Apple (AAPL) likely to report modest Q2 results amid China headwinds

Apple Inc. (NASDAQ: AAPL) is scheduled to report second-quarter results on Thursday, after the closing bell. While iPhone sales are recovering from the recent slowdown, the continuing sales slump in China remains a concern. The outlook is a bit cautious this time, with analysts forecasting a year-over-year decline in revenues and profit. Meanwhile, the fast-growing services business and record-high installed bases should act as a catalyst as far as near-term growth is concerned.

The gadget giant’s stock had a positive start to the week as it keeps regaining strength ahead of the earnings, after experiencing weakness in recent months and underperforming peers like Microsoft and Google. Having declined about 6% in the past four months, the stock has become more affordable and the valuation looks favorable. In general, market watchers are of the view that the current uptrend will continue for the rest of the year, driving up the stock price to around $200.

Q2 Report Due

Apple’s second-quarter 2024 report is expected to be published on Thursday, May 2, at 4:30 p.m. ET. Analysts call for a modest year-over-year decrease in March quarter earnings to $1.4 per share from $1.42 per share last year. The cautious forecast reflects an estimated 5% drop in Q2 revenues to $84.12 billion.

The company continues to face sales headwinds in China, which is a key market for it. While the issue looks cyclical in nature, there are concerns that the slowdown is becoming structural. Meanwhile, the tech firm looks poised for a solid second half — stakeholders are hopeful of a good iPhone-16 cycle, with the launch planned in early September — as the device is expected to come with AI features and evoke strong customer interest.  

Financials

In the past eight years, the company beat analysts’ consensus earnings estimates almost in every quarter, and the trend likely continued in the latest quarter. In the first three months of fiscal 2024, recovery in iPhone sales lifted total revenues to $119.6 billion, which is up 2% year-over-year. The top line also benefitted from continued strong growth in services revenues, more than offsetting weakness in other categories like iPad and Wearables.

Both revenues and earnings came in above analysts’ estimates. Active installed base crossed 2.2 billion in Q1, hitting an all-time high across all product categories and business segments. The company generated a whopping $40 billion of operating cash flow during the quarter. Continuing its legacy of rolling out groundbreaking products in the market, Apple recently launched Vision Pro, a futuristic mixed-reality headset that combines augmented reality and virtual reality.

Commenting on Vision Pro, Apple’s CEO Tim Cook said, “Apple Vision Pro is a revolutionary device built on decades of Apple innovation and it’s years ahead of anything else. Apple Vision Pro has a groundbreaking new input system and thousands of innovations, and it will unlock incredible experiences for users and developers that are simply not possible on any other device. There is already so much excitement behind this product from reviewers, customers, and developers.”

AAPL traded up 3% on Monday afternoon, continuing the pre-earnings uptrend. The stock has lost about 13% since hitting an all-time high in December last year.