Low expectations cast gloom over Apple’s earnings report

Apple releases its eagerly awaited second-quarter earnings Tuesday, and by most accounts, it’s unlikely that anything the company says will alleviate growing shareholder doubts about its growth prospects.

Not only is Apple expected to post an earnings decline for the first time in a decade, but some analysts believe the company will lower its outlook for the current quarter as growth in sales of iPhones and iPads slows in the face of stronger competition and a market that’s less enchanted by its latest offerings.

Even hopes that the cash-rich company will soon announce an increase in its dividend or stock buyback programs aren’t expected to send the stock soaring the way it did last year. The one thing the company could do Tuesday that might change investors’ sentiment is to answer the question that it never will: What’s next?

“It’s the future of the products that we care most about,� said Brian Marshall of ISI Group. “And we’re not going to get those answers tomorrow.�

Despite persistent rumors, the company did not hold a spring event to announce new versions of its iPad or iPhone. As for other hoped-for goodies that have had Apple-watchers’ tongues wagging, there’s still no word on whether an iWatch, Apple TV, iRadio or a cheaper iPhone might lay to rest concerns that Apple’s golden age of innovation is near an end.

“The longer-term issue is whether Apple has another hit,� said Brian Colello of Morningstar Research.

Absent such details, the mood surrounding the company has grown shockingly grim because of a stock price that has fallen from $702.10 in September to $398.67 on Monday. The stock actually rallied Monday, rising 2.08%, or $8.14, after getting pummeled last week following a report that a key supplier’s sales would fall short for this quarter.

That report became the latest hint that Apple might lower its guidance for the current quarter that ends in June. With the company losing an astonishing $300 billion in market value in recent months, it was perhaps inevitable that speculation began circulating about Apple Chief Executive Tim Cook’s future. “All Aboard the Fire Tim Cook Bandwagon,� read one headline on TheStreet.com.

Most analysts don’t put any serious stock in such talk. But the fact it’s even happening is a sign of just how much Apple’s fortunes have shifted from a year ago when its stock was on an extraordinary run that would make it one of the most valuable companies in history. At the time, Cook, as Steve Jobs’ handpicked successor, seemed to have the golden touch.

After the stock went into free-fall, the company faced a once-unthinkable mini-shareholder revolt this year led by hedge fund manager David Einhorn, who has been pressing the company to return more cash to investors.

Apple has acknowledged that it continues to study options for its growing cash balance, and observers believe the company could raise its current quarterly dividend 17% to about $3.10 a share, according to an estimate compiled by Bloomberg. Analysts are hoping that announcement will come as part of the second-quarter earnings scheduled for 2 p.m. Pacific time Tuesday.

But if it does, it’s not likely to offset the other less-than-rosy numbers analysts are expecting.

The consensus analyst estimate is that Apple will report $10.12 earnings per share with revenue of $42.6 billion. In terms of profit, that’s a sharp drop from the $12.30 a share Apple reported for the same quarter last year, and the first time it would be a year-over-year decline for a quarter since 2003.

In fairness, Apple faces a tough comparison because in the same quarter last year the company blew past expectations thanks to banner sales of iPhones and iPads.

Even more troubling in the eyes of analysts and investors is the current quarter. The company is expected to lower its outlook, which analyst estimates currently peg at $8.63 billion of profit on $39 billion in sales. Even though observers have been expecting this for some time, there are fears it could create further shock waves that send the stock spiraling even lower.

“We continue to feel that March Street expectations still appear too high and that Apple is likely to guide June down,� wrote Piper Jaffray analyst Gene Munster in a note to clients Monday. “We believe this is well accepted among investors, but believe with the dynamic of numbers coming down, it is difficult to predict what the stock will do in immediate reaction of the quarter and guide.�

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