H&R Block Inc. (HRB) reported adjusted loss from continuing operations of 42 cents per share for the second quarter of fiscal 2014, ended Oct 31, 2013. Loss was wider than the Zacks Consensus Estimate loss as well as the year-ago loss of 37 cents.
Adjusting for professional fees related to HRB Bank transaction of 1 cent and discreet tax item of 3 cents , H&R Block reported net loss of 38 cents per share, a cent worse than loss of 37 cents incurred in the year-ago quarter.
Quarterly Operational Performance
H&R Block’s revenues stood at $134 million, declining approximately 2.2% year over year. Revenues missed the Zacks Consensus Estimate of $135 million.
Total expense of H&R Block was $287.4 million, increasing 10.5% 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 loss in the reported quarter deteriorated 9.4% year over year to $180 million.
Segment Performances
Tax Services revenues in the reported quarter declined approximately 1.4% to $128 million.
The decline stemmed from timing differences in Australian operations. However, higher Emerald Card fee revenues from increased year-round usage limited the downside.
Pre-tax loss widened 22.4% year over year to $159 million.
Corporate and Eliminations posted revenues of $6.3 million in the second quarter, down 15.4% year over year.
The segment’s pre-tax loss in the quarter was $20 million, narrower than the loss of $32.2 million in the year-ago quarter.
Financial Position
H&R Block ended second quarter with cash and cash equivalents of $838 billion, 35.5% lower on a year-over-year basis. Total outstanding long-term debt of H&R Block at the end of the reported quarter was $506.1 million, improving 44.1% year over year.
Net cash used in operating activities in first half of fiscal 2014 was $492.4 million, lower than $567.0 million used in the year-ago period.
Dividend Update
On Jan 2, 2014, H&R Block will pay a dividend of 20 cents per share to the shareholders of record as of Dec 9, 2013. The dividend will mark the 205th consecutive quarterly dividend paid since the company went public in 1962.
Peer Comparison
Intuit Inc. (INTU) reported adjusted loss per share from continuing operations of 18 cents in the first quarter of fiscal 2014, narrower than the Zacks Consensus Estimate of a loss of 20 cents per share.
Our Take
The tax preparer missed the expectation for the fourth time in a row. The top line declined while expenses increased, inducing higher year-over-year loss.
As most of the clients file their tax returns from January through April each year, substantially all of H&R Block’s revenues from income tax return preparation and related services and products are received during this period. As a result, the company incurs loss through the first eight months of a fiscal year. Nonetheless, with plans for the upcoming tax season, the company is well positioned to deliver strong results going forward.
Additionally, 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. Its efforts to return value to its shareholders will also help retain investor confidence in the stock.
H&R Block presently carries a Zacks Rank #4 (Sell). Better-ranked stocks from the same sector include Furmanite Corp. (FRM) and Core-Mark Holding Company, Inc. (CORE). Both these stocks carry a Zacks Rank #2 (Buy).
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