Apple plans to return $55 billion in cash to shareholders to compensate for a stock price that’s been hammered by signs of slowing growth.
The company, which missed analyst estimates, boosted its quarterly dividend and allotted 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. Shares rose in late trading.
Investors have been clamoring for Apphttps://wraltechwire-pubtools.cbcnewmedia.com/pubtools2/le to give them access to its cash hoard, which ended March at an unprecedented $145 billion. Apple’s tight grip on its cash has been blamed for the steep decline in its stock price over the winter.
News of the cash bonanza coincided with the company’s release of a poor quarterly outlook for the three-month period that ends in June. The June quarter is generally a weak one for Apple, since consumers tend to hold off for the next iPhone, which the company usually releases in the fall.
Apple shares rose $18.87, or 4.6 percent, to $425 in extended trading. The shares are still down 40 percent from the peak hit on Sept. 21, when the iPhone 5 went on sale.
“The decline in Apple’s stock price over the last couple of quarters has been very frustrating for all of us, but we’ll continue to do what we do best,” CEO Tim Cook said on a conference call with analysts after the release of the results. But he reinforced that the company’s job is not to boost its stock price.
“The most important objective for Apple will always be creating innovative products,” he added.
First profit decline
Apple posted results for its latest quarter that beat expectations, though it posted its first profit decline in ten years.
Net income was $9.5 billion, or $10.09 per share, down 18 percent from $11.6 billion, or $12.30 per share, in the same period a year ago. Revenue was $43.6 billion, up 11 percent from last year’s $39.2 billion.
Analysts were expecting earnings of $9.97 per share on revenue of $42.3 billion for the latest quarter, according to FactSet.
Cook is using more of the company’s $145 billion in cash and investments to reverse the slide that erased almost $280 billion of Apple’s market capitalization since September. Concerns that the company’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.
When a company starts doling out its cash to shareholders, it’s usually a sign that its growth is stalling and it’s finding it hard to identify good ways to invest in its own business. But Apple is still growing fast by the standards of large companies, and its cash pile-up is a reflection of the extraordinary success of the iPhone.
Judging by Apple’s stock price, investors have concluded that Apple will never again launch a revolutionary new product like the iPhone or iPad. The commitment to bigger buybacks may reinforce that impression, said David Tan, a Georgetown University assistant professor of strategy who focuses on technology.
“How are we going to read into what this move says about Apple’s long-term prospects?” Tan said. “Does this mean this is all that Apple has left to offer or is this just something temporary while we wait for the next big thing from the company?”
For now, it seems clear Apple’s well of innovation has temporarily run dry, but that doesn’t mean it won’t be replenished soon, Tan said. “What no investor can see is what is happening between closed doors in research and development,” Tan said. “R&D is always very secretive. It always takes a very long time between the inception of an idea and commercializing a product.”
(Bloomberg News and The Associated Press contributed to this report)