H&R Block Inc.’s (HRB) second quarter (ended Oct. 31) results were two cents ahead of the Zacks Consensus Estimate. For the quarter, the company reported a net loss from continuing operations of 38 cents per share compared to the Zacks Consensus loss estimate of 40 cents. The company had reported a loss of 40 cents in the year-ago quarter.
Improved results in Tax Services and lower mortgage loan loss provisions were partially offset by reduced profits from Business Services. The company has also benefited from its cost containment initiatives. As a result of the seasonality in the business, the company usually reports a loss in the second quarter.
Consolidated net loss for the quarter, which includes results from discontinued operations, improved to $128.6 million or 38 cents per share compared to a loss of $135.9 million or 41 cents a share a year ago.
However, revenues were down 7.2% year-over-year to $326.1 million due to a decline in revenues from Business Services.
Tax Services revenues increased 4.4% year-over-year to $109.3 million, primarily driven by an increase in tax preparation revenues and increased revenues from Prepaid Emerald Mastercard products provided to tax clients by H&R Block Bank.
Increases in return volume, coupled with the company’s Southwest franchise acquisition, have aided in a $2.4 million increase in tax preparation revenues. Pretax loss was $172.2 million compared to $188.1 million a year ago. The improvement was driven by an increase in revenue and a decrease in overall expenses.
The Business Services segment revenues decreased 11.3% to $206.6 million, primarily reflecting the weak economic environment. Pretax income was $0.2 million compared to $13.1 million a year ago, driven by losses in its capital markets business and increased costs associated with litigation. The Corporate segment reported a pretax loss of $40.8 million compared to a loss of $52.4 million in the prior year, driven by a $9.7 million decrease in mortgage loan loss provisions at H&R Block Bank.
The company has lowered its long-term debt to $1.0 billion from $1.7 billion reported at the prior-year quarter’s end.
H&R Block has reiterated its earnings guidance for the full fiscal year 2010. The company expects to report earnings of $1.60–$1.80 a share.
As a result of unemployment and other factors associated with the stressed economy, the balance sheet of tax preparers such as H&R Block and its competitor Jackson Hewitt Tax Service Inc (JTX) has been severely impacted. We believe that the earnings of these companies will remain restricted in the short term as the economy will require more time to revive.
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