Intuit Beats, Raises Outlook - Analyst Blog

Excluding one-time items, but including stock-based compensation expenses,

(

) reported earnings for the third quarter of fiscal year 2010, which were up 13.7% from the year-ago quarter. The results were encouraging, as earnings surpassed the Zacks Consensus Estimate of $1.74, or a positive surprise of 4.02%.

Intuit Inc. reported revenue of $1.607 billion in the third quarter of fiscal 2010, up 13.0% year over year and over the high end of the management’s guidance by $17.0 million.

Overall revenues were driven by the strong tax season. Particularly, the strong customer demand for tax filing on the web-fueled growth across two of the five reporting segments.

Consumer Tax, the largest segment, generated revenues of $871.0 million, an increase of 12% year over year. Segment revenue was driven by the software and online product line. Management stated that the company gained share in both the desktop and web-based platforms.

The Accounting Professional segment also benefited, with revenues of $205.0 million, representing a year-over-year increase of 15.0% due to a revenue shift of $9 million that was pushed out from the second quarter into the third quarter. Excluding this shift, revenue would have increased 10.0%.

The Financial Institutions segment benefited from a strong season, as well as the introduction of Turbo Tax Online Banking during the quarter, which alone contributed 12 points of growth. Intuit integrated its TurboTax Online product with Digital Insight’s online banking platform, making it easier for financial institution customers to offer online tax preparation to their customers.

The rest of the offerings are typically targeted at the small business market.

Within this category, Financial Management Solutions (the second largest segment) registered 16% growth from the year-ago quarter. Management stated that the average revenue per user (ARPU) was helped by a better mix and lower promotional discounts.

Employee Management Solutions (formerly referred to as Payroll) was up 13%, especially helped by share growth in online.

The Other Business segment posted a revenue growth of 20.0% in the third quarter, driven primarily by strength in personal finance and currency tailwinds from Canada and the U.K. The personal finance business is benefiting from a strong new Quicken desktop release and the Mint.com acquisition.

Non-GAAP operating margin was 56.3%, was flattish compared to 56.5% reported in the year-ago quarter.

On a non-GAAP basis, excluding one-time income and charges, but including stock-based compensation expenses, net earnings was $586.0 million or $1.81 cents per share versus $508.5 million or $1.55 cents per share last year. EPS exceeded the Zacks Consensus Estimate of $1.74 cents by 7 cents.

During the quarter, the company generated $1.04 billion of cash from operations, compared to $935.0 million last quarter. The company ended the quarter with cash and equivalents of $430.0 million, down from $679.0 million in the year-ago quarter. As of April 30, 2010, long-term debt remained unchanged at $998.0 million.

During the quarter, Intuit repurchased shares worth $200.0 million, with $150 million remaining authorized under the current share repurchase program.

Based on a strong quarter’s results, particularly in the tax business, Intuit raised its full-year revenue, margins and earnings guidance.

For fiscal year 2010, Intuit now expects revenue to grow around 10.0% implying a revenue guidance of $3.41 billion – $3.43 billion. The company earlier expected revenues to grow around 6% – 9%. GAAP operating income is expected to be in the range of $840.0 million to $850.0 million, up from previously the expected range of $785.0 million to $825.0 million.

Non-GAAP operating income is expected to be in the range of $1.065 billion to $1.075 billion, up from the previously expected range of $1.01 billion to $1.05 billion. GAAP EPS is projected at between $1.69 and $1.72, up from the previous projection of $1.63 to $1.70. Non-GAAP EPS is projected between $2.03 and $2.06, up from the previous projection of $1.97 to $2.04.

The fourth quarter is a seasonally weak one for the company. For the fourth-quarter, Intuit expects revenues of between $492.0 million and $507.0 million. GAAP loss per share is forecasted at between $0.21 and $0.20, and non-GAAP loss per share is forecasted at between $0.11 and $0.10.

Intuit is a leading provider of business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals and financial institutions. The company is seeing momentum in the business.

However, we are concerned about margins going forward, given management’s strategy of bringing customers on board through a “free" program, to be subsequently transferred onto a “paid" platform. Moreover, we see limited momentum in the shares, given the run-up in prices since the beginning of the year.

Consequently, the Zacks rank for the stock is currently #3, implying a short-term Hold recommendation.