Apple Inc. (NASDAQ: AAPL-$202) Reports Fiscal Year Results

David Jones  |  November 7, 2018

AAPL reported their fiscal year results ended September 29, 2018 last Thursday (November 1 and held a conference call with interested security analysts);  Important metrics follow:

Fourth Quarter Results

Revenues were $62.9 billion up 20% year-over-year

EPS were $2.91/share up 41% (a significant beat from consensus expectations)

Services revenue $10 billion up by 17%

IPhone revenue $37.2 billion up by 29%

The surprise was in “Other Products”;  this category was up by 31% year-over-year to $4.2 billion and includes Apple Watch, Beats, iPod and other Apple branded products.  In the latest quarter this category exceeded iPod sales.

Units sold were otherwise unspectacular with declines for most products in units, excepting Other Products.  AAPL more than made up for these declines by increasing ASPs (average selling prices), most notably iPhone prices but also extending to iPads and Macs.  Apple has never reported exact unit sales of Apple Watch, iPod, HomePods, Beats, AirPod or many of their other products.

Revenues in Japan rose to $5.2 billion up by 34%;  China contributed $11.4 billion to the revenue line, an increase of 16% and the rest of Asia/Pacific rose by 22% in the quarter.  Foreign sales accounted for 61% of AAPL’s total revenue.


Perhaps conservative, mid-point revenue guidance for the all important December quarter was only $91 billion or a increase of only $2.7 billion from last year.  Luca Maestri CFO explained: the timing of new iPhone releases this year versus last year boosted this last quarter sales versus the December quarter.  Also,  APPL will “(have) almost $2 billion of foreign exchange headwinds” and ” (we have an) unprecedented  number of products ramping….ramps are going fairly well… (but we) have uncertainty around supply and demand balance”.  Shorthand:  APPL may have supply constraints in certain popular products during the holiday season.

Guidance is usually conservative at Apple judging from the past;  this last quarter APPL exceeded analyst earnings estimates by 4.6% and has averaged at 5% above EPS estimates over the last year and a half.

New Product Refreshes

October was a busy month for AAPL with the introduction of new iterations of their iPhone.

Also, with great fanfare at an October 30th keynote event, CEO Tim Cook kicked off new product introductions at The Brooklyn Academy of of Music.  There a new MacBook Air, a new Mac mini and iPad Pro were all introduced;  all will be available during the holiday season.

New Financial Reporting Format

Cost of sales will now reported for both products and services beginning in the December quarter.

The other products category will be renamed, wearables, home and accessories to better describe this product category.

Unit sales data will no longer be provided for iPhone, iPad and Mac.

Cash Position

Apple has a net cash position of $122.6 billion or about $25/share; according to CFO Luca Maestri ” it is our plan  to reach a net cash neutral position over time”.  The meaning of this is, that cash plus additional cash flow earned in the future will be returned to shareholders via higher dividends and stock buybacks.  During the most recent quarter 92.5 million AAPL shares were repurchased for $19.5 billion and $3.5 billion was returned in the form of cash dividends.

Using Reuters consensus earnings expectations (as of November !) for fiscal 2019 the current p/e for APPL is 14.9, ex-cash 13.1.

Robert J Voccola,  CFA

The Federal Reserve Open Market Committee (FOMC) and Equity Valuations

David Jones  |  October 29, 2018

The Fed has been a constant topic ever since Jay Powell became Chairman of the Federal Reserve.  Under his short tenure -eight months- Powell’s Fed increased the Federal Funds Rate three times; he assumed this office in February.  ERRATA:  In a October 25 email I said Powell increased rates six times.  

Janet Yellen’s Fed increased rates five times in her four year tenure.

In early October Powell appeared on PBS with Judy Woodruff for a Q and A.  The presentation should have given solace to investors.  Some soundbites follow: ….”inflation is right at our goal….we don’t think we are in danger…where wage increases ( now 3% up from 2%) are going to provide price inflation…..(the US) is in a remarkable set of economic circumstances…I  think there’s no reason to think (the growing economy) ….can’t continue for some time….there is really no reason to think that this cycle can’t continue for some time….effectively indefinitely.”  Powell later acknowledged that a slow down will occur at some future date.  What roiled markets was a the comment “we are a long way from neutral at this point (referring to interest rates)”  this statement should have been “our approach is very gradual and data dependent”-my words.

On October 17 the Fed released the minutes from their September meeting which shed some light on term “a long way from neutral”.  Consensus expectation by voting members of the FOMC for Fed Funds Rates  follow:  2018 2.25-2.50%, 2019 and 2020 3.25-3.5% and longer term 2.75-3.00%.  In my view, these rates are historically low.  Over the last sixty years Fed Funds have ranged from near zero to over 20%.


