Apple's SG&A Expenses Versus Revenue

Apple's SG&A Expenses Versus Revenue

On Saturday, February 12th I published a blog post titled Apple's Rising R&D Expenses in which I compared the rise in Apple's R&D expenses to the company's growth in revenue. Apple's operating expenses are comprised of two major expense segments including R&D expenses and Selling, General and Administrative expenses (SG&A). Today I'm completing this two-part series by comparing the growth in Apple's SG&A expenses to the company's growth in revenue. 

Apple's Rates of Revenue and EPS Growth

In the December quarter Apple's revenue rose 70.5% to $26.741 billion and earnings per share rose 75.2% to $6.43 per share. This performance followed a strong FY2010 in which revenue rose 52% and eps rose about 67%. Apple's eps continues to rise more quickly than revenue due in part to the fact the pace of growth in operating expenses is below the pace of growth in revenue.

Operating Expenses As A Percentage of Revenue

In Apple's two most recent fiscal quarters (FQ4 2010 and FQ1 2011) the percentage of revenue consumed by SG&A expenses fell below 8% of reported revenue. Combined, R&D expenses and SG&A consumed less than than 10% of reported revenue in the company's most recent quarter. This has contributed to the rate of eps growth exceeding the rate of revenue growth. The less revenue consumed by expenses the more revenue that flows to the net income line. Please see my November post titled Apple: A Quarterly Comparison of Costs and Cost Ratios To Revenue for more information on Apple's recent revenue versus overall costs trends. 

The graph below illustrates the rise in SG&A expenses and the expense segment's decline in the percentage of revenue it consumes:

			% of	Sequential	YOY	% YOY
	Quarter	SG&A	Revenue	Rise	Rise	Rise
	FQ1 ’09	1,091,000,000	9.18%	92,000,000	131,000,000	13.65%
	FQ2 ’09	985,000,000	10.84%	-106,000,000	99,000,000	11.17%
	FQ3 ’09	1,010,000,000	10.38%	25,000,000	94,000,000	10.26%
	FQ4 ’09	1,063,000,000	8.71%	53,000,000	64,000,000	6.41%
	FQ1 ’10	1,288,000,000	8.21%	225,000,000	197,000,000	18.06%
	FQ2 '10	1,220,000,000	9.04%	-68,000,000	235,000,000	23.86%
	FQ3 ’10	1,438,000,000	9.16%	218,000,000	428,000,000	42.38%
	FQ4 ’10	1,571,000,000	7.70%	133,000,000	508,000,000	47.79%
	FQ1 ’11	1,896,000,000	7.10%	325,000,000	608,000,000	47.20%

SG&A And Its Relationship To Reported Revenue

Since FQ2 2009 the percentage of revenue consumed by SG&A activity has consistently declined in year-over-year comparisons. Although SG&A expense activity has continued to rise, it is consuming a smaller percentage of revenue as the pace of revenue growth has exceeded the pace of expense growth in this major cost component. 

SG&A Expenses Quarter By Quarter

The pace of growth in Apple's SG&A expense activity has quickened since the start of FY2010, reaching over 40% growth in the three most recent fiscal quarters. The dramatic rise in SG&A expense activity beginning in FQ3 2010 coincides with the launch of the Apple iPad and is also due in part to Apple's expanding global footprint. Rising revenue activity and a broadening of the company's product portfolio will necessitate growth in selling, general and administrative expenses. Managing the pace of growth in this cost component relative to the growth in reported revenue is essential to maintaining eps growth at a pace faster than the pace of growth in revenue and to keep costs from consuming a greater percentage of each revenue dollar. 

Apple's Revenue and Expense Components

This post is among a series of posts examining Apple's revenue and expense components. For a more comprehensive look at Apple's rates of revenue, earnings and expense growth over the past two fiscal years, please see my December post titled Posts At Eventide Resource Guide for Independent AAPL Analysts. 

Robert Paul Leitao