Apple’s Fiscal Q4 Earnings Preview: Keep An Eye on Guidance

This is the last preview article that I will publish ahead of Apple’s  (AAPL) - Get Free Report fiscal Q4 earnings, which is scheduled for Thursday, October 27, after the closing bell. Up to this point, I have written the following pieces:

• The key fiscal Q4 numbers to track, from revenues to EPS and beyond
• The Mac and how Apple has been lavishly beating the competition
• The iPhone is likely to be the star of the show once again
• One key area of concern: the services segment

Now, I address what I believe to be one of the most impactful topics for Apple stock: guidance for the following quarter, Q1 of fiscal 2023. Below are some key numbers that investors should keep in mind heading into earnings day.

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: Services Under Pressure

Apple’s Fiscal Q1: Progressively Easier

Look at the graph below, which shows Apple’s total revenue growth since the start of fiscal 2019, and one thing should become clear: COVID-19 acted as a huge boost to Apple’s sales. In fiscal Q2 of last year, growth of more than 50% was unthinkable for a company of this size.

Nearly all that “froth” seems to be gone now, which leaves us with easier comps and a more normalized growth scheduled ahead.

That said, Wall Street currently expects fiscal Q1 revenue growth in 2023 to be 4%, less than fiscal Q4’s 7%. On EPS, the bar to clear is $2.13, which would represent a modest 2% improvement YOY.

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: How Will Mac Perform?

What to Expect from Apple’s CFO

Since the start of COVID-19, Apple stopped publishing its guidance on the face of the earnings release. So, expect the outlook to be offered directly from Apple’s CFO Luca Maestri during the earnings call, which is scheduled to start at 5 p.m. EST.

On revenues, the guidance will likely be directional – that is, only commentary on a few key drivers will be offered, but not a dollar range. Still, pay close attention to any color that Apple’s executive team may provide on important iPhone 14 sales.

Apple should, however, specifically guide on (1) gross margin, (2) opex, (3) other income or expense, and (4) tax rate – as it usually does.

To assess how strong guidance might be, it helps to look at the previous year’s comparable P&L metrics and use them as a reference. Here is what Apple reported for Q1 of fiscal 2022:

• Gross margin of 43.8%: this was an improvement of 130 basis points YOY. Since then, however, expansion has slowed down. Margin is projected to flip into compression in fiscal Q4, at the midpoint of the guidance range, due to the higher costs of managing the supply chain. I expect the same to be true of fiscal Q1 of 2023.

• Opex of $12.8 billion: R&D and SG&A costs have been rising at a decent pace lately. This could be driven by efforts to improve and expand the product and service portfolio. I expect guidance to be well above $14 billion.

• Other expense of $247 million: while this number can have a noticeable impact on EPS, it is generally immaterial to any investment theses and Apple stock price. I would not worry too much about this line.

• Tax rate of 16%: not unlike other expenses, the tax rate is mostly irrelevant to Apple’s core business. Keep in mind, however, that the rate has ranged in the past 12 quarters from nearly 11% to as high as 17%.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)