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Quarterly Results for Apple, Alphabet, Genuine Parts and Microsoft

Ingrid Hendershot, CEO of Hendershot Investments, a money management firm, reports on quarterly results for the following Portfolio Holdings: Apple, Alphabet, Genuine Parts and Microsoft.

Apple Reports Q3 2022 Results: $83B Revenues

Apple (Nasdaq: AAPL) reported third quarter revenues increased 2% to a record $83 billion with net income down 11% to $19.4 billion and EPS down 8% to $1.20.

Despite a challenging operating environment including Covid shutdowns, geopolitical tensions, foreign exchange headwinds, the loss of its Russia business and an uncertain macroeconomic environment, Apple set a June quarter revenue record driven by record iPhone and Services sales.

Apple’s installed base of active devices reached an all-time high in every geographic segment and product category.

The company has 860 million paid subscriptions which is up 160 million over the last 12 months. Supply constraints impacted sales especially for Macs and iPads, although were less than expected during the quarter.

Free cash flow increased 19% year-to-date to $90.6 billion with Apple paying $11.1 billion in dividends and repurchasing $65 billion of its common stock during the same time.

Apple ended the quarter with more than $179 billion in cash and investments, $94.7 billion in long-term debt and $58.1 billion in shareholders’ equity on its solid balance sheet.

Despite significant foreign exchange headwinds, Apple expects fourth quarter revenue growth will accelerate sequentially from third quarter results as supply constraints ease. Gross margin is expected in the range of 41.5% to 42.5% with operating expenses in the range of $12.9 billion to $13.1 billion and a tax rate of about 16%.

Alphabet Reports Weaker-Than-Expected
Earnings & Revenues for Q2

Alphabet (Nasdaq: GOOGL) reported second quarter revenues rose 13%, or 16% on a constant currency basis, to $69.7 billion with operating income relatively flat at $19.5 billion. Net income declined 14% to $16.0 billion with EPS off 11% to $1.21.

Revenues were driven by double-digit growth in Search and Cloud. Google Cloud’s sales increased 36% and topped the $6 billion revenue milestone for the first time in a quarter with strong demand in all geographies. Search advertising growth was driven by the travel and retail sectors, with strong searches for summer travel and increased e-commerce in apparel.

YouTube ads rose 5% during the quarter to $7.3 billion with growth slowing as the company lapped unusually strong results last year and a pullback by some advertisers in their spending budgets. YouTube Shorts are watched by over 1.5 billion users each month with over 30 billion daily views. Alphabet is seeking to monetize this part of its business.

Free cash flow declined 6% during the first half to $27.9 billion, primarily due to a significant 45% increase in capital expenditures as the company is investing in servers and data centers for the long term despite an uncertain macroenvironment.

The company repurchased $28.5 billion of its common stock during the first half and ended the second quarter with a fortress balance sheet with nearly $125 billion in cash and investments, $14.7 billion in long-term debt and $255.4 billion in shareholders’ equity.

Alphabet’s employee headcount increased 21% from the prior year period to 174,014 at the end of the second quarter with the company planning to slow its hiring for the balance of the year and into 2023.

Genuine Parts Q2 Sales Motoring Ahead to $5.6B

Genuine Parts (NYSE: GPC) reported a record second quarter with sales motoring ahead 17% to $5.6 billion and net earnings and EPS nearly doubling to $372.5 million and $2.62, respectively.

Adjusted net income, which excludes a non-recurring gain on the sale of S.P. Richards real estate partially offset by Kaman Distribution Group acquisition costs, increased 24% to $313 million and EPS jumped 26% to $2.20.

Sales growth reflects an 11.5% gain in comp store sales and an 8.8% benefit from acquisitions, partially offset by a 3.2% foreign currency headwind. Automotive sales were $3.5 billion, up 8.5% from last year, powered by an 8.4% increase in comp store sales. Automotive operating margin increased 20 basis points to 9.3%.

Industrial sales of $2.1 billion increased 34.5% from last year, driven by a 17.8% increase in comp store sales and a 17.6% contribution from acquisitions, partially offset by a 0.9% foreign currency headwind. Industrial segment operating margins increased 110 basis points from last year to 10.6%.

"The strength in Automotive was broad-based across our global operations. Likewise, the continued strength in Industrial led to its fifth consecutive quarter of double-digit sales comps," said Will Stengel, GPC President.

During the first half of 2022, Genuine Parts generated $638 million in free cash flow, or 103% of reported earnings, with the company returning $365.7 million to shareholders through dividends of $242.8 million and share repurchases $122.9 million.

The company’s 2022 annual dividend of $3.58 per share is up 10% from last year, marking the 66th consecutive year of dividend increases. Genuine Parts ended the quarter with $519 million in cash, $3.3 billion in long-term debt and $3.6 billion in shareholder equity.

Given its ongoing confidence in the business despite a dynamic and uncertain external landscape, management updated its 2022 guidance with sales now expected to increase 12% to 14%, up from prior guidance of 10% to 12%, with adjusted EPS in the $7.80 to $7.95 range, up from $7.70 to $7.85 previously. Free cash flow is expected in the $1.2 billion to $1.4 billion range.

Microsoft Expects Double-Digit Growth in
Revenues and Operating Income for the Full 2023 Year

Microsoft (Nasdaq: MSFT) reported fourth quarter revenues increased 12% to $51.9 billion with net income increasing 2% to $16.7 billion and EPS up 3% to $2.23.

Commercial bookings grew 25% and Microsoft Cloud revenue was $25 billion, up 28% year over year. By segment, revenue in Intelligent Cloud increased 20% to $20.9 billion, driven by Azure and other cloud services.

Revenue in Productivity and Business Processes increased 13% to $16.6 billion, driven by Office 365 Commercial and LinkedIn.

Revenue in More Personal Computing rose 2% to $14.4 billion, driven by Search and news advertising.

Microsoft returned $12.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter, an increase of 19% compared to the fourth quarter of 2021.

During the quarter, Microsoft was impacted by evolving macroeconomic conditions and other unforeseen items including unfavorable exchange rate movement, extended shutdowns in China, reductions in advertising spending, employee severance expenses and the ongoing war in Ukraine. As a result, total revenue was negatively impacted by approximately $1.2 billion.

For the full fiscal 2022-year, Microsoft’s revenue increased 18% to $193.8 billion with net income up 19% to $72.7 billion and EPS jumping 20% to $9.65. Return on shareholders’ equity for the year was an impressive 44%. Free cash flow increased 16% during the year to $65.1 billion with Microsoft paying $18.1 billion in dividends and repurchasing $32.7 billion of its common stock during the year.

Microsoft ended the year with more than $104 billion in cash and investments, $47 billion in long-term debt and $167 billion in shareholders’ equity on its strong balance sheet. For the first fiscal quarter of 2023, Microsoft expects revenues in the range of $49.3 billion to $50.3 billion, representing 9%-11% growth over the prior year period. For the full 2023 year, Microsoft expects double-digit growth in revenues and operating income.

Editor’s Note: Ingrid Hendershot is President and CEO of Hendershot Investments, Inc. an investment management firm offering personalized investment advisory services to individuals, pension and profit sharing plans, trusts, estates, charitable organizations and corporations or other business entities. The firm also publishes Hendershot Investments a quarterly investment newsletter, 1 year, $50, designed for long-term investors seeking capital growth at reasonable valuations. For more information on the services offered by Hendershot Investments visit www.hendershotinvestments.com.

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