(This is an excerpt from an article I originally published on Seeking Alpha on January 30, 2016. Click here to read the entire piece.)
Apple (AAPL) reported Q1 2016 earnings that disappointed the market. The negative reaction was consistent with the Apple earnings trading model. This time around, I took particular interest in Apple’s accounting for the impact of currency fluctuations on its results. Apple went to great lengths to explain the out-sized impact on its business from currency fluctuations. The company used a “Currency Index” that turns a new page in the reporting of Apple’s financial results. The numbers show how Apple’s story has become increasingly dependent on growth from outside of the Americas and the U.S. in particular.
AAPL provided a supplemental document to describe the impact of currencies on its results. {snip}
Source: Apple Q1 2016 earnings supplemental
Source: Board of Governors of the Federal Reserve System (US), Real Trade Weighted U.S. Dollar Index: Broad [TWEXBPA], retrieved from FRED, Federal Reserve Bank of St. Louis, January 29, 2016.
On a constant currency basis, Apple’s year-over-year revenue growth moves from 2% to 8%. The biggest adjustments come from Europe, Japan, and Asia ex-Japan and ex-Greater China.
Source: Apple Q1 2016 earnings supplemental
Of course, Apple cannot impress investors with constant currency results. This is asking for an asymmetric handicap: there is no rush to demonstrate a comprehensive adjustment when the dollar is much weaker. {snip}
The stagnant revenue growth in the Americas and Japan really sticks out in the above chart. {snip}
However, Apple’s immunity to the region’s malaise may be running thin. {snip}
{snip}
Source: FreeStockCharts.com
Apple has pointed a bright spotlight on currency issues impacting its business in an attempt to maintain the luster of the good news underneath. {snip}
Be careful out there!
Full disclosure: in forex, net long the U.S. dollar
(This is an excerpt from an article I originally published on Seeking Alpha on January 30, 2016. Click here to read the entire piece.)