How Apple can whiff on earnings and still beat expectations

Reuters, Steve Mitchell-USA TODAY Sports

Wall Street analysts are expecting Apple to post $56 billion in revenue, but there's a problem with their estimate according to Gene Munster, analyst at Piper Jaffray.

Street analysts aren't properly factoring in foreign exchange rates, which will ding Apple's results by 2-3%, says Munster.

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The US dollar has staged a huge rally over the last several months, and this is causing some issues for global corporations. Many are reporting "FX headwinds" which is jargon-y way to say that foreign exchange rates are hurting results. The basic outline here is that if say the euro falls in value against the US dollar, sales made in Europe are worth less when converted back to US dollars by Apple, which is a US-based company.

During Apple's previous earnings, CEO Tim Cook said, "Our results would have been even stronger, absent fierce foreign exchange volatility." Apple's CFO Luca Maestri said revenue growth would have been 4% higher in the holiday quarter had currency not affected results.

If Munster is right on the FX headwinds, then Apple's revenue will be $54 billion, which is less than the $56 billion expected.

So, that will lead to lots of people saying Apple "whiffed" on earnings. But, if it's because of foreign exchange rates, then Apple didn't miss. (Of course, you could argue that the company should be hedging against this risk, but that seems a tad nit-picky. It's tough to predict currency swings.)

The key number to watch will be iPhone unit sales, which will not be impacted by FX issues. Analysts are expecting 58.1 million units sold during the quarter. If Apple is short of that number, then it will have whiffed.