H&R Block Loss Widens as Expenses Rise; Misses Estimates - Analyst Blog

H&R Block Inc. (HRB) reported loss from continuing operations of 45 cents per share for the second quarter of fiscal 2015, ended Oct 30, wider than the Zacks Consensus Estimate loss and the year-ago loss of 42 cents.

The wider-than-expected loss stemmed largely from an increase in expenses.
 

A weaker-than-expected performance resulted in H&R Block shares losing about 5.58% in the after-market session.

Quarterly Operational Performance

H&R Block's revenues came in at $135 million, improving 0.7% year over year on higher tax service revenues. However, revenues lagged the Zacks Consensus Estimate of $145 million.

Total expense of H&R Block was $302 billion, 5.6% higher than the prior-year quarter, primarily due to increased cost of revenues as well as higher selling, general and administrative expenses.

A slightly improved top line was offset by the increase in expenses and resulted in higher operating loss. Operating loss was $113 million, wider than $103 million loss incurred in the year-ago quarter.

Segment Performances

Tax Services revenues in the reported quarter inched up about 0.5% to $129 billion, fueled by higher tax prep fees in the U.S. and Australia, and improved off season usage of Emerald Card – the H&R Block Prepaid MasterCard.

Pre-tax loss widened year over year to $176.6 million from $159.3 million in the year-ago quarter.

Corporate and Eliminations revenues of $5.9 million were down 5.6% year over year.

The segment's pre-tax loss in the quarter was $24 million, wider than the loss of $20 million incurred in the year-ago quarter.

Financial Position

H&R Block exited the quarter with cash and cash equivalents of $0.68 billion, down 19% on a year-over-year basis. Total outstanding long-term debt of H&R Block at quarter end was $0.5 billion, almost flat year over year.

Net cash used in operating activities was $627.6 million in the first six months, comparing unfavorably with $492.4 million used in the year-ago period.

Dividend Update

On Jan 2, 2015, H&R Block will pay a dividend of 20 cents per share to shareholders of record as of Dec 8, 2014. The dividend will mark the 209th consecutive quarterly payment to shareholders since the company went public in 1962.

Peer Comparison

Intuit Inc. (INTU) reported adjusted loss per share from continuing operations of 23 cents in the first quarter of 2015, narrower than the Zacks Consensus Estimate of a loss of 34 cents.

Our Take

H&R Block missed our expectation on both counts in the reported quarter. However, Tax service continued to post solid numbers on the strength of its product and service offerings.

The company is also an attractive pick for income seeking investors as it pays stable and secure dividend.

Its divestment strategies help it focus more on its core business. However, the company continues to face increasing expenses that weigh on margins.

H&R Block presently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector include Outerwall Inc. (OUTR) and GP Strategies Corp. (GPX). Both stocks carry a Zacks Rank #2 (Buy).