Apple: Best Earnings in US History. But Still Not Enough?

01/27/2016 9:00 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

Even though it announced the most profitable quarter in American history, Michael Berger, of Technical420.com, highlights several factors that led to some of the largest banks in the world lowering expectations and price targets for this tech goliath.

Apple, Inc. (AAPL) announced the most profitable quarter in United States history but some of the largest banks in the world are lowering expectations and price targets after AAPL forecasted its first sales decline since 2003.

Wednesday morning, the market has seen AAPL's price target cut by companies like JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C), Barclays PLC (BCS), Bank of Montreal (BMO), Stifel Financial Corp. (SF), UBS Group AG (UBS), and Baird.

Most Profitable Quarter in American History

AAPL is down more than 3% Wednesday morning even though they reported record EPS, net income, revenue, iPhones sales, Apple watch sales, and Apple TV sales. AAPL surpassed Wall Street's expectations during the quarter and posted record quarterly revenue of $75.9 billion and record quarterly net income of $18.4 billion or $3.28 per share.

These results were better than the record numbers reported during the same period last year. During the quarter, AAPL saw gross margin increase to 40.1% from 39.9% when compared to the same period last year.

CEO Cites Economic Softness in Hong Kong

After the conference call CEO Tim Cook said, "Our results are particularly impressive given the challenging global macroeconomic environment. We're seeing extreme conditions unlike anything we've experienced before just about everywhere we look."

Cook said sales in China were higher than ever, up more than 14% when compared to the same period last year. Although sales were higher, Cook said China's outlook is not as bright as it once was. AAPL started to see some signs of economic softness in Greater China earlier this month. The weakness is not in mainland China but in Hong Kong.

Challenging Global Macroeconomic Environment

AAPL emphasized the effects of foreign exchange rates and said that several major economies are going through a recession (i.e. Canada, Brazil, Russia).

As countries around the world continue to devalue its currency, the United States dollar continues to strengthen. The stronger dollar negatively impacted revenue generated outside of the United States. This is a problem because international sales accounted for 66% of the quarter`s revenue.

During the conference call, CEO Cook said that foreign exchange fluctuations shaved 15% off of revenues earned outside of the United States. Specifically, Cook cited the adverse effects of weakness in the British pound, Euro, Canadian Dollar, Aussie Dollar, Mexican Peso, Turkish Lira, Brazilian Real, and Russian Ruble.

Apple Forecasts First Sales Drop Since 2003

Although AAPL announced the most profitable quarter in American history, the company said it reached the end of an era of unprecedented growth. AAPL is forecasting a sales decline for the first time since 2003.

During the first three months of the year, AAPL expects to generate between $50-$53 billion in revenue. This came in below analysts' estimates for $55.5 billion and follows a holiday quarter in which overall sales and iPhone shipments fell short of projections.

Michael Berger, Founder and President, Technical420.com

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