Anomaly in Apple’s fourth quarter hides expectation beating results

Karen Haslam
16 November, 2012
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A report today claims that Apple would have beat the expectations of analysts for it’s fourth financial quarter if it wasn’t for an “obscure accounting rule”.

Unfortunately negative reaction to the missed expectations of Wall Street is one reason why Apple’s shareprice has declined over the past few weeks.

The Seeking Alpha report points out that in Apple’s fourth quarter, “A widely overlooked anomaly in Apple’s report reveals greater underlying strength for their quarter. The CFO and the Treasurer explained the reasons for the anomaly during their quarterly conference call.”

At issue were “substantive timing anomalies affecting the OI&E line”. (That’s Other Income and Expenses).

According to report author Gary Morton’s calculations, this means that that Apple was forced to understate earnings by around US$242 million, which equates to US$0.25/share. “That implies an actual $0.17 per share BEAT of expectations and YOY growth of 27% in earnings (equivalent to the revenue growth),” notes the report.

During the call, CFO Peter Oppenheimer, “essentially told us that the swing from the typical income reported in OI&E was a result of accounting rules forcing them to recognize premium outlays normally not recognized in the P&L until the quarter in which the hedge impacts operating results,” writes Morton

Unfortunately most analysts have overlooked this, but, according to Morton: “If we account for the anomaly, the quarterly report looks substantively better and further reveals the excellent health of the company.”

Morton claims: “Apple earnings grew as fast as revenues for the quarter. Obscure accounting rules and unusual currency fluctuations in this case distorted the picture of an otherwise very strong and encouraging quarter.”

“Apple will see the financial benefit of this timing problem in future quarters,” he predicts.

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