Meet Apple: The Cash-Making Juggernaut

Source: Thinkstock

Source: Thinkstock

If Apple (NASDAQ:AAPL) wasn’t already one of the most recognizable brands in the world, some people may have mistaken the tech giant for a bank. Apple reported its latest round of earnings after Tuesday’s closing bell, and proved once again it’s still a cash-making juggernaut.

For the three months ended June 28, 2014, Apple posted a net profit of $7.7 billion ($1.28 per share), its best June quarter in company history and up 20 percent from $6.9 billion ($1.07 per share) a year earlier. Revenue increased to $37.4 billion from $35.3 billion over the same period. Furthermore, gross margin came in at 39.4 percent, easily beating Wall Street’s estimate of 37.9 percent and Apple’s own guidance of 37 percent to 38 percent.

“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters,” explained Tim Cook, Apple’s CEO, in a press release. “We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce.”

Screen Shot 2014-07-22 at 4.53.05 PM

Source: Zero Hedge

Apple managed to grow its massive cash pile to a new record-breaking level. Taking the total of Apple’s cash and cash equivalents, short-term marketable securities, and long-term marketable securities, the company’s cash position grew to $164.5 billion — a fresh all time high. In comparison, Apple held a total cash position of $146.6 billion a year earlier. As the chart above from Zero Hedge shows, the fact that Apple is increasing its cash position is business as usual.

Investors should note that Apple is also adding debt to its balance sheet. However, this is a strategy to minimize taxes and return value to shareholders through share buybacks and dividends. The majority of Apple’s cash is held abroad. Instead of repatriating that money, Apple issues bonds at extremely low interest rates to fund shareholder-friendly activities. Apple finished the quarter with $29 billion of long-term debt.

“We generated $10.3 billion in cash-flow from operations and returned over $8 billion in cash to shareholders through dividends and share repurchases during the June quarter,” said Luca Maestri, Apple’s CFO. “We have now taken action on over $74 billion of our $130 billion capital return program with six quarters remaining to its completion.”

Apple has the largest shareholder return program in history. Earlier this year, the company announced it would return over $130 billion to shareholders by the end of 2015, up from its previous $100 billion plan. Apple raised its share repurchase program to $90 billion from $60 billion, and hiked its dividend by 8 percent. Apple is already one of the largest dividend payers in the world and plans to increase its dividend on an annual basis.

Apple faced scrutiny over its cash pile in the past, but that has mostly faded in the wake of the record capital return program. Furthermore, Apple has acquired 29 companies over the past nine months, not counting the $3 billion purchase of Beats. Apple is not afraid to use its cash pile, but it is being responsible about its spending habits, and shareholders apparently agree. Shares of Apple are up more than 20 percent this year.

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Disclosure: Long AAPL