For 34 consecutive quarters beginning in April 2003, Apple easily beat analysts’ estimates on its earnings per share. Then on Oct. 18, 2011 — less than two months after Tim Cook took over as chief executive officer — Apple missed.
Cook’s record is 3-2 in the quarters since that whiff. The company reported earnings today for its first fiscal quarter of the year, barely beating estimates by 2 percent. The stock fell as much as 11 percent in late trading.
Some may interpret this as a dynasty that’s peaked or a company that’s lost its way in the absence of its visionary co-founder, Steve Jobs. An alternate story line is that since Apple has been disclosing more to Wall Street analysts, they’ve finally found their way out of the reality-distortion field.
On today’s earnings call, Apple Chief Financial Officer Peter Oppenheimer announced a change to how the company provides earnings forecasts. Instead of picking a single number that Apple always seemed to blow past, the company will report a range. Next quarter’s is $41 billion to $43 billion. This is part of a push to “increase transparency into our business,” Oppenheimer said.
“Beginning this fiscal year, we are reorganizing the presentation of our results to provide greater transparency,” Oppenheimer said. “In recent years, our guidance reflected a conservative point estimate of results every quarter that we had reasonable confidence in achieving. Going forward, we plan to provide a range of guidance that reflects our belief of what we are likely to achieve.”
So does that mean Apple was purposely setting expectations low so that it could knock them out of the park? During Jobs’s earnings streak, when forecasts were “conservative,” Apple beat earnings per share estimates by an average of 30.2 percent. Now that’s magical.
From now on, can we expect Apple to be more realistic with its forecasts? Or, as Toni Sacconaghi put it on the call, “We’re actually getting the real planning range for Apple?”
“Was the guidance before something that you felt reasonably confident in achieving, or was there an implicit buffer in there?” Sacconaghi, an analyst at Sanford C. Bernstein & Co., asked Oppenheimer on the call. “Your historical precedent was that you eclipsed it enormously on an ongoing basis.”
Sounding a bit impatient, Oppenheimer responded, ”Um, I’ll go through it again,” and rephrased his canned statement from earlier in the call.
There’s no question that Cook is more friendly with Wall Street than Jobs had been. Cook speaks with analysts and sat for an interview a year ago at a Goldman Sachs conference. He talks a lot about transparency.
Of course, the guidance process isn’t the only factor in the post-Jobs performance story. While Apple set a record of $54.5 billion in revenue, the company’s sales growth last quarter was the lowest it’s been in 14 quarters, and profit growth was the lowest since 2003.
The electronics maker may have a tougher time hiding these troubling signs when it’s no longer crushing Wall Street’s estimates.