S&P 500 p/e now stands at 14.9X 2019 estimates and 13.6X 2020, close the the lowest levels since early in the current decade.

Foreign p/es are in many cases lower.  Emerging markets average 10X,  developed markets typically range from 12 to 14 times.

Interest rates in developed markets range as low as zero in Japan to about 0.3% for the German Bund.  The US ten year is at 3.08%.

*Based on I/B/E/S Reuters October 26 estimates 

Robert J Voccola,  CFA


Contrasting and Comparing January 2016 with October 2018

David Jones  |  October 29, 2018

The Yellen Fed after many years of practically of zero interest rates finally boosted Fed Funds rates on December 17, 2015 and signaled four more increases in 2016.  This increase occurred during a rather shallow US economic recovery.  At the time of this rate hike the US economy was in its seventh year of economic recovery.  GDP at the time was positive by two per cent plus with an occasional flat quarter, while S&P 500 profits struggled to show any meaningful growth.  This increase caused turmoil in the financial markets, the dollar strengthened, equity markets declined,  problems in emerging markets were exacerbated and China’s problems became worse. At this time the US was heading into a sizable localized recession in several industries.  In February 2016 a G20 meeting convened in Shanghai and behind closed doors we don’t know exactly what occurred, but the Yellen Fed did not increase fed funds again until a year later.  Perhaps nothing took place but Yellen none the less walked back the idea of Fed increases. Lastly, the US economy came out of its doldrums later in 2016 providing a Yellen with a rationale for a second fed funds increase in December of 2016.  

On September 29, The New York Times featured an article on the front page of their weekend edition titled The most Important Least-noticed Economic Event of the Decade by Neil Irwin.  Irwin discusses the turmoil that caused interrelated weakening of global economies in 2015-2016.  This article helps explain the economic growth spurt of the last couple of years. I have posted this article on my Facebook page and will try to post it today on LinkedIn.  If you are a subscriber to the Times you can print out or read this rather lengthy, excellent piece.

The Jay Powell fed has increased rates six times since his appointment and promises to continue with increases.  Of course, the US economy is less fragile today than in the Yellen era; corporate earnings are tracking nicely, GDP is rising at more respectable rates and jobs in the US are more plentiful.  Jay Powell inherited a very different economy than Yellen, one that is powerful and growing. But, many of the issues that caused the turmoil in 2016 to the global economy are now present today.  Additionally,  certain interest rate sensitive sectors of the US economy are turning down namely the Auto and Housing sectors.  Unlike, 2015-2016 the current period’s profits trajectory has not shown any deterioration in the aggregate.

There are economists that take exception to the hawkish stance of the Fed, one is CNBC’s Jim Kramer who feels the fed is moving too fast and causing the current volatile market and could cause economic slowing.  Thus far Federal Reserve Governors are reluctant to comment on swings in the financial markets.  Of course the Fed is data dependent, hence they could change their policy if they feel that this tightening is causing a needless slump in the US economy.  Hopefully, these policy makers will be watchful and flexible.  Additionally,  they will be will be present at the next G20 meeting on November 30th in Buenos Aires when China’s Xi Jinping meets with Trump.  This will be an opportunity to discuss how interest rates are affecting global economies and important issues that affect trade.

Robert J Voccola,  CFA


Is the market decline signaling an end to the 111 month old US economic recovery?

David Jones  |  October 29, 2018

CNBC has had a virtually endless commentary regarding the current market decline and last week listed the following fears of investment managers: 1-Trade War; 2-Fed/Tightening; 3-China Slowdown.  I would like to add the prospect of an end to the current economic expansion precipitated by any or all of the above to the list.  A interesting CFA article listed below gives some compelling (in my view) reasons for continued expansion of the US economy.
In a CFA Institute article written by Mark Ambruster, CFA, titled The US Economy: Eight More Years of Expansion, published in late September, Ambruster argues that because the US economy had its steepest decline since the great depression during 2007-2008, it should be followed by a steep recovery, yet this recovery is diverging from historical patterns.  He argues that this recovery is very tepid, among reasons “(because)…..policy uncertainty hit record highs…large financial penalties were levied against those deemed at fault”.  Because of recent regulatory rollbacks among other factors, “…things are turning around”, other factors being a tax cuts plus repatriation of corporate profits.
Economist Brian Wesbury had similar arguments and called this past recovery a “plow horse economy” and listed policy uncertainty among the reasons for the past stagnation. 
Ambruster further argues that if this expansion just reached the average rate of past recoveries “it could mean another three years of economic expansion”.  Lastly, he says that if the US economy experiences recoveries similar to the 1960s, expansion could extend further.
Using I/E/B/S/ Reuters forward projections, 2018 S&P 500 operating earnings (data as of October 19) are set to rise by 23% and for 2019 by 10%.  The p/e has dropped to 15.8, about the lowest level since 2015, based on 12 month forward projections, and for the midcap S&P 400, the lowest level since 2012-13.

