Apple again beat expectations. Crushed them.
However, Apple is well known for sandbagging their guidance.
This was Q1 report with Q2 guidance
Apple’s guidance for the second quarter of fiscal 2010 includes expected revenue of $11.0 billion to $11.4 billion and earnings per diluted share of $2.06 to $2.18.
They reported a 3.33 EPS which is totally off their guidance back in Q1 2010.
This report they guided Q3 pretty low (intentionally?)
They do this every report
They always beat their guidance.
The question is… isn’t this unethical or illegal?
Aren’t companies required to guide honestly?
If not, why don’t other companies do this?
Why doesn’t Dell say, “Q3 2010 we expect to earn $0.05 on $6billion sales.” Then in Q3 they beat their guidance by earnings $1.00EPS on 8 billion sales.
No, this is not illegal. There is a safe harbor clause that states a person is not liable for an inaccurate forward-looking statement if:
A. The statement is clearly identified as a forward-looking statement
B. The statment includes “meaningful cautionary statements” that identify important factors that may cause the forward-looking statement to be inaccurate
C. The statement is not intentionally false or misleading (which would require evidence that the person issuing the statement was aware of factual, material information and did not to disclose it)
Companies are not required to give earnings guidance at all, and some elect not to.
As for why companies don’t consistently give out highly-conservative guidance that is still within the boundaries of plausibility, what would be the point? Earnings guidance is supposed to give the investor some sense of the earnings potential of the company, and therefore insight into one aspect of a company’s value. If companies consistently give bogus earnings guidance, credibility will be destroyed. Investors will stop listening to the earnings guidance, and so it would be as if the company never gave earnings guidance in the first place.
There are rules about how guidance is calculated and auditors who have to sign off on those things, so it isn’t something that can be toyed around with arbitrarily. That said, there is some professional judgment and preference that can be displayed - after all, it’s a projection based on expectations and assumptions that may or may not be true. The current economic slump is definitely a reason to err on the side of low expectations.
It may be to Apple’s disadvantage to low-ball the number, since guidance is one factor used to help investors calculate whether Apple is a good investment. Low projected number would tend to lower the stock’s value, even if there was a favorable bump once the guidance turned out to be low.
Apple is the juggernaut that Wall Street loves to flog. I bought their stock earlier this year at about $203/share, and it immediately dropped because of the iPad announcement. Whenever Apple announces a great new product with huge profit potential and little downside, the market punishes them for it. It’s never made sense to me. Last time it was the iPhone. Stock dropped, then nearly doubled. Happily, they always rebound and it’s now up to $244/share.
I think the drop after the iPad announcement was due to over-hype. Bloggers were ascribing such God-like potential to the iPad that any real product was either going to have fewer features or a higher price than expected.
But it has been a great investment recently. I bought just about 18 months ago and it’s up 180% right now. Not too bad.
