H&R Block, Inc. (HRB) guided its fiscal third quarter 2011 revenue to $850 million. The tax preparer also expects to break even in the third quarter. The company has been reporting loss over the past two quarters.
H&R Block expects approximately $20 million of revenue deferral related to the IRS delay will likely be recognized in the fiscal fourth quarter. The company, in the third quarter, recorded pretax charges of $38 million, primarily due to goodwill impairment at an ancillary tax business, as well as incremental legal expense.
H&R Block also announced its first interim tax season results. Total tax returns prepared from February 1 through February 15 increased 2.5% year over year. Total digital tax returns grew 7.3%, including a 27.6% increase in online filings. Total retail returns prepared increased 0.5%.
Total retail returns prepared improved 17% while total online returns prepared increased 32% and the trend continued with total retail returns prepared increasing 17% and total online returns prepared increasing 39% for the period February 1 through February 22.
Total digital returns in the online segment increased 27.6% for the period February 1 to February 15. The company attributed the hike to the successful marketing campaign. New online client growth was 46.2%.
However, the growth in online filings was partially offset by a 10.4% decline in software-based returns and a 16.0% decline in Free File Alliance (FFA). Total digital tax returns, including online, software and FFA grew 7.3%. Total digital returns excluding FFA increased 11.0%.
Based on strong new client growth, the retail net average charge (NAC) declined 8.0% through February 15. Excluding 1040 EZ returns and fees, the adjusted NAC increased 2.9% year over year. H&R Block expects NAC will be down 1 to 3 percentage points year over year for fiscal 2011 primarily due to the success of its 1040 EZ promotion.
H&R Block’s fiscal second-quarter 2011 loss from continuing operations came in at 35 cents per share, an improvement from the Zacks Consensus Estimate of a loss of 38 cents a share. The company’s lower expense coupled with share buyback helped it to report a lower loss in the quarter.
The company’s realignment initiatives remain on track. The company also remains focused on increasing its client retention rate. The recently announced acquisition of 2SS Holdings Inc. will further boost the company’s digital space, a business that is seeing a shift from assisted tax preparation.
Also, with the termination of H&R Block’s RAL Agreement, H&R Block can now enter into other contracts for financial products that were previously not allowed. However due to the termination H&R Block thinks that taxpayers will be deprived of credit or might have to use higher-priced alternatives. The company is working on products to fill the gap created by the termination.
The Zacks Consensus Estimate for third-quarter 2011 is 18 cents per share. For fiscal years 2011 and 2012, the Zacks Consensus Estimates are a respective $1.44 per share and $1.66 per share.
The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the shares over the near term.
Headquartered in Kansas City, Missouri, H&R Block Inc. is a leading provider of tax preparation services. Through its subsidiaries, the company provides tax, retail banking, accounting and business consulting services and products in the U.S., Canada and Australia. It competes with Intuit Inc. (INTU).
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