In its just-released quarterly results, Apple beat expectations. Although revenue fell slightly during the period, earnings per share (EPS) jumped 13% year-over-year. This was supported by an aggressive share buyback program and a shift in the tech company's product mix toward its lucrative services segment.
A thriving service business
Apple's services revenue reached an all-time quarterly high during the period. They grew 16% year-on-year to $22.3 billion, showing just how important the business is becoming for Apple.
It would be hard to overstate how good the rapidly growing services business is for Apple. The segment's gross profit margin is 70.9%. That compares to a cumulative gross profit margin of 36.6% across all of Apple's hardware segments. Therefore, the high gross profit margin of services has an outsized impact on profitability. Specifically, Apple's services segment accounted for 39.2% of total gross profit for the quarter. This is one of the key reasons why Apple was able to increase its earnings per share so significantly even as its overall revenue declined.
iPhone is doing well
Another Apple segment worth appreciating is the iPhone. An important product category returned to growth in this period, helped slightly by the launch of the latest iPhone models.
iPhone revenue for the period was $43.8 billion, an increase of nearly 3% year-over-year and accounting for approximately 49% of revenue for the quarter. This compares to a 2% year-over-year decline for the important segment in the fiscal third quarter.
Declining number of shares
Apple's share repurchase program also plays a key role in its EPS growth. Over the past 12 months, Apple has repurchased a staggering $77.5 billion worth of its stock. This has reduced Apple's total share count by nearly 3%. In other words, Apple's share buybacks have helped boost EPS growth by nearly three percentage points.
Further improvements are expected
Management expects further improvements in its business during the critical holiday quarter. Management is forecasting a similar year-over-year growth rate in its total revenue during the holiday quarter as it experienced in the quarter just reported (a view that implies a 1% year-over-year decline).
The fourth quarter will be aided by a new product line with new smartphones, smart watches, laptops, desktops and more.
Recent business trends suggest that the company's revenue could return to growth in fiscal 2024. The double-digit EPS growth it posted in fiscal Q4 could persist through the holiday quarter and into next year, thanks to Apple's improving business composition.