Robert J Voccola,  CFA


Business Fundamentals and Interest Rates

David Jones  |  October 5, 2018

On CNBC Larry Bossidy summed up the state of the US economy stating “it’s as good as it gets…and it’s good.”  Larry appeared on Thursday September 6, is the former CEO of Allied Signal and Honeywell. 
Business Fundamentals
The August ISM Manufacturing Index released September 4 by The Institute of Supply Management reached the highest level since 2004.  According to the ISM “…the major measures of (business) activity were all higher in August….signalling expansion”.  Economist Brian Westbury commented  “….(the) report on activity in the manufacturing sector easily exceeded even the most optimistic forecasts”.
As of September 20, quarterly earnings (EPS) projections for the S&P 500 call for a 21.3% year-over-year increase in third quarter and 18.6% for the fourth (according to Thomson Reuters I/B/E/S). These numbers point to a deceleration from 2018s first half when S&P earnings increased by 23.2% for the first quarter and 26% for the second.  S&P 400 (mid-cap) and 600 (small cap) are accelerating at a higher rate.  
“Secular stagnation” was a term used to describe the US economy during the period of 2014-2016;  since that earnings plateau all S&P metrics (operating earnings, EPS, revenues per share, profit margins, etc.) have moved sharply higher.  For instance, forward estimates of S&P 500 operating earnings per share for 2019 are now over 50% above the level of 2014-2016.  In part the tax cut has helped boost these growth rates, particularly with smaller companies;  the S&P 600 (small cap) projected 2019 operating earnings per share is 65% ahead of the level just three to four years ago.
The good economic news has translated into record highs of the popular equity indecies in the US, still, the price earnings ratio (projected 12 month earnings) of the S&P stands at 16.7 times earnings, somewhat below the level of earlier this year and within a one multiple point range of the last few years.
Interest Rates
The Federal Reserves meets on Wednesday and it’s more than likely that the federal funds rate will be lifted by another 25 basis points given the momentum of the US economy.  This will be the eight increase since December of 2015 when the Fed raised rates from near zero.  More increases may occur later in 2018 and in 2019.  We will know more about the latter after the Fed meeting.
The US Treasury 10 year yield currently stands close to 3.1%;  the treasury yield curve thusly is still positively sloping but closer to inversion.
Readers of this blog should carefully examine fixed income holdings as virtually all fixed income mutual funds, ETFs and individual bonds may be currently are selling at losses if they were purchased in the last five years.  The loss can be treated as an asset to offset gains realized elsewhere.  Re-positioning fixed income holdings should be done carefully with an eye toward duration, the lower the better, in my view.
Robert J Voccola,  CFA
Chief Investment Officer

Accenture plc (ACN- NYSE-$173)

David Jones  |  October 5, 2018

Accenture plc reported fourth-quarter and full-year fiscal 2018 results (ended August 31) on 27 September and held a conference call with investors and interested security analysts.  Participating on the conference call for ACN included Chairman and CEO Pierre Nanterme and David Rowland CFO.  

Important Metrics

Revenues were up by 11% in the quarter.

EPS increased by 7%.

The dividend was increased by 10% to $1.46 semi-annually.

A $5 billion share re-purchase of common stock was authorized.

Operating margins reached 14.8% at fiscal year-end.

They ended the year with $5.1 billion in cash; they have no discernible debt.

ACN is a fairly young company as public companies go, having their IPO just 17 years ago at $14/share and incorporated into the S&P 500 just seven years ago.  Hamilton, Bermuda was their first HQ and nothing more than a mail drop  but, nine years ago they moved their worldwide HQ to Dublin, Ireland.  ACN first started paying cash dividends in 2005 beginning with a thirty cent annual dividend;  today it is $2.92 annually.  They have raised their dividend every year.

Fiscal 2019 Guidance

Accenture expects revenue growth of 5 to 8% for their next fiscal year with the mid-point of of EPS at $7.11/share or a  5.5% increase.  Issues with Brexit were mentioned as having a dampening effect on growth especially in the first half.  They expected to begin a quarterly dividend a year from now scrapping the semi-annual payout.  


