Apple (AAPL) Will Likely Beat Q2 EPS Views, But Miss the Whisper Number

After taking a hard look at Apple's (Nasdaq: AAPL) EPS guidance, consensus and actual results over the past few quarters, it appears that while the company will beat the consensus when it reports next Tuesday, expectations which may have again gotten too high could lead to a miss on the whisper number.

Below are Apple's guidance, consensus, revised consensus and actual numbers since Tim Cook has been calling the shots. (Numbers in parentheses reflect percentage beat/miss over actual result.)

Q4:

Initial Apple EPS guidance = $5.50 (+28%)

Initial Street consensus = $6.42 (+10%)

Final Street consensus = $7.28 (-3%)

Actual EPS = $7.05

Q1:

Initial Apple EPS guidance = $9.30 (+49%)

Initial Street consensus = $8.98 (+54%)

Final Street consensus = $10.08 (+37%)

Actual EPS = $13.87

Q2 (4/24):

Initial Apple EPS guidance = $8.50

Initial Street consensus = $8.30

Final Street consensus = $9.99

Actual EPS = N/A

Besides the apparent "huge" beats versus the company’s internal guidance, looking deeper at the numbers reveals two things:

1. Apple has become less conservative with its guidance since Cook took over and Jobs passed. After being normally well below the Street with its guidance, Apple actually guided above the initial Street consensus during the past two quarters. This may be a Cook thing. The new exec may feel like the sandbagging should end as expectations for the company often get so lofty. Whatever the reason, it is important.
   
2. When analysts become too optimistic, there is a chance for a miss. A sharp move higher in the Street consensus over the fourth quarter can easily be seen -- a trend which likely resulted in the Apple miss. Although the consensus started 17 percent above the company's guidance, estimates moved up 13 percent during the quarter to about 32 percent above the internal guidance. This changed in the first quarter, however. The consensus started 4 percent below Apple's guidance and moved up 12 percent during the quarter to just 8 percent above the company’s guidance, consequently resulting in a huge beat. For the second quarter, the consensus started 2 percent below the guidance and moved up 20 percent during the quarter to about 17 percent above the company's guidance.

So what does this mean?

If Apple's fourth-quarter guidance had been more in-line with management's recent practice of setting expectations higher, the initial guidance could have been set at $6.61, or 3 percent above the initial consensus (the average of Q1 and Q2). That would have represented a beat of 7 percent during the quarter. Even with the company's first-quarter guidance set above the Street, strength from the iPhone 4S led to an earnings beat of about 49 percent. Taking an average of the hypothetical 7 percent beat from the fourth quarter and real 49 percent beat from the first quarter equates to a beat rate of 28 percent above the company's internal guidance. Applying the 28 percent beat rate (which seems solid as this is the percentage Apple's fourth-quarter topped its own guidance in Q4) to the Q2 guidance of may suggest Q2 EPS results of around $10.88, about 9 percent above the current consensus of $9.99.

The question is – 'Will it be enough'?

Probably not. Data from StreetInsider.com's EPS Insider shows that Apple has beaten the consensus by an average of 22 percent over the past four quarters... So the real whisper number going into the quarter is around $12. Apple could miss this.

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