Apple will be a focus company for the market during the upcoming week, as the company is scheduled to report earnings on October 25. For the calendar third quarter (fiscal fourth quarter for Apple), the current mean EPS estimate is $1.66, compared to year-ago actual EPS of $1.96. If Apple reports a year-over-year decline in EPS for Q3 2016, it will mark the third straight quarter that the company has reported a year-over-year decline in EPS. The last time Apple reported three consecutive quarters of year-over-year earnings declines was Q1 2013 through Q3 2013 (fiscal Q2 2013 through Q4 2013 for Apple).
As a result of this projected decline in EPS, Apple is expected to be the largest detractor to expected earnings growth for the S&P 500 Information Technology sector for Q3 2016. The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for the Information Technology sector is 4.2%. Excluding Apple, the blended earnings growth rate for the sector would improve to 10.9%.
As of today, if Apple reports actual EPS equal to or below the mean EPS estimate for the quarter, it will mark the first time that Apple has been the largest detractor to earnings growth for the Information Technology sector for three consecutive quarters since Q2 2013 through Q4 2013.
What is driving Apple’s substantial contribution to the earnings decline for the Information Technology sector for Q3 2016?
Since Q1 2014, the iPhone product segment has accounted for about 62% of the total revenues generated by Apple on average. From Q1 2014 through Q4 2015, the iPhone product segment reported average year-over-year revenue growth of 31%. However, the segment reported a year-over-year decline in revenues in Q1 2016 (-18%) and Q2 2016 (-23%). The declines in sales are expected to continue in Q3 2016, as the iPhone product segment is projected to report a year-over-year decline in revenues of -14% for the quarter.
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Article by John Butters, Senior Earnings Analyst – FactSet