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H&R Block (HRB) Q2 Loss Narrower Than Expected, Revenues Lag

Zacks Equity Research

H&R Block, Inc. HRB incurred second-quarter fiscal 2020 adjusted loss per share from continuing operations of 85 cents, lower than the Zacks Consensus Estimate of loss of 91 cents.

Loss increased 2.4% year over year due to rise in pre-tax loss (12.6% year over year to $261.3 million) and lower shares outstanding, partially offset by an increased tax benefit. The company usually incurs loss in the first three quarters of any fiscal year due to the seasonality of its tax business.

We observe that shares of H&R Block have declined 7.8% year to date, against the 22.2% rally of the Zacks S&P 500 composite.

Revenues

Revenues of $160.8 million surpassed the consensus estimate by 1.2% and increased 8% year over year. The improvement was driven by contribution from Wave Financial acquisition and improved tax return volumes.

H&R Block, Inc. Revenue (TTM)

H&R Block, Inc. Revenue (TTM)

H&R Block, Inc. revenue-ttm | H&R Block, Inc. Quote

Expenses

Total operating expenses were $403.5 million, 10.8% higher year over year. The increase was due to technology and Wave Financial related investments, and legal expenses, partially offset by lower occupancy costs.

Financial Position

H&R Block exited the quarter with cash and cash equivalents of $245.3 million compared with $607.7 million at the end of the prior quarter. Long-term debt and line of credit borrowings were $1.3 billion. The company used $209.5 million of cash in operating activities and capex was $27.7 million.

The company paid out dividends of $51.6 million in the quarter. A cash dividend of 26 cents per share is payable Jan 2, 2020, to shareholders of record as of Dec 9, 2019. H&R Block repurchased and retired around 5.7 million shares at an aggregate price of $136.9 million.

Outlook

The company reaffirmed its fiscal 2020 revenue growth and margin outlook. It continues to expect total revenue growth of 1.5% to 3.5%. EBITDA margin is expected between 24% and 26%. The company revised its effective tax rate expectation to 19-21% from 23-25%.

Zacks Rank and Stocks to Consider

H&R Block currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments GPN, Mastercard MA and Cardtronics CATM. While Global Payments and Cardtronics sport a Zacks Rank #1, Mastercard carries a Zacks Rank #2 (Buy).  

Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 16% and 4%, respectively.

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