TheChek News Flow

Apple Increases Earnings, Stock Buyback

Apple Inc. AAPL -1.31% reported a 7% increase in quarterly profit, amid intensifying competition for mobile devices, and announced increases to its stock buyback and dividend programs.

Chief Executive Tim Cook said the company chose to expand its stock-buyback program by $30 billion because it views the company's shares as undervalued.

"That should show you how much confidence we have in the future of the company," Mr. Cook said in an interview with The Wall Street Journal.

During the interview, Mr. Cook also reiterated plans for new product categories this year and said that the company remains on the prowl for acquisitions.

Apple on Wednesday raised its share repurchase authorization to $90 billion from the $60 billion level announced last year. The company also lifted its quarterly dividend by about 8% and said it would split its stock 7-for-1 in June.

Apple CEO Tim Cook says the company's shares are undervalued. Bloomberg News Following the news, Apple shares jumped more than 7% in after-hours trading. Investor Carl Icahn, who has been pushing the company to share more of its cash holdings with shareholders, tweeted that he was "extremely pleased."

In all, the company is boosting the size of its capital return program to more than $130 billion by the end of 2015, up from its previous $100 billion plan.

After more than a decade of remarkable earnings growth, the Cupertino, Calif., technology giant's revenue and profit are flattening and the company is fighting the perception that its best days are behind it. It has promised to expand its product lineup and drive growth as it did with the iPhone and iPad.

Mr. Cook's remarks came as Apple release first-quarter financial results that exceeded analysts' expectation. Mr. Cook pointed to the iPhone as an area of strength for the company.

Apple said it sold 43.7 million iPhone units in the three months ended March 29, far surpassing analysts' expectations for sales of 38.2 million units. He said the company saw strength across its entire lineup of phone models including the less-expensive 5C and that it was bolstered by strength across many markets, including China, Vietnam and Poland.

Overall, for the second quarter, Apple's net income rose to $10.22 billion from $9.55 billion in the year-ago period. However, Apple's per-share earnings jumped to $11.62 from $10.09 because the company's stock repurchase program decreased the pool of total shares.

Revenue rose to $45.6 billion from $43.60 billion in the same period a year earlier.

Analysts, on average, estimated that Apple would post earnings of $10.18 per share on revenue of $43.53 billion, according to Thomson Reuters.

Apple said its gross margin, a closely watched indicator measuring the percentage of revenue that remains after manufacturing costs, was 39.3% in the March quarter, compared with 37.5% in the year-ago period. The gross margin was higher than the company's estimated range of 37% to 38%.

For the June quarter, Apple again forecast a gross margin between 37% to 38%. Apple also projects third-quarter revenue between $36 billion and $38 billion; analysts, on average, had forecast revenue of $37.87 billion.

The iPhone remains Apple's most important product. It is the largest contributor to revenue and is its most profitable hardware product. However, the iPhone is steadily losing market share to smartphones running on Google Inc. GOOGL -1.46% 's Android operating system.

In recent years, as rivals rolled out larger-screen displays and lower-price offerings, Apple has held the line on iPhone prices while keeping the screen size relatively small compared with the competition. The Journal has reported that Apple is working on a larger-screen iPhone for release later this year.

The growing competition for smartphones is also hurting Apple's main rival, Samsung Electronics Co. When the company reports earnings next week, Samsung is expected to report a second straight year-over-year decline in quarterly operating profit as demand for its Galaxy smartphones has started to slow.

Deutsche under pressure to raise capital

Deutsche Bank is facing pressure from investors to raise capital amid fears the bank is still not robust enough to cope with a tougher regulatory environment and a slump in global debt markets. Insiders at Germany’s largest lender are understood to accept as a real threat that the European regulators will direct them to raise fresh equity after eurozone-wide bank health checks later this year. Several peers including Barclays and Credit Suisse have in the past two years been compelled by local regulators to accelerate plans to raise capital. Deutsche, which declined to comment, has not seen similar demands but is expected to face a stricter oversight regime when the European Central Bank takes over in November. Several large investors told the Financial Times they were "unhappy" with top management over their slow response to issues ranging from capital weakness to legal investigations. Some of them are pushing for executives to raise equity, not least because they fear an aggressive plan to reduce the bank’s outsized debt-load is severely damaging its fixed income trading business. "It is very difficult for them to say we got it wrong. But I clearly think they need to raise capital as they have already harmed their business by not doing it," said a top 20 investor in the bank. Anshu Jain, co-chief executive, is trying to build up capital by reducing assets and retaining earnings. A €3bn equity rise 12 months ago had prompted him to declare the bank’s capital "hunger march" over, but since then it has been hit by fresh rules on how much debt a bank may have compared with its equity capital. Deutsche’s core tier one ratio – a crucial gauge of balance sheet strength – stood at 9.7 per cent at the end of 2013, the third worst among 12 of the world’s largest investment banks, according to Kian Abouhossein, a JPMorgan analyst. David Moss, head of European equities at F&C Asset Management, said: "They have improved their capital position dramatically, but for a bank with the size of their balance sheet and their business mix it still looks to be on the low side." Deutsche is targeting a more than 10 per cent ratio in a year’s time but has already warned it could fluctuate before that. Analysts at JPMorgan and UBS project it to fall to 9.2 and 9.1 per cent respectively this year due to regulatory adjustments. "I’m definitely not happy with this capital ratio," said a top 10 investor. Investors expect to see fresh evidence from first-quarter results next week that Deutsche is in danger of losing its crown in fixed income, a market that has been hit by tougher regulatory rules and investors’ reticence to trade. The bank’s share price has vastly underperformed its sector in the past 12 months. "I don’t think there is a happy shareholder in Deutsche Bank at this point in time, just because of the share price," said Vincent Vinatier, head of research for European equities at Axa Framlington. He was more sceptical about the need for a rights issue. "If you look at the amount of work done on cutting costs and accruing capital, it’s all happening, it’s just not happening quickly enough for the market to be happy with."