Apple Q2 Earnings Beat Estimates, Services Drive Top-Line Growth

Apple AAPL reported second-quarter fiscal 2025 adjusted earnings of $1.65 per share, which beat the Zacks Consensus Estimate by 2.48% and increased 7.8% year over year.

Net sales increased 5.1% year over year to $95.36 billion and beat the Zacks Consensus Estimate by 1.16%.

Overall, product sales (72.1% of sales) climbed 2.7% year over year to $68.71 billion.

Apple’s Q2 Top Line Rides on Strong Services Growth

Services revenues grew 11.6% year over year to $26.65 billion and accounted for 27.9% of sales. The figure lagged the consensus mark by 0.43%.

Apple now has more than 1 billion paid subscribers across its Services portfolio. Paid subscriptions grew double digits year over year in the fiscal second quarter. Apple Pay active users increased by double digits year over year in the reported quarter.
 

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote

iPhone sales increased 1.9% from the year-ago quarter to $46.84 billion and accounted for 49.1% of total sales. iPhone sales beat the Zacks Consensus Estimate by 0.84%.

Apple’s China Sales Remain Weak, Europe & Americas Jump

Greater China sales decreased 2.3% year over year, fully offset by strong revenues from Japan and the Americas, which increased 16.5% and 8.2%, respectively.

While Europe’s sales inched up 1.4%, the Rest of Asia Pacific’s sales increased 8.4%.

AAPL's Mac & iPad Sales Rise, Wearables Decline

Non-iPhone revenues (iPad, Mac and Wearables) increased 4.5% year over year on a combined basis.

Mac sales of $7.95 billion increased 6.7% year over year and accounted for 8.3% of total sales. The figure beat the Zacks Consensus Estimate by 1.99%. 

iPad sales of $6.4 billion increased 15.2% year over year and accounted for 6.7% of total sales. The figure beat the Zacks Consensus Estimate by 8.09%. 

Wearables, Home and Accessories sales decreased 4.9% year over year to $7.52 billion and accounted for 7.9% of net sales. The figure lagged the consensus mark by 3.04%.

Apple’s Gross & Operating Margins Expand Y/Y

The gross margin of 47.1% expanded 50 basis points (bps) on a year-over-year basis. The gross margin expanded 20 bps sequentially due to a favorable product mix.

Products’ gross margin contracted 340 bps sequentially to 35.9% due to unfavorable forex. Services’ gross margin was 75.7%, up 70 bps sequentially.

Operating expenses rose 6.3% year over year to $15.28 billion due to an 8.2% increase in research & development expenses and a 4% improvement in selling, general & administrative expenses. 

Operating margin expanded 30 bps on a year-over-year basis to 31%.

Apple’s Balance Sheet Remains Strong

As of March 29, 2025, cash & marketable securities were $132.92 billion compared with term debt of $92.2 billion. Apple had cash & marketable securities worth $141.37 billion compared with term debt of $94.8 billion as of Dec. 28, 2024.

Apple returned nearly $29 billion in the reported quarter through dividend payouts ($3.8 billion) and share repurchases ($25 billion).

Apple’s board authorized an additional $100 billion for share repurchases and raised dividends by 4% to 26 cents per share.

Apple’s Q3 Revenues to Grow Amid Tariff Headwinds

Apple expects the June quarter’s (third-quarter fiscal 2025) net sales to grow low to mid-single digits on a year-over-year basis. The company expects forex to improve sequentially in the current quarter, but a slight headwind to net sales year over year.

Gross margin is expected to be 45.5-46.5% in the third quarter of fiscal 2025, including a tariff impact of $900 million. Operating expenses are expected to be between $15.3 billion and $15.5 billion.

Apple plans to spend $500 billion in the United States over the next four years and expects to source 19 billion chips during calendar year 2025.

The Zacks Consensus Estimate for third-quarter fiscal 2025 revenues is pegged at $89.22 billion, suggesting 4.02% growth over the figure reported in the year-ago quarter. The consensus mark for third-quarter fiscal 2025 earnings is pegged at $1.42 per share, indicating 1.43% year-over-year growth. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Zacks Rank & Stocks to Consider

Currently, Apple carries a Zacks Rank #3 (Hold). 

Affirm AFRM, Compass COMP and Dayforce DAY are some better-ranked stocks in the broader Zacks Computer & Technology sector. While Affirm sports a Zacks Rank #1 (Strong Buy), Compass and Dayforce carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Affirm and Compass are scheduled to report their respective first-quarter 2025 results on May 8. Dayforce is scheduled to report its first-quarter 2025 results on May 7.

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This article originally published on Zacks Investment Research (zacks.com).

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