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Apple Returning $55 Billion to Investors as Forecast Trails

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Customers are seen inside the Apple Inc. store in Paris, France, on March 23, 2013. Photographer: Andrey Rudakov/Bloomberg

April 23 (Bloomberg) -- Apple Inc. forecast sales that missed analysts’ predictions and said it will return an additional $55 billion in cash to shareholders to compensate for a stock that’s been hammered by signs of slowing growth.

The company boosted its quarterly dividend and alloted more cash to buybacks, announcing plans to borrow funds for what it called the largest share-repurchase program in history. Apple will have returned $100 billion, including past buybacks and dividends, through 2015, the Cupertino, California-based company said today in a statement.

Chief Executive Officer Tim Cook said new products will come later this year and throughout 2014, and he’s using more of the company’s $145 billion in cash and investments to reverse the slide that erased almost $280 billion in market capitalization since September. Concerns that Apple’s growth pace is slowing were reinforced by a forecast for narrowing gross margins and sales this quarter that may miss analysts’ predictions by as much as $4.9 billion.

“It’s a massive buyback,” said Alex Gauna, an analyst at JMP Securities in San Francisco. “It makes it very tempting to take a look at, but the weak outlook and falling gross margins are going to stoke the flames of concern.”

Apple had its first profit decline in a decade last quarter amid accelerating competition from Samsung Electronics Co. Fiscal second-quarter net income fell 18 percent to $9.55 billion, or $10.09 a share, Apple said today in a statement.

Sales Forecast

Cook said on a conference call that while growth is slowing, it’s not the only metric Apple uses to judge success.

“We do want to grow faster,” Cook said. “But we don’t view it as the only measure of our health.”

Sales in the current period will be $33.5 billion to $35.5 billion, compared with an average prediction of $38.4 billion, according to data compiled by Bloomberg.

Gross margin, a yardstick of profitability, will be 36 percent to 37 percent this quarter, compared with 38.7 percent predicted by analysts, according to data compiled by Bloomberg. Margins narrowed to 37.5 percent last quarter from 47.4 percent a year earlier.

Margins are under pressure amid higher-than-expected sales of iPads, including the iPad mini, which are less profitable than other products, Apple Chief Financial Officer Peter Oppenheimer said on a conference call with analysts.

Also dragging on growth, some customers are opting for devices from Samsung and other device makers using Google Inc.’s Android operating system software.

Investors ‘Worried’

The disappointing third-quarter forecast steps up pressure on Apple to make the most of new products due later this year.

“Slowing growth, competition and margin compression -- people are worried about all of them,” said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco. “They’ve made the fears look justified.”

The company is working on television products and a watch that’s connected to other Apple devices, people with knowledge of the matter said. Cook said on the call that Apple is exploring new product categories, declining to elaborate.

Apple raised its quarterly dividend 15 percent to $3.05 a share, from $2.65, and boosted its share-repurchase program to $60 billion from $10 billion. The plans help extend the biggest surge in stock buybacks since the 1980s. Buyback announcements reached $208 billion in the first three months of the year, the busiest first quarter since at least 1985, according to Birinyi Associates Inc., the Westport, Connecticut-based research firm founded by Laszlo Birinyi.

‘Compelling Proposition’

Cook faced pressure from investors including hedge fund manager David Einhorn of Greenlight Capital Inc. to return more of its cash. This was the first increase since Apple reinstated dividends last year.

“The fact that they’re open to using debt will be very heartening to shareholders,” said Ryan Jacob, chief investment officer of Jacob Asset Management. “It’s basic capital management. When you’re as large and creditworthy as Apple with rates as low as they are, it’s a pretty compelling proposition.”

Standard & Poor’s gave the company its AA+ grade, the second-highest level of investment grade, and Moody’s Investors Service ranked Apple an equivalent Aa1, according to statements issued by the ratings firms. Apple has no outstanding bonds, according to data compiled by Bloomberg.

Apple was little changed in late trading after rising as much as 5.9 percent to $429.90 after results were released.

Samsung Rivalry

The shares had gained 1.9 percent to $406.13 at the close in New York, and have tumbled 24 percent this year, making it the seventh-worst performer in the Standard & Poor’s 500 Index.

Apple sold 37.4 million units of the iPhone, compared with 35.1 million a year earlier -- when iPhone revenue surged 85 percent. Apple sold 19.5 million iPads, compared to the 18.5 million predicted by analysts in the Bloomberg survey. It also sold 4 million Mac computers, compared with a 4.1 million estimate.

One of Apple’s chief competitors is Samsung, which in March unveiled the Galaxy S4 to challenge the iPhone in the high-end smartphone market. The Suwon, South Korea-based company is the world’s largest seller of handsets and relies on a strategy of using a wide range of devices. Apple, by contrast, tends to release a limited number of products a year.

Apple’s slowing growth is affecting its network of suppliers. Hon Hai Precision Industry Co., the company that assembles many of Apple’s products in China, this month reported the biggest sales decline in at least 13 years. LG Display Co. this week posted first-quarter profit below analysts’ estimates on falling sales of smaller displays used by Apple. Cirrus Logic Inc., which supplies audio chips to Apple, also reported weaker-than-projected results last week.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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