01 May 2020

Apple’s Shares Slide Despite Q2 Beat

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What’s happening: Shares of Apple fell in extended trading on Thursday, despite the iPhone maker reporting better-than-expected results for its fiscal second quarter.

What happened: Apple reported sales and profit that exceeded Wall Street estimates, with the company getting back on track in China as the country reopens its economy following the coronavirus outbreak.

At a time when many companies are halting their dividends and buyback programs, Apple promised billions to its investors by increasing its cash dividend by 6% to 82 cents per share and raising its share repurchase program by $50 billion. Apple’s stock initially rose 1% following the release of quarterly results, but gave up all gains in after-hours trading as investors digested comments from the CEO.

How were the results: The Cupertino, California-based company generated growth in both revenues and profits for the latest quarter. Although iPhone sales declined, they were higher than expected.

  • Apple posted earnings of $2.55 per share, up from $2.46 per share in the same quarter last year. The figure beat expectations of $2.26 per share.
  • Sales climbed 0.5% to $58.3 billion, beating the consensus estimate of $54.54 billion.
  • iPhone revenue slipped 7% to $28.96 billion, but topped analysts’ views.

Why it matters: Apple was forced to sell its devices only online in various locations due to lockdown orders to contain the spread of coronavirus. Although iPhone sales fell in the latest quarter, sales of services including Apple TV rose as billions of people remained indoors.

China is a major market for the iPhone maker, contributing almost one-sixth of its total sales. Moreover, Apple’s contract factories are located in the country. The company’s sales in China dropped 6.7% to $9.46 billion and the performance could be similar in other countries impacted by the virus.

Apple has launched some new products during the pandemic. Its services business, including Apple News, is witnessing strong growth and is expected to double its revenue from the 2016 levels. The company is also enjoying strong demand for its iPads with schools conducting online classes and a boom in online courses around the world.

Apple didn’t issue an outlook, raising concerns over the company’s prospects through the back half of the year. CEO Tim Cook said that revenue trends could weaken for the iPhone and wearables divisions versus the March quarter. Investors were also a tad disappointed with the repurchase program being increased by $50 billion, as it is below last year’s $75 billion addition.

How the shares responded: Shares of Apple have lost around 9% over the past three months, although performing better than the index to which it belongs, with the Dow down 16% in the same period. Apple’s stock rose 2.1% during the regular session yesterday, but declined 2.6% in after-hours trading.

What to watch: With stores being reopened in China, investors are hopeful of the company getting back to its normal growth trajectory as soon as possible. Investors also expect new device launches soon, for the company to continue its growth momentum. The markets also look forward to the reopening of stores in the US.

The Markets Today

     

UK stocks will be in focus today, ahead of some key economic reports scheduled for later in the day.

Context: British stocks closed lower on Thursday, after posting strong gains in the previous session. The energy sector was the worst performer in yesterday’s session. Overall market sentiment was hurt by the dividend cut by Royal Dutch Shell and the disclosure of massive loan-loss provisions by Lloyds Banking Group.

Details: Royal Dutch Shell lowered its dividend for the first time in 80 years. The company reduced its first-quarter dividend by two-thirds and suspended share repurchases, despite rival BP maintaining its quarterly dividend. Royal Dutch Shell’s shares dropped 10% following the announcement.

Shares of Lloyds Banking Group plunged 7% on Thursday after the bank announced provisions of £1.4 billion to cover loan losses arising from the coronavirus outbreak.

AstraZeneca bucked the market trend, rising around 2% after the company announced a deal with the University of Oxford on a Covid-19 vaccine.

UK Prime Minister Boris Johnson said he would disclose his reopening plan for the economy next week, as the country is amid the peak levels of coronavirus cases.

The ECB left its interest rates unchanged, but said that the central bank was ready to lift stimulus measures to save the economy from the impact of the pandemic. The market also responded to the US Labor Department reporting a rise in jobless claims by 3.84 million last week, taking the six-week numbers to over 30 million.

London’s FTSE 100 fell 3.5% to close at 5,901.21 points on Thursday. Despite this downturn, the index posted its strongest monthly rise since April 2018, gaining 4% in the month.

What to watch: Investors continue to assess the daily coronavirus figures, with the total number of cases exceeding 3.2 million globally. The number of positive cases in the UK has surpassed 172,480 with around 26,840 deaths.

Markets also await a basket of economic reports from the UK, including the manufacturing PMI, house price index, mortgage approvals, mortgage lending and consumer credit. The IHS Markit/CIPS UK Manufacturing PMI is expected to drop to 32.8 in April, from 47.8 in March. The Nationwide's house price index, which rose by 3% in March, is projected to rise another 2.5% in April.

Other Markets: US indices closed lower on Thursday, with the Dow, S&P 500 and Nasdaq 100 down by 1.17%, 0.92% and 0.28%, respectively.

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What else to watch today

     

South Africa’s manufacturing PMI and total vehicle sales, India’s foreign exchange reserves, Canada’s manufacturing PMI as well as the US manufacturing PMI, construction spending, ISM manufacturing PMI and Baker Hughes crude oil rigs.

 

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