $53.8b, up 1%
- Operating income of $11.544b, versus $12.6b
- Basic earnings per share of $2.20, compared to $2.36
- Dividend of 77cps, versus 73cps
- Returned over $21b in capital over quarter, including $17b in share buy-backs and $3.6b in dividends
- Has around $210b cash on hand
- Guides for September quarter sales between $61b and $64b on gross margin between 37.5% and 38.5%
Thanks to my job I am commonly asked by friends, family, etc, for a stock to buy, which can be an awkward position given the unpredictability of share markets. Recently though I've generally suggested Apple, as to me it looks one of the world's best companies to own over the long term.
Let's consider a few reasons why. First up it has an incredibly strong balance sheet with around $210b cash on hand to mean it will weather any global downturn better than most.
Even forgetting the balance sheet strength, let's consider that it just posted a $10b quarterly profit and returned $21 billion in capital to shareholders over the quarter.
When we consider the world's population is around 7.7 billion people we can appreciate the scale of its financial strength.
In other words rather than paying back $21b to shareholders in just 3 months it could have paid every human in the world around $2.72 in cash. Or $1.30 each out of its quarterly profit.
Apple's free cash flows are so strong it has now reportedly bought back around 30% of its own stock since 2012 and is the largest buyer of its own shares in recent times, even ahead of Warren Buffett's Berkshire Hathaway.
Aside from the mind boggling financials, also consider that it has market-leading hardware products that provide a competitive advantage or moat, with evidence of this being that you'll never walk into an Apple store and see products on 'sale' or with '30% off'.
Apple also has potential to grow its services business (Apple Music, Apple TV, Apple Pay, Apple Care, iCloud, etc) strongly at high gross profit margins, with multiple other options to grow into other growth spaces such as self-driving car technology.
It recently bought self-driving start-up Drive.ai for pocket change in a deal reportedly valued around $200 million.
Its core hardware business (iPhones, Macs, etc) is of course vulnerable to cheaper competition and falling Chinese sales on the back of the US/China 'trade war'. However, I still expect it to be a superb performer over the long term.
Ahead of Australia's August profit reporting season it's also worth noting how clean Apple's accounts are compared to most ASX companies that constantly back out costs and 'one-off' events in a bid to disguise their true nature.
For dividend-loving Aussies it even pays a growing quarterly dividend, but not on a high payout ratio that is common in Australia.
This quarter's dividend is 77cps on diluted earnings of $2.18 per share on a payout ratio of just 35%.
So it's sustainable and Apple could comfortably double its dividend tomorrow if it choose to unlike almost every 'blue-chip' company on the ASX such as Telstra Corporation Ltd (ASX: TLS), BHP Group Ltd (ASX: BHP) or Commonwealth Bank of Australia (ASX: CBA).
Finally, when you consider analysts' consensus forecasts estimate Apple could earn $12.80 per share for the financial year ending September 2020 we can see that the stock at $209 on 16.3x estimated FY20's earnings is reasonable value given its quality. For a conservative investor it could be the world's best company.
