Apple shares surged and then turned lower in after-hours trading after the company beat earnings forecasts and doubled the amount of cash it will return to shareholders. However, its outlook fell short of expectations.
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Apple reported fiscal second-quarter earnings of $10.09 a share on revenue of $43.60 billion versus $12.30 a share on $39.19 billion a year earlier. That was the first time Apple's profit declined in a decade.
Analysts had expected the tech giant to report earnings excluding items of $10.00 per share on revenue of $42.33 billion, according to a consensus estimate from Thomson Reuters.
Apple sold 37.4 million iPhones in the quarter, compared with 35.1 million in the year-ago quarter. The tech company sold 19.5 million iPads versus 11.9 million a year earlier.
But the company's gross margin shrank to 37.5 percent from 47.4 percent a year earlier.
For the third quarter, Apple forecast revenue of between $33.5 billion and $35.5 billion, well below the $38.25 billion Wall Street was forecasting. It also expects its gross margin to continue to slide to between 36 percent and 37 percent.
Apple said for the June quarter the lower gross margin will come from lower revenue and a different product mix.
David Pearl of Epoch Investment Partners, which owns 700,000 shares of Apple, told CNBC, "The guidance clearly isn't great. But frankly if you're a longer-term investor than three months, June is pretty much the bottom of their earnings for the next 12 months."
He expects a new product cycle in the second half of the year, adding "if you take a step back at Apple, even with this slowdown in earnings growth, they're growing at 10 percent."
Apple also increased its dividend 15 percent to $3.05 a share and said it will expand its share repurchase program to $60 billion from the $10 billion level announced last year. On the conference call, Apple CEO Tim Cook said Apple will review its cash-allocation strategy each year.
"We applaud Apple's decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago," A Greenlight Capital spokesman said. "This positive development represents a more shareholder-friendly capital allocation policy and demonstrates the conviction of Apple's management and board in the company's future."
Cook said the decline in the stock "has been very frustrating to all of us" but said Apple can't control that; it controls product innovation.
Cook also mentioned the potential of new product categories and said the company is hard at work on new hardware, software and services that it plans to introduce this fall and throughout 2014.