Investors eye more Apple share buybacks
Wall Street is betting that Apple will offer investors tens of billions of dollars in new share buybacks this week, as long-awaited product launches remain locked inside its Cupertino labs.
Apple will also reveal the impact of iPhone sales through China Mobile when it reports second-quarter earnings on Wednesday, with an overall dip in revenues forecast in what is often a fallow period for the mobile phone market.
The earnings report will also mark a year since Apple began its programme of returning more cash to shareholders. Apple said it would increase its share buybacks and dividends to $100bn by the end of 2015, and it had completed more than half of this programme by February.
Tim Cook, Apple’s chief executive, promised to review its plans for its remaining $159bn cash pile by the end of this month, after coming under pressure from activist investor Carl Icahn this year to return $50bn more to shareholders.
Mr Cook fended off Mr Icahn’s demands but also promised that Apple would enter new product categories in 2014. However, few observers expect any new TV device or wearable “iWatch” to be revealed before June’s annual worldwide developer conference.
In the absence of such a catalyst, analysts forecast that Apple will dip once again into its cash reserves, which have continued to grow despite the payouts to shareholders over the past two years, thanks to steady cash flows and last year’s $17bn bond sale.
Bernstein Research has suggested Apple could authorise another $30bn in buybacks, running until December 2015, and others agree some increase is likely. Analysts at Barclays said: “We believe revenue guidance for June may be a few billion below [expectations] given seasonal weakness in the iPhone and delays in customer purchases ahead of the iPhone 6 launch cycle in the fall . . . We look for Apple to compensate for the lack of imminent product catalysts with a higher buyback programme.”
Mr Cook is under growing pressure to reveal a new blockbuster product, following the successes of the iPod, iPhone and iPad. In the meantime, investors have become accustomed to a slowing growth rate and forward guidance that has come in lower than they had hoped in four of the past five quarters.
While many on Wall Street are bracing themselves for a tepid set of results this week, analysts at Barclays and Morgan Stanley have said Chinese demand and a new cheaper 8GB iPhone 5c model could push sales of Apple’s flagship smartphone ahead of market forecasts of 38m.
However, weakness in iPads sales could counterbalance that, putting total revenues 1 per cent lower than a year ago at around $43.5bn, according to Wall Street’s consensus estimates.
Earnings can decline when Apple launches a new product, as shown with the introduction of the lower-margin iPad mini two years ago. Some analysts have suggested that Apple might try to raise the price of the iPhone 6, which is expected to offer a bigger screen in a much thinner casing, to offset the costs of switching to a new form factor for the first time in two years.
This week will mark Luca Maestri’s first appearance as Apple’s newly appointed chief financial officer. Mr Maestri, who formally takes over from the retiring Peter Oppenheimer at the end of September, has been seen as favourable to a boosted cash return scheme.