Apple Surprises On the Downside: How Will EPS Expectations Play Our Post-Jobs?

With Apple (AAPL) Inc.’s facing its post-Steve Jobs era, the company has another challenge to deal with. For the first time in 26 straight quarters, according to Bloomberg News, Apple did not beat the consensus Wall Street earnings per share forecast for its fiscal 4th quarter. The official number was $7.05 per share, compared to a consensus estimate of $7.31.

A long-running theme among Apple investors has been Apple’s ability consistently to top the average quarterly EPS estimate of published Wall Street forecasts and even beat the unpublished “whisper” number. Indeed, the controversy among several commentators before Tuesday’s announcement centered on how much the actual number would exceed published and unpublished forecasts.

In a conference call after releasing the 4th quarter report, Apple officials hinted that iPhone sales in the latest quarter were depressed as buyers awaited the newest version, IPhone4s. Sales for the quarter totaled $28.3 billion, up 39% from the 2010 4th quarter but less than the $29.6 billion estimate compiled by Bloomberg.

Apple shares reached a record high of nearly $425 before the quarterly report. Despite such optimism, the growth of Apple’s earnings per share has outperformed the share price growth in the last five years.

Apple Stock Chart by YCharts

Clearly, Apple's sales bear no resemblance to a stodgy U.S. GDP chart or to overall retail sales.

Setting aside such fundamentals, the earnings surprise game was exposed as a sham after the tech stock bubble burst in the 1990s. Often, companies easily and legally beat earnings and sales forecasts by managing their quarterly accounting toward a certain outcome. The surprise, it turns out, was incompetence, gullibility and, in some cases, complicity on the part of analysts hoping for an earnings surprise pop.

Nonetheless, the quarterly EPS expectations game was in full view late Tuesday, as Apple’s shares dropped 6 percent in trading after the close of the regular NYSE session. Leading up to the news, Zacks Investment Research had revised upward Apple’s 4th quarter consensus estimate a remarkable 16 times in the last month.

If you’re a long-term investor thinking of playing the earnings surprise game, a useful analysis available at SeekingAlpha is a warning. The analysis found no consistent price move by Apple’s stock in the days and weeks after its earnings report, which consistently beat analyst forecasts.

What remains to be seen, of course, is the long-term price response to an Apple share if the company develops a post-Jobs pattern of missing forecasts.

Looking forward to current-quarter results, Apple forecast per share profits of $9.30, uncharacteristically well above the consensus Wall Street forecast. Normally, analysts noted, Apple low-balls its EPS projection three months out. “Apple typically guides so conservatively that investors disregard its forecasts,” commented Reuters. Let the game resume.

Bill Barnhart is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.