ACN lost 18% of workforce up from 15% the previous year which caused a number of questions centering on the competition for talent in a tight job market, to which Pierre Nanterme said “we have zero issues hiring talent….no problem”.  ACN’s web pages advertise visits to college campuses where they prefer graduates with digital technology majors;  undergrad visits to MIT and Columbia were advertised while Wharton (University of Pennsylvania) for MBAs.  These graduates provide an important pool of new professionals.


ACN’s p/e is close to a 50% premium to that of the S&P 500.  Price/earnings multiples are a function of leverage (debt) and there is none at the company.  Visibility of earnings is another factor and at ACN visibility is high in my view.  Profitability is also a consideration and here this company is one of the most profitable in its industry and lastly among others, growth is a consideration.

The common shares are held by certain clients of MDX Wealth Management.

Robert J Voccola,  CFA
Chief Investment Officer

Apple, Inc. makes a milestone

David Jones  |  August 31, 2018

On Thursday, August 2, Apple, Inc. became the first company to surpass $1 trillion in market value. 

 The financial press has speculated all year as to who would reach this plateau first; for a while Amazon seemed to be the favorite with Alphabet, Google’s parent, and Microsoft as the longer shots. In all probability, there will be more US companies reaching this level, in my view. And, possibly, China may also have a few in future years. 

 This milestone was achieved because of APPL outstanding Q3 numbers. On 31 July AAPL reported a 17% increase in revenues and a 40% increase in earnings per share, a significant positive surprise. Other highlights from AAPL’s third quarter report follow. 



This is Apple’s second largest reportable segment and the most profitable. Revenues were $9.5 billion and up by 31% year over year. Paid subscriptions surpassed $300 million up 60%; the number of Apple apps continue to grow. There are 30,000 apps offered in Apple’s app store, which just turned 10 years old. 

 Apple music grew by over 50%. 

 Apple pay continues to expand with over 1 billion transactions last quarter, more transactions than either Square or PayPal. Apple pay is in 24 markets with over 4900 bank partners. 

Apple opened its 50th Apple store in China and in late July opened a new flagship store on the Piazza Liberty in Milan, Italy. 

 Other (includes AirPods, Apple TV, Apple Watch, Beats, etc) 

 This category increased 37% boosted by a 60% increase in wearable products, such as the AppleWatch, AirPods and Beats. 


 According to CFO, Luca Maestri, the Apple Watch is the worlds best selling smart watch and AirPods “….continue to be a runaway success and we’ve been selling them as fast as we can make them”.


 Questions From Security Analysts 


 The earnings call lasted 59 minutes and questions were taken from only five analysts. One sceptic (the investment community abounds with Apple sceptics- my view) asked “could (you) just comment a little bit about the health of the smartphone market….Apple’s…iPhone has been relatively flat for four years…”.  


 To which CEO Tim Cook responded “I think the Smartphone market is very healthy. I think it’s the best market in the world….It’s an enormous sized market….and whether it grows 1% or 2% or 5%…or 10% or shrinks 1% or 2%, it’s a great market….iPhone revenues were up 20% for the quarter….you’ll see (if you look closely)…at the cycle… that we’ve grown like mid single digits (in units)…. on average (on a) weekly sales point of view and of course double digit (in sales). 


 Certain clients of MDX wealth Management are holders of the common stock as is the author. 



 Please email if you have any questions or comments. 



