H&R Block Inc.‘s (HRB) adjusted loss of 1 cent per share in fiscal third-quarter 2012, ending January 31, lagged the Zacks Consensus Estimate of 6 cents. Loss narrowed from 6 cents incurred in the year-ago period. Adjusted loss for the quarter was $3.6 million, comparing favorably with loss of $11 million reported in fiscal third-quarter 2011.

Including income from discontinued operations of $0.2 million, the company reported a net loss of $3.3 million or 1 cent per share in the quarter under review, compared with loss of $12.7 million or 4 cents a share incurred in fiscal third quarter of 2011.

Operational Performance

Revenue in the quarter under review was $663.7 million, down 2.5% from $680.3 million recorded in the year-ago quarter. Reported revenue considerably lagged the Zacks Consensus Estimate of $696 million.

Total expense in the quarter totaled $667 million, lower by 5.8% over prior year quarter.

The company reported an operating loss of $3.7 million, narrower than the loss of $27.9 million in the fiscal third quarter of 2011.

Segment Performance

Tax Services revenue was $655.7 million in the fiscal third quarter of 2012, reflecting adecline of 2.5% as higher revenues from tax preparation were offset by lower revenues from financial product.

The segment pre-tax income was $31.7 million, nearly an eightfold increase over the prior-year quarter. The upsurge in income was driven by lower credit losses and decreased impairment and litigation related charges. However, lower revenue and higher marketing expense were partial offsets.

Corporate and Eliminations posted revenue of $7.58 million, a trifle higher than $7.49 million in the prior-year quarter.

Segment pre-tax loss in the quarter was $32.7 million, wider than the loss of $30.1 million in the year-ago quarter.

Financial Position

H&R Block ended fiscal third quarter 2012 with cash and cash equivalents of $1.25 billion much below $1.50 billion at the end of fiscal third quarter 2011. Total outstanding long-term debt at the reported quarter end was $0.41 billion, substantially lower than $1.04 billion at the end of fiscal third quarter 2011.

Net cash used in operating activities during the first nine months of fiscal 2012 was $1.38 billion, compared with $1.51 million used in the year-ago period.

Dividend

On December 8, 2011, the board of directors of H&R Block authorized an increase of 33% in its dividend. The company will now pay a dividend of 80 cents per share, up from 60 cents per share paid earlier.

Peer Comparison

Intuit Inc. (INTU), which competes with H&R Block, reported a fiscal second quarter 2012 adjusted earnings of 42 cents per share, beating the Zacks Consensus Estimate of 36 cents. The outperformance came on solid consumer tax revenue as well as effective management of marketing, sales, and employee expenses.

Zacks Rank

We retain our Neutral recommendation on H&R Block. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.

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