Apple Inc. Earnings: Beating Expectations on Booming iPhone 6 Sales

Source: Apple.

Apple stock was rising by 1.8% on Monday after the market close, as investors reacted with moderate optimism to the company's earnings report for the second quarter of fiscal 2015.

Net sales came in at $58 billion, a 27% year-over-year increase, and better than the $56.06 billion in sales Wall Street analysts forecasted on average. Earnings per share grew by an impressive 40% year over year, to $2.33. That number also beat analysts' forecasts of $2.16.

Booming iPhone 6 salesAs expected, the iPhone was a major driver during the quarter, iPhone unit sales grew 40% to a mind-blowing 61.17 million devices in the quarter. Because of the positive pricing contribution from the iPhone 6 and iPhone 6 Plus, U.S. dollar revenues in the iPhone segment were even stronger, growing 55% year over year to $40.28 billion.

CEO Tim Cook said in the press release that Apple is making big market-share gains versus the competition thanks to the extraordinary success of its iPhone 6 and iPhone 6 Plus models. The executive is also quite optimistic regarding initial demand for Apple Watch: "We're seeing a higher rate of people switching to iPhone than we've experienced in previous cycles, and we're off to an exciting start to the June quarter with the launch of Apple Watch."

iPad sales, on the other hand, remain quite weak, with unit sales declining 23% and revenues falling 29% versus the same quarter in the prior year. The Mac segment is doing better, though: Unit sales increased 10% and revenues grew 2% during the quarter. Apple is now making more money from Mac than from iPads -- $5.6 billion in the quarter, versus $5.4 billion.

From a geographical point of view, China was particularly strong, with sales increasing 71% year over year to a massive $16.8 billion. Apple made a big 29% of total revenues from the Greater China region in the last quarter. Assuming that sales in China will probably continue outgrowing other markets, this showing bodes well for the company in terms of overall performance in the coming quarters.

Massive iCash flowGross margin was almost 40.8% of sales during the quarter, a healthy increase versus 39.3% in the same quarter last year. The company's guidance was for gross margin to be between 38.5% and 39.5%, so profitability came in better than expected.

The business is generating massive amounts of cash. Operating cash flow during the six-month period ended March 28 was $52.8 billion, a 46% increase from $36.2 billion in the same period during 2014. Free cash flow in the first two quarters of fiscal 2015 was $47.2 billion, a 44% year-over-year increase.

Apple has accumulated a gargantuan cash hoard. The company has $194 billion in cash and liquid investments on its balance sheet. While cash is accumulating rapidly, the company is also putting that money to work by rewarding investors with growing dividends and buybacks.

Apple raised its dividend by 11% to $0.52 per share. The company also increased its share-repurchase authorization to $140 billion, from the $90 billion level announced last year. From the inception of its capital return program in August 2012 through this March, Apple has returned over $112 billion to shareholders, and $80 billion of that money was distributed via buybacks.

Share repurchases are acting as a significant driver for investors when it comes to earnings growth. The company reduced its diluted share count by 5.2% year over year in the last quarter, allowing Apple to increase earnings per share at a faster rate than net income.

It was a remarkably solid quarter for Apple, mostly driven by booming iPhone demand and explosive growth in China. Profitability is at impressive levels, and the business is producing tons of cash, which management is actively returning to investors. The latest earnings report from Apple was strong across the board.

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