HRB Misses Earnings Est, Beats Y/Y
H&R Block Inc. (HRB) reported adjusted income from continuing operations of $2.54 per share for the fourth quarter of 2013, ended Apr 30. Though earnings missed the Zacks Consensus Estimate of $2.59 by 1.9%, it improved nearly 24% year over year.
Including severance charges of 1 cent per share, unfavorable adjustments from discrete tax items of 2 cents and a loss from discontinued operations of 9 cents, H&R Block reported net income of $2.42 per share, improving almost 22% year over year.
Quarterly Operational Performance
H&R Block’s revenues stood at $2.2 billion, improving approximately 10% year over year. Revenues lagged the Zacks Consensus Estimate of $2.3 billion.
Total expense of H&R Block was $1.1 billion, increasing 5.3% over the prior-year quarter, primarily driven by higher selling, general and administrative expenses, as well as higher compensation and benefits.
H&R Block’s operating income in the reported quarter improved 15% year over year to $1.1 billion.
Total U.S. tax returns prepared by and through H&R Block declined 6% year over year to 133 million returns through Apr 30, while international returns increased 1.3% to 3.3 million. Total tax returns prepared were 25.4 million in fiscal 2013.
Segment Performance
Tax Services revenues in the reported quarter improved approximately 10% to $2.2 billion. Fiscal revenues climbed 0.5% to $2.9 billion attributable to an increase in digital online filings and changes in promotional offerings like the Free Refund Anticipation Check (:RAC).
Pre-tax income for the segment was $1.2 billion in the quarter, improving nearly 20% year over year, while fiscal 2013 pre-tax income was $823 million, improving 9% year over year
Corporate and Eliminations posted revenues of $7 million in the fourth quarter, up 8% year over year. Fiscal revenues slumped 11% to $28 million.
The segment’s pre-tax loss in the quarter was $26 million, narrower than the loss of $34 million in the year-ago quarter, while fiscal pre-tax loss narrowed to $119 million from $128 million in fiscal 2012.
Fiscal 2013 Highlights
Fiscal 2013 adjusted income from continuing operations came in at $1.59 per share, missing the Zacks Consensus Estimate of $1.62 by 1.9%. Results, however, improved 25% year over year.
Including impairment of goodwill and intangible assets of 1 cent, severance charges of 1 cent, loss on extinguishment of debt of 1 cent, favorable adjustments from discrete tax items of 12 cents, loss contingencies - litigation of 1 cent and loss from discontinued operations of 11 cents, H&R Block reported net income of $1.58 per share, surging 77% year over year.
Successful execution of the previously announced cost containment measures aided the year-over-year improvement.
Total revenue inched up 0.4% year over year to $2.9 billion,
Financial Position
H&R Block ended fiscal 2013 with cash and cash equivalents of $1.9 billion, 6.3% lower from fiscal 2012 level. Total outstanding long-term debt of H&R Block at the end of the reported quarter was $0.9 billion, surging from the year-ago level of $0.4 billion, due to the issuance of $0.5 billion senior notes.
Net cash used in operating activities in fiscal 2013 was $111 million, compared with $352 million generated in the year-ago period.
Dividend and Share Repurchase
On Jul 1, 2013, H&R Block will pay a dividend of 20 cents per share to the shareholders of record as of Jun 17, 2013. The dividend will mark 203rd consecutive quarterly dividend paid since the company went public in 1962.
Additionally, in 2013, H&R Block spent $315 million to buy back 21.3 million shares.
Peer Comparison
Intuit Inc. (INTU) reported third-quarter 2013 adjusted earnings per share of $2.87, surpassing the Zacks Consensus Estimate of $2.85 on top-line growth.
Our Take
Shares of H&R Block fell 1.94% to close at $28.83 on Wednesday after the tax preparer missed the expectation for the second time in a row. Full-year results also failed to meet the expectation.
Nevertheless, H&R Block’s costs reduction initiatives has been successful. The company surpassed its expectation to reduce costs by $85 to $100 million.
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. According to management, the company has successfully captured market share in the digital online category from Intuit for the third consecutive year. Its efforts to return value to its shareholders will also help retain investor confidence on the stock.
Last year, H&R Block announced an agreement with Sears Holdings Corporation (SHLD), to focus on 112 best performing Sears locations, while shutting down the rest. Likewise, this year, it is not renewing its agreement with Wal-Mart (WMT) in the United States, as the performance and results from the channel failed to match its expectations. These initiatives further reinforce the company’s efforts to improve operational efficiency.
H&R Block presently carries a Zacks Rank #4 (Sell).
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