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H&R Block's (HRB) Q1 Loss Flat Y/Y, Revenues Miss Estimates

Zacks Equity Research

H&R Block, Inc. HRB incurred first-quarter fiscal 2020 loss per share from continuing operations of 72 cents, lower than the Zacks Consensus Estimate of loss of 76 cents.

Loss was flat year over year as increase in pre-tax loss and lower shares outstanding offset increased tax benefit due to favorable discrete items. The company usually incurs loss in the first three quarters of fiscal year due to the seasonality of its tax business.

We observe that shares of H&R Block have gained 5.9% year to date, underperforming the 13% rally of the Zacks S&P 500 composite.

Revenues

Revenues of $150.4 million surpassed the consensus estimate by $1.8 million and increased 3.6% year over year. The improvement was driven by contribution from Wave Financial acquisition, improved tax return volumes in both U.S. Assisted and DIY, and increased international tax preparation fees.

Expenses

Total operating expenses were $345.5 million, up 5.6% year over year.  The increase was due to technology and Wave Financial related investments partially offset by lower depreciation and amortization expense.

Financial Position

H&R Block exited the quarter with cash and cash equivalents of $607.7 million compared with $1.6 billion at the end of the prior quarter. Long-term debt was $1.5 billion, flat with the prior quarter figure. The company used $483.8 million of cash in operating activities and capex was $15.2 million.

The company paid out dividends of $52.5 million in the quarter. A cash dividend of 26 cents per share is payable Oct 1, 2019 to shareholders of record on Sep 13, 2019. H&R Block repurchased and retired around 1.6 million shares at an aggregate price of $44.1 million.

Outlook

The company reaffirmed its fiscal 2020 outlook. It continues to expect total revenue growth of 1.5% to 3.5%. EBITDA margin is expected between 24% and 26%. Effective tax rate is anticipated to be 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 include Fiserv FISV, Booz Allen Hamilton BAH and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Fiserv, Booz Allen and Charles River is 12%, 13% and 13%, respectively.

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