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Analysts Expect Apple’s Profit Margins to Deteriorate in Q2 2019

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Apr. 25 2019, Published 1:49 p.m. ET

Apple’s Q2 2019 earnings

Wall Street analysts’ latest estimates suggest that weakness in Apple’s (AAPL) revenue is likely to continue in the quarter ended in March 2019. During its first-quarter earnings event in January, the company projected its second-quarter revenue to be between $57 billion and $59 billion, which would be in line with analysts’ estimates of $57.4 billion. Now, let’s find out what analysts are expecting from the company’s profitability in the second quarter.

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The trend in Apple’s profit margins

Before the first quarter of fiscal 2019, Apple reported strong double-digit positive YoY growth in its gross profits with solid gross margin in the previous five quarters. However, the company reported a 5.5% YoY drop in its adjusted gross profit to $32.0 billion. In the quarter ended in September 2017, Apple’s adjusted gross profit grew by 20.8% YoY.

In the first quarter of fiscal 2019, Apple reported an adjusted gross profit margin of 38.0% as compared to 38.3% in the first quarter of fiscal 2018. The company’s 38.0% gross profit margin in the first quarter was its lowest quarterly gross profit margin since the fourth quarter of fiscal 2017.

Estimates for Q1 2019

The latest consensus Reuters data says Apple is expected to report a 7.5% YoY drop in its adjusted gross profit in the second quarter with a gross profit margin of 37.7%. This expectation is in line with Apple’s second-quarter gross margin guidance range of 37% to 38%, but it reflected a drop from its gross margin of 38.3% in the second quarter of fiscal 2018.

In terms of profitability, Apple is far ahead of most of its peers with its annual adjusted gross profit crossing the $150 billion mark in fiscal 2018. Apple’s peers with lower gross profit include Microsoft (MSFT), Alphabet (GOOG), International Business Machines (IBM), Micron (MU), NVIDIA (NVDA), and Qualcomm (QCOM).

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