To some, the event of the week could be the earnings of Apple, which, according to eToro Market Analyst, usually achieves its best quarterly results in the last quarter. Another important earnings report this week is McDonald's.
Apple - the world's most valuable listed company - will present its results on Thursday, and this could affect the market in several ways. Apple accounts for a quarter of the entire capitalization of the IT sector in the US, and it is the most valuable sector in the S&P500 index. Apple has had a good start to the year, although its results are currently a reaction to very strong demand during the pandemic. A symbol of this is the decline in smartphone sales by 18% in the last quarter. Apple has so far avoided job cuts or spending cuts, which tsunami we see now across the American IT industry. The approaching end of interest rate hikes should help reduce financial costs and thus increase the value of the company. The resulting weakening of the dollar is also helping Apple's sales outside the US - which account for 60% of the company's total sales.
Apple faces challenges, but also opportunities, similar to all companies in the IT industry. First of all, we see a shift from simply selling hardware to offering services. In this regard, Apple already has a lot of experience offering services from Apple Music, through TV+ to Apple Pay. And practically always becoming a serious rival for companies already operating in a given industry. Thanks to the services, Apple was able to significantly improve its margins, which allowed it to maintain a valuation above the market, unlike many of its large tech companies. Secondly, Apple is taking advantage of the wave of increased demand for luxury products. The price of the cheapest iPhone in the US is currently just under $1,000, and the most expensive are approaching $2,000. Outside of the US market, these prices are even higher. Thanks to this, Apple, having a 20% share in the global smartphone market, obtains as much as 80% of the industry's profits. This also helps the company in the situation of a significant drop in demand for smartphones that we are currently observing.
What challenges does the company face? Above all, Apple is trying to reduce over-reliance on China in its supply chain. However, production is not transferred to the USA or Europe, but to countries in Southeast Asia. And such relocation in the initial production period generates significant costs and many problems. Secondly, consumers and investors want the company to operate in accordance with the principles of ESG (Environment, Social Responsibility, Corporate Governance). For this reason, the company was one of the first to publish information about its supply chain and also experienced pressure to reduce executive salaries. Tim Cook just cut his salary by 40% after only 64% of shareholders approved last year's compensation plan (say-on-pay vote).
The company usually achieves its best quarterly results in the last quarter of a calendar year. It will be no different this time. A year ago, quarterly earnings per share (EPS) amounted to USD 2.1, now the market expects a result of about 10% lower. However, maybe Apple will surprise us positively, because so far 65% of companies from S&P500 reporting results for the fourth quarter have achieved them better than analysts predicted.
McDonald's, the global restaurant chain, will publish its results on Tuesday. It is very likely that this will be another quarter in which the company will beat analysts' expectations. The company is struggling with rising costs due to inflation. This mainly concerns the increase in wages and food prices. The company has already said it will start layoffs from April to prepare for the recession, thereby reducing costs and improving competitiveness. It is worth remembering that McDonald's is a company that usually gains during a recession, because consumers limit their spending and move from more expensive restaurants to McDonald's.
