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Intuit Posts Wider-than-Expected Loss

Zacks Equity Research

Intuit Inc. (INTU) reported break-even figures in fourth-quarter 2013 on non-GAAP basis from continuous operations compared to the year-ago quarter's earnings per share of 1 cent.

However, including stock-based compensation and its related tax effects, Intuit reported a loss of 11 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 9 cents.


Although Intuit’s revenues of $634.0 million increased 11.8% from the year ago, it lagged the Zacks Consensus Estimate of $658.0 million. Moreover, the reported revenues came below management’s guided range of $702.0 million to $727.0 million. The year-over-year improvement was mainly due to broad-based strength in all the segmental revenues.

Product revenues increased 3.3% year over year to $248.0 million, while Services and Other revenues jumped 18.0% from the prior-year quarter to $386.0 million.

Segment wise, Small Business Group posted 13.0% year-over-year growth based on the strength of the group’s Connected services offerings and the synergies from the acquisition of Demandforce.

Financial Management Solutions revenues increased 18.0%, driven by higher subscription for QuickBooks Online and QuickBooks Enterprise. Employee Management Solutions revenues were up 21.0%, led by growth in Intuit Online Payroll subscribers. Payment Solutions revenues increased 7.0%, aided by higher volumes in the total card transactions and changes in the fees.

Other Businesses revenues increased 4.0% during the quarter due to the growth in global business. Moreover, revenues from Accounting professionals recorded 29.0% growth for the quarter. Revenues from Consumer tax was $30.0 million for the quarter.

Operating Results

Intuit’s gross profit increased 20.2% from the year-ago quarter to $511.0 million while gross margin increased from 75.0% in the year-ago quarter to 80.6%.

Non-GAAP operating income came in at $9.0 million which decreased 30.8% from the year-ago quarter. Operating margin in the quarter was 1.4% versus 2.3% in the year-ago quarter. Total costs and expenses increased 13.0% year over year.

Intuit’s non-GAAP net income from continuing operations was $1.0 million compared with $4.0 million in the year-ago quarter. Excluding one-time expenses but including stock-based compensation expenses and its related tax adjustments, net loss came in at $33.7 million or 11 cents per share.

Balance Sheet & Cash Flow

Intuit ended the quarter with cash, equivalents and investments of $1.7 billion versus $2.0 billion in the previous quarter. Accounts receivables were $130.0 million compared with $312.0 million in the previous quarter. Long-term debt remained flat sequentially at $499.0 million.

Intuit used $194.0 million cash from operating activities compared to an operating cash flow of $1.45 billion in the prior quarter. Intuit repurchased shares worth $292.0 million in fiscal 2013. The company also authorized an additional $2.0 billion share repurchase program in August. The company also raised its quarterly dividend from 17 cents to 19 cents.


For the first quarter of fiscal 2014, the company expects revenues in the range of $595.0 million to $605.0 million reflecting a growth of 6% to 8% on a year-over-year basis. Non-GAAP operating loss is expected to increase from the year-ago period’s loss of $16 million to an estimated loss ranging from $30 million to $35 million. The company also expects its non-GAAP loss per share to be in the range of 10 cents to 11 cents, wider than the year-ago period’s loss of 5 cents per share.

The company also provided fiscal 2014 outlook. For fiscal 2014, the company expects revenues in the range of $4.440 billion to $4.525 billion, representing growth of 6.0% to 8.0%. Non-GAAP operating income is projected in the range of $1.58 billion–$1.61 billion, representing 7.0% to 10.0% growth. Non-GAAP earnings per share are expected between $3.52 and $3.60, reflecting growth of 10.0% to 13.0%.

With the restructuring in place, in fiscal 2014, Intuit expects its Small Business Group revenues to increase in the 10.0% to 12.0% range. Revenues from the Consumer Group are expected to increase by 3.05% to 5.0%. Professional Tax segment’s revenues are expected to increase by 0.0% to 4.0%.

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. The company’s recent realignment of its operations is expected to yield long-term positive results.

We are positive on Intuit’s growing SMB (small & medium business) exposure and believe that the Demandforce acquisition will continue to provide support to the segment. However, stiff competition from the leading payroll solution provider, Paychex Inc., (PAYX) in the SMB arena, seasonality of Intuit’s tax business and the ongoing uncertainty in the economy concern us.

Currently, Intuit has a Zacks Rank #3 (Hold). Investors can have a look at Computer Sciences Corp (CSC) and Hewlett Packard (HPQ), which carry a Zacks Rank #2 (Buy).

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