Intuit Inc. (INTU) reported second quarter 2011 adjusted earnings per share (EPS) of 25 cents, missing the Zacks Consensus Estimate of 27 cents. The adjusted EPS excludes amortization of acquired technology and intangible assets and tax adjustments, but includes stock-based compensation expenses. Shares increased 2.89% in after-market trade, which could be due to an improved earnings outlook.

Revenue

Intuit reported revenues of $878.0 million in the second quarter, up 4.9% from $837.0 million in the prior-year quarter. The quarter’s results missed management’s guidance range of $920.0–$940.0 million and the Zacks Consensus Estimate of $896.0 million. A roughly $60.0 million shift in tax revenue to the third quarter was responsible for the quarter’s miss. Product revenues increased 1.9% year over year to $430.0 million and Services and Other revenues surged 8.0% from the prior-year quarter to $448.0 million.

Consumer Tax witnessed a year-over-year shortfall of 6.0% in revenues, due to the shift in revenue from this quarter to the third. The shift was mainly due to late filings of tax returns. During the quarter, Intuit unveiled a new tax solution, SnapTax, for iPhone and Android mobile users and stated that the innovation is gaining traction.

The Financial Services revenue grew 3% year over year due to the 10% increase in Internet banking and a 23% increase in bill-pay users.

Revenues from the Accounting Professionals unit dropped 2% from the year-ago quarter.

The Small Business Group revenue surged 15% year over year, driven by the double-digit revenue growth in Financial Management Solutions and Employee Management Solutions.

Financial Management Solutions registered 21% growth from the year-ago quarter, driven by expansion in the customer base of Intuit’s websites and increased QuickBooks Online subscriptions. Employee Management Solutions (formerly referred to as Payroll) was up 11% aided by share growth online.

Payment Solutions posted 7% year-over-year growth in the quarter based on 14% merchant growth. Transaction volumes per merchant grew marginally from the prior-year quarter.

Other businesses grew 5% from the year-ago quarter, driven by government health contracts.

Operating Results

GAAP operating income was $111.0 million compared to $139.0 million in the year-earlier quarter. Excluding special items, non-GAAP operating income was $164.0 million compared to $206.0 million in the year-earlier quarter.

GAAP net income in the quarter was $73.0 million, or 23 cents per share, compared to $114.0 million, or 35 cents in the comparable quarter last year. The adjusted net income in the quarter was $80.9 million or 25 cents, compared to $98.8 million or 31 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Intuit ended the quarter with cash, equivalents and investments of $892.0 million, down from $1.17 billion in the previous quarter. Accounts receivable were $481.0 million, compared to $147.0 million in the previous quarter. As of January 31, 2011, long-term debt also remained flat at $998.0 million.

Intuit generated $258.0 million of operating cash in the second quarter, compared to $211.0 million in the prior quarter. Capital expenditure increased $33.0 million from the previous quarter to $84.0 million. During the quarter, Intuit repurchased shares worth $530.0 million and had $1.1 billion remaining on its current share repurchase authorization at quarter-end.

Outlook

For the third quarter of fiscal 2011, Intuit expects revenues to range between $1.76 billion and $1.83 billion. Operating income is projected in the range of $1.0–$1.05 billion on a GAAP basis and $1.05–$1.10 billion on a non-GAAP basis. GAAP EPS is projected at between $2.10 and $2.18 and non-GAAP EPS between $2.22 and $2.30.

Intuit reiterated its revenue and operating income guidance for fiscal 2011. The company still expects revenues to range between $3.74 billion and $3.84 billion. Operating income is expected in the range of $980.0 million to $1.015 billion on a GAAP basis and $1.22–$1.25 billion on a non-GAAP basis. GAAP loss per share is now projected within $1.93–$2.00, which is higher than the previous expectation of $1.88–$1.95. Non-GAAP loss per share is expected to be between $2.41 and $2.48 versus the previous expectation of $2.36 to $2.43. The increased earnings outlook reflects a lower tax rate due to the extension of the research and development tax credit.

On a segmental basis, Intuit still expects the Small Business Group to grow 8% to 12% year over year in fiscal 2011. The projected year-over-year growth rate is 10% to 13% (previously 8% to 12%) for the Consumer Tax business, 4% to 7% (reiterated) for Accounting Professional, roughly 7% (previously 4% to 7%) for Financial Services and 11% to 16% (reiterated) for Other businesses.

Our Take

Intuit is a leading provider of business and financial management solutions to small and medium-sized businesses, consumers, accounting professionals and financial institutions. Management is confident about gaining market share in its Small Business group and Consumer Tax business, aided by accelerating customer growth and improving revenue per customer. However, we remain cautious on the stock based on the quarter’s miss and stiff competition from H&R Block  Inc. (HRB).

Current, Intuit has a Zacks #3 Rank indicating short-term Hold rating.

 
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