Apple will be a focus company for the market during this week, as the company is scheduled to report earnings today. For the calendar second quarter (fiscal third quarter for Apple), the current mean EPS estimate is $1.40, compared to year-ago actual EPS of $1.85. If Apple reports a year-over-year decline in EPS for Q2 2016, it will mark the second straight quarter that the company has reported a year-over-year decline in EPS. The last time Apple reported two consecutive quarters of year-over-year earnings declines was Q2 2013 through Q3 2013 (fiscal Q3 2013 through Q4 2013 for Apple).
As a result of this projected decline in EPS, Apple is expected to be the largest contributor to the expected earnings decline for the S&P 500 Information Technology sector for Q2 2016. The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings decline for the Information Technology sector is -3.9%. Excluding Apple, the blended earnings growth rate for the sector would be 2.2%.
As of today, if Apple reports actual EPS equal to or below the mean EPS estimate for the quarter, it will mark the first time that Apple has been the largest detractor to earnings growth for the Information Technology sector for two consecutive quarters since Q2 2013 through Q3 2013.
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What is driving Apple’s substantial contribution to the earnings decline for the Information Technology sector for Q2 2016?
Over the past three years on average, the iPhone product segment has accounted for about 60% of the total revenues generated by Apple. From Q1 2014 through Q4 2015, the iPhone product segment reported average year-over-year revenue growth of 31%. However, last quarter (Q1 2016), the segment reported a year-over-year decline in revenues of -18%. For Q2 2016, the iPhone product segment is projected to report a year-over-year decline in revenues of -22%.