Apple (AAPL 1.29%) is scheduled to report fiscal 2022 third-quarter earnings after the markets close on July 28. The iconic tech company has navigated the pandemic with skill as its revenue has soared by more than $100 billion in the last two years.
That’s despite Apple facing supply chain disruptions hampering its ability to meet robust consumer demand. It could have generated billions more in sales if it didn’t have those constraints. Unfortunately, the situation has not improved enough for Apple to balance supply and demand in the upcoming quarter, raising the prospects that Apple will report missing out on billions more in sales when it releases Q3 figures on July 28.
Apple can’t fulfill insatiable customer demand
In its conference call that followed its second-quarter earnings release, Apple CFO Luca Maestri said, “We expect these constraints to be in the range of $4 billion to $8 billion, which is substantially larger than what we experienced during the March quarter.” To put those figures into context, Apple reported sales of $77 billion in its second quarter, which ended on March 26.
AAPL Revenue (Quarterly) data by YCharts
Therefore, missing out on $6 billion of sales (the midpoint of the estimate) would be a significant sum, to be sure, but not a catastrophe for a company the size of Apple. Still, investors want to see an end to these constraints so the company can serve consumer demand. Otherwise, Apple runs the risk of losing these customers to competitors.
CEO Tim Cook noted that the supply constraints resulting from manufacturing shutdowns in Shanghai had been eliminated as of March 26. However, outbreaks of COVID-19 have persisted since Cook gave that update to investors. China’s zero-COVID policy risks government-mandated business restrictions due to even small outbreaks.
What this could mean for Apple investors
Analysts on Wall Street expect Apple to report revenue of $82.47 billion and earnings per share (EPS) of $1.16. If the company meets those earnings projections, it will mean a decrease of 10.77% from the same period the year before.
AAPL Operating Income (Annual) data by YCharts
Rising inflation increases costs for businesses worldwide, and Apple is not immune. Those forces, combined with the supply shortages that will cause it to miss an estimated $6 billion in sales, will likely weigh on Apple’s performance for the next several quarters. Investors will not be too disappointed as long as the decrease is moderate.
Apple rewarded investors with a great fiscal year in 2021 when sales increased by 33.3%, and operating income jumped by nearly $43 billion. After all, a degree of mean reversion was to be expected. But the company has yet to balance its supply and demand issues.
Parkev Tatevosian has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
