Apple Inc. (AAPL) is slated to release its second-quarter 2010 results after the bell today.

Last quarter, management noted that a decision by the FASB in September 2009 regarding subscription accounting principles led the company to recognize the contribution from the iPhone and Apple (AAPL) TV in the period of sale rather than over the product’s estimated life. Under the company’s new accounting principles, there will be no deferred revenue.

These accounting changes figured into the improved guidance for the fiscal second quarter. During the first quarter earnings call, AAPL provided robust second-quarter guidance. Revenue is expected between $11.0 billion and $11.4 billion, up 23% from the year-ago period.

Gross margin is expected to be about 39.0%. Operating expenses are expected at approximately $1.46 billion, while other income and expenses are seen at about $30 million. The tax rate is anticipated to be about 29%.

Earnings are expected in the range of $2.06 to $2.18 per share, compared to $1.79 in the year-ago quarter, boosted by the new accounting principles. We should, however, keep in mind the company’s history of conservatism when looking at their current guidance. Therefore, the Zacks Consensus Estimate for the second-quarter is $2.43 per share, representing 35.8% year-over-year growth. It is also way above the company’s own guidance.

Agreement of Analysts

Estimates are trending upward as analyst opinion has turned increasingly bullish over the last 30 days. Out of the 34 analysts providing estimates, eighteen have raised estimates for the upcoming quarter over the last 30 days, with 3 analysts making positive revisions over the past week. However, one analyst moved in the opposite direction in the past month.

Estimate revisions for full-year 2010 have been encouraging, as 24 of the 41 analysts providing estimates lifted their forecasts in the last 30 days, six of which were raised in the last 7 days. There were no negative revisions. The current Zacks Consensus Estimate for 2010 is $11.93, reflecting 31.5% year-over-year growth.

The positive revisions may be attributable to the strong demand for the company’s iPhone and Mac, as unit shipments are expected to increase. The company is benefiting from a positive mix shift to the higher-margin iPhone/iPod business. Furthermore, increased demand for smartphones could drive sales.

Magnitude of Estimate Revisions

The magnitude of revisions has been significant since the company reported its first quarter results. Overall, estimates for the upcoming second quarter have gone up from $1.76 per share 90 days ago to $2.43 per share currently, an increase of 67 cents. This is mainly due to the company’s subscription accounting changes. There has been an increase of 7 cents over the past 30 days and 1 cent in the last week for the current quarter.

For fiscal 2010, estimates have gone up significantly from $7.85 per share 90 days ago to $11.93 at present. There has been a 27-cent increase over the past 30 days and a 4-cent advance in the last week.

First-Quarter Highlights

Apple’s fiscal first-quarter results were a record for the company, fueled by strong Mac and iPhone sales. It reported a positive earnings surprise of more than 76%. The company had produced positive earnings surprises in the preceding quarters as well, with the four-quarter average exceeding 35%.

Earnings in the quarter were $3.67 per share, beating the Zacks Consensus Estimate of $2.08 by $1.59 and surpassing the company’s own guidance of between $1.70 and $1.78 per share. The earnings increased 46.8% from $2.50 per share in the year-ago period.

Sales increased 32% to $15.68 billion, representing the highest revenue growth in the company’s history. The tremendous revenue growth was driven by increased Mac shipments and strong iPhone revenues.

Recommendation

Overall, Apple’s earnings performance has been way above expectations, and the company has reported positive earnings surprises in each of the last 4 quarters. So, we will not be surprised if the tech giant beats expectations in the upcoming quarter on the back of a strong new product launch, increased consumer spending and a rebound in PC shipments.

Moreover, iPhone is expected to be the strongest growth driver for Apple. The second-quarter results will not include iPad sales as the device did not launch until after the period officially ended. Nevertheless, we expect the company to report stronger results in fiscal 2010 due to a potential increase in iPad volume, boosting Apple’s revenue and earnings.

Apple has strong fundamentals and long-term growth potential. We currently have a long-term Neutral recommendation on Apple. We advise stockholders to hold the shares as momentum could drive the stock price higher.

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