H&R Block Betters Q1 Loss Estimates, Tax Services Improve

H&R Block Inc. (HRB) reported loss from continuing operations of 40 cents per share for the first quarter of fiscal 2015, ended Jul 31, a penny better than the Zacks Consensus Estimate loss of 41 cents. There was no change from the year-ago loss.

The narrower-than-expected loss came largely on the back of an improved top line that compensated for the slight increase in expenses.

H&R Block, Inc - Earnings Surprise | FindTheBest

Shares of H&R Block gained about 2.99% in the after market session, indicating that the market has taken this release positively.

Quarterly Operational Performance

H&R Block’s revenues came in at $134 million, improving 5% year over year driven by a 5-day extension by the Canadian Revenue Agency of the completion of the Canadian tax season this year. Revenues outpaced the Zacks Consensus Estimate of $129 million.

Total expense of H&R Block was $308.7 billion, 0.7% higher than the prior-year quarter, primarily due to increased cost of revenues as well as higher selling, general and administrative expenses.

An improved top line offset the increase in expenses and resulted in lower operating loss. Operating loss was $175 million, narrower than $180 million loss incurred in the year-ago quarter.

Segment Performances

Tax Services revenues in the reported quarter increased about 6% to $129 billion, fueled by the extension of the Canadian tax season completion.

Pre-tax loss widened year over year to $1 million from $144 million in the year-ago quarter.

Corporate and Eliminations revenues of $4.5 million were down 18.2% year over year.

The segment’s pre-tax loss in the quarter was $25 million, narrower than the loss of $40 million in the year-ago quarter.

Financial Position

H&R Block exited the quarter with cash and cash equivalents of $1.4 billion, up 23% on a year-over-year basis. Total outstanding long-term debt of H&R Block at quarter end was $506 million, improving 44.2% year over year.

Net cash used in operating activities was $381.6 million, comparing unfavorably with $318.7 million used in the year-ago quarter.

Dividend Update

On Oct 1, 2014, H&R Block will pay a dividend of 20 cents per share to shareholders of record as of Sep 9, 2014. The dividend will mark the 208th consecutive quarterly payment to shareholders since the company went public in 1962.

Peer Comparison

Intuit Inc. (INTU) reported adjusted loss per share from continuing operations of 15 cents in the fourth quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 5 cents as well as the year-ago quarter loss of 11 cents.

Our Take

Riding on higher revenues, H&R Block yet again bettered expectations. Its decision to divest its bank will not only help it intensify focus on core business, but will also free it from free from being subjected to regulations by the Federal Reserve Bank as a savings and loan holding company. This in turn will leave it with higher amount of free capital that can be deployed in other growth initiatives.

H&R Block’s leading position in the tax preparer market along with its strategic initiatives to grow its business by gaining and retaining customers augur well for long-term growth. Its efforts to return value to shareholders will also help retain investor confidence.

H&R Block presently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector include Capella Education Co. (CPLA) and GP Strategies Corp. (GPX). Both stocks carry a Zacks Rank #2 (Buy).

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