Some more explanation on eps and analysts comments.
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January 15, 1998
Apple Returns to Profitability;
Analysts Are Divided on Outlook
By JIM CARLTON
Staff Reporter of THE WALL STREET JOURNAL
Apple Computer Inc. made good on its pledge for renewed profitability in the
fiscal first quarter, but left analysts divided on whether the company's
cost-cutting moves and new products can keep it in the black.
The Cupertino, Calif., computer maker, as expected, reported net income of
$47 million in the period ended Dec. 26, compared with a loss of $120 million
a year earlier, and marked the first quarterly profit since September 1996.
Sales fell 26% to $1.58 billion from $2.13 billion, as the company continued to
lose market share in the personal-computer market.
Under new accounting standards that went into
effect late last year, companies must report
per-share earnings in two redefined ways, diluted
and basic.
Diluted per-share earnings, or net divided by
common shares outstanding plus potential
common shares from securities such as options
and convertible securities, were 33 cents,
compared with a loss of 96 cents. Basic per-share
earnings, or net divided by shares outstanding,
were 37 cents, compared with a loss of 96 cents.
Apple said it improved its gross profit margins to
22% from 20% in the September quarter and
19% a year earlier.
The numbers were in line with revised
expectations following a surprise projection of profitability last week by Steve
Jobs, Apple's interim chief executive. Before that announcement at a San
Francisco trade show, analysts' estimates were for break-even results, plus or
minus five cents a share.
Before the results were released after the close of major financial markets
Wednesday, the company's shares rose 25 cents to $19.75 on the Nasdaq Stock
Market. In after-hours trading, Apple's shares fell back to $19.
The selling was apparently triggered by some investors' erroneous impression
that Apple had missed analysts' consensus estimates to earn 35 cents in the
quarter. Analysts said, however, that estimate didn't account for additional
Microsoft Corp. nonvoting shares in the company, which resulted in the diluted
earnings of 33 cents. Excluding those and other nonvoting shares, Apple's
earnings actually came in at 37 cents -- higher than the analysts' estimates.
"The bottom line is those guys did great and there's no taking it away from
them," said Lou Mazzucchelli, analyst at Gerard Klauer Mattison & Co. in New
York.
"I just feel a whole lot better about Apple" after seeing these results, added
Daniel Kunstler, senior equities analyst for J.P. Morgan Securities Inc. in San
Francisco. "They have in their minds an economic model which I believe is
sustainable. They also have had new product out, and the market has really
responded."
Other analysts expressed skepticism, however, that the quarter meant anything
more than a temporary slowdown in Apple's long, downward spiral. The
research company of Computer Intelligence, for instance, reports that Apple's
share of the market for PC sales in U.S. retail stores plunged to just 1.8% in
November from 4.3% in November 1996. Those are the most recent survey
results from the company, which is based in La Jolla, Calif.
"I don't see anything but that Apple is still disappearing," said Matt Sargent, a
Computer Intelligence analyst.
While Apple's sales continued to deteriorate on a year-over-year basis, they do
show signs of stabilizing at about $1.6 billion, which was also the amount
reported in the prior quarter. If sustained over a year's time, that would make
Apple a company of $6.4 billion in annual sales, or 42% smaller than Apple's
peak year of $11 billion in sales in 1995.
Chief Financial Officer Fred Anderson told analysts in a conference call that
the company doesn't expect revenue to grow from the first quarter to the
second, because the current period is traditionally Apple's weakest. But he
added that he expects successively higher growth in the ensuing two quarters,
with year-over-year growth finally resuming in the fourth quarter ending in
September.
Though company officials wouldn't comment on the profit outlook, people
familiar with the situation said that Apple executives have been privately
confiding to resellers and others that the company expects it can be profitable
for the fiscal year. Mr. Anderson wouldn't comment on that possibility.
Mr. Anderson cited other signs of health. Demand was strong for a new line of
Power Macintosh G3 machines introduced in the quarter; Apple said it sold
133,000 of the G3 computers in the period, or about one-fifth of all its
machines sold. On the operations front, Apple slashed its expenses by 40% to
$313 million from $521 million, through job cuts and other restructuring
moves. The company has reduced its head count 32% to 9,300 employees from
13,600 a year ago.
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