Robert J Voccola, CFA 

Chief Investment Officer 

MDX Wealth Management 


Cell: (917)-566-7794 






The State of the Markets

David Jones  |  July 27, 2018

There are still slim pickings in this large investment class.  The ten year US Treasury bond yields about 2.85%, the German ten year Bund is 0.37%,  the Japanese 10 year JGB is 0.03%, while the 10 year British Gilt is 1.23%.
It is still a sellers market for bonds.  Most investment grade issues range between one and three percent and come equipped with a great deal of fine print;  my Columbia Grad School  classmate, Lee Cooperman coined the phrase “certificates of confiscation” and this phrase is still appropriate.  After, taxes, management fees, ETF and/or mutual fund fees, and adjusting for 2% inflation, a negative real return results.
Gone are the days when buy side portfolio managers were badgered by Lehman Bros. and Goldman Sachs salesmen trying to interest you in a just plain vanilla tax free bond, 10 year call protected, 30 year maturity, rated AAA, yielding 14% (as was Sam Rayburn Dam Project, Texas in 1980).  And, frequently they would pass along their part of the municipality’s concession, so your client actually  bought the bond below par.  I don’t see a buyers market for bonds returning any time soon (my personal view).
On the plus side,  shorter term US Treasuries now return well over 2% and double the rate of just over a year ago.  Also, emerging market debt and high yield, low cost, debt ETFs represent alternatives to equities;  yields here are upwards of 5%.  Some sector diversification can be gained by using these low cost ETFs.
In recent weeks US stock indecies advanced slightly enabling these averages to post a positive return year-to-date;  the Dow 30 is up only 1.4%, the S&P 500 by 4.8% while the NASDAQ Composite is still outdistancing most averages advancing by 14.4%.  The latter has advanced over 50% since November of 2016.
Major international stock indecies have performed poorly, particular Asian;  the Shanghai Composite has declined by 14.5% and the Straits Times (Singapore) is off by 3.1%.
The price/earnings ratio of the S&P 500 stands around 16, down two multiple points from earlier this year and somewhat lower than that which prevailed from 2014 through 2017.  The most salient feature here is not price but earnings.
Earnings gains of over 25% were registered in the first quarter;  this current reporting period and the rest of 2018 is apt to show gains in excess of 20%.  A significant slowdown should be expected by 2019.
Two inflection points could be pointed to.  After a moribund two years ending in 2016 when the US economy plodded along and S&P earnings flatlined, an abrupt change occurred in the Fall of 2016 and the trajectory of forcasted S&P earnings sharply changed direction upward.  Actual earnings in 2017 began to climb leading to good stock market gains in 2017.
The second occurred in December and this time the upward trajectory in projected earnings was more pronounced;  these projections have now lead to actual results of twenty plus gains for earnings.
Similar trends are taking place in profit margins and revenues; also they extend to S&P midcap 400 and small cap 600.  The latter two are growing faster than the 500.
Projected S&P 500 operating earnings for 2019 now stands about 44% higher than that which prevailed in November of 2016.  The source for this data is Thompson Reuters I/B/E/S and Yardeni research.
We are about half way through the second quarter reporting period which thus far has been excellent.  Two reports are of particular interest (and components of the S&P 500); comments follow:
Accenture (NYSE: ACN $167)  On June 28th ACN reported its third fiscal quarter ended on May 31.  Revenues increased 16% (11% in local currency);  operating income was up 18% and adjusted earnings per share rose by 18%.  Operating margins reached 15.7% expanding by 0.2%.
Pierre Naterme, Accenture’s chairman and CEO, said, “We are clearly benefiting from our unique position as the end-to-end leader operating at scale in New – digital cloud and security services, which now approximate 60 percent of total revenues.”
These reported results surpassed consensus expectations resulting in their common stock reaching new life time highs.
ACN pays a dividend of $2.66/share which was last boosted by 10%  in the fall of 2017;  another increase of similar magnitude should be forthcoming this fall, in my view.
Accenture is a fairly young company by historical standards; last week was their 17th anniversary as a public company.
Microsoft (NASDAQ: MSFT $106)  On July 19, MSFT reported their fiscal fourth quarter results surpassing expectations by a good margin and as with Accenture sending the common shares to new lifetime highs.
Revenues rose by 17% and operating income increased 35%.
These results were buoyed by Office 365 whose commercial revenue growth was 38% as well as LinkedIn whose revenue rose by 37%.  Xbox software and services revenue grew by 36%.
MSFT pays a $1.68 annual dividend which was last raised (by 7.7%) in the fall of 2017;  a similar increase should occur this fall, in my view.
Certain clients of MDX wealth Management are holders of the common shares of both companies as is the writer of this blog.
Robert J Voccola, CFA
Chief Investment Officer

Intel, Inc (NASDAQ: INTC-$53) First Quarter Reviewed

David Jones  |  May 17, 2018

INTC, the second largest semiconductor company in the world and the largest producer of microprocessors on April 26th  announced first quarter 2018 results.

Revenues increased by 8.6% to $16.1 billion.

Earnings per share were up 53% to $0.93/share.

INTC breaks down its business into five categories.  Comments below are confined to three of them..

Continue reading Intel, Inc (NASDAQ: INTC-$53) First Quarter Reviewed

The Health of Retail and Lululemon Athletica Inc.(NASDAQ: LULU-72)

David Jones  |  December 7, 2017

LULU continues to be a bright spot in a besieged industry. The retail industry tracked by the SPDR S&P retail ETF has declined 5.5% over the last 12 months.  Both LULU and the S&P 500 are up over 18% over the same period.

Lululemon reported third quarter earnings yesterday (Wednesday 6 December) and held a one hour conference call; analysts participating in the call, accustomed  to downbeat retail news, store closings, same store sales declines, etc. reacted to the results with plaudits such as “great quarter”, “congrats” and “awesome growth rates”.  Continue reading The Health of Retail and Lululemon Athletica Inc.(NASDAQ: LULU-72)