Intuit Inc. (INTU) reported adjusted loss per share from continuing operations (Including stock-based compensation but excluding amortization and other one-time expense) of 10 cents in the second quarter of 2014, which compared unfavorably with the Zacks Consensus Estimate of earnings of 2 cents.
Quarter Details
Intuit’s revenues of $782.0 million not only decreased 11.5% on a year-over-year basis, but also lagged the Zacks Consensus Estimate of $847.0 million. However, reported revenues surpassed management’s revised guided range of $775.0 to $780.0 million. The year-over-year decline was primarily due to processing delays and shift in revenues to the third quarter.
Product revenues decreased 28.6% year over year to $287.0 million, while Services and Other revenues increased 2.7% from the year-ago quarter to $495.0 million.
Segment-wise, Small Business Group posted 8.0% year-over-year growth due to higher adoption rate of Intuit’s cloud-based solutions. Small Business Financial Solutions increased 5.0% primarily driven by higher QuickBooks revenues (up 12% year over year). Revenues from Payments remained flat on a year-over-year basis.
Intuit witnessed strong subscriber growth in its QuickBooks Online (up 30% year over year), QuickBooks Desktop (up 19%) and QuickBooks Enterprise (up 20%).
Moreover, Small Business Management Solutions revenues grew 16% while revenues from Employee Management Solutions increased 14.0% year over year primarily due to customer growth in Online Payroll services (up 20%). Revenues from Demandforce increased 32% on a year-over-year basis while subscribers grew 33%.
Intuit reported a loss of $35 million from operations (including share-based compensation but excluding amortization expenses) which was down from an operating profit of $96 million reported in the year-ago period. During the same period of time, the company’s total expenses increased 3.7% on a year-over-year basis.
Intuit’s net loss from continuing operations (including share-based compensation but excluding amortization expenses) came in at $28.8 million or 10 cents per share compared to a net profit of $86.7 million or 28 cents per share reported in the year-ago quarter.
Intuit ended the quarter with cash, equivalents and investments of $1.33 billion versus $1.12 billion in the previous quarter. Long-term debt remained flat sequentially at $499.0 million.
Intuit generated $142 million in cash from operations in the first six months of fiscal 2014. During the period, Intuit repurchased shares worth $1.4 billion and paid $111 million as dividends.
Outlook
The company has reiterated the fiscal 2014 outlook. For fiscal 2014, the company expects revenues in the range of $4.440 to $4.525 billion, representing 6.0% to 8.0% growth. The Zacks Consensus Estimate is pegged at $4.491 billion. Non-GAAP operating income is projected in the range of $1.58–$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%. The Zacks Consensus Estimate is pegged at $2.76.
Moreover, the company provided revenue and earnings guidance for the third and fourth quarters as well. For the third quarter, Intuit expects revenues in the range of $2.325–$2.400 billion and non-GAAP earnings in the range of $3.46–$3.51. The Zacks Consensus is pegged at $2.33 billion for revenues and $3.30 for earnings per share. The company also expects non-GAAP operating income to range between $1.530 billion and $1.550 billion.
Fourth-quarter revenues are forecasted in the range of $710 to $720 million and earnings are expected to range within 11–13 cents.
Our Take
Intuit’s second-quarter results were marred by late tax legislation, budget and debt agreements, and the 17-day government shutdown which resulted in the shift in revenues to the third quarter. However, the company reiterated its fiscal 2014 guidance and provided encouraging third-quarter guidance as well.
We are positive on Intuit’s growing SMB exposure and believe that the strategic acquisitions will continue to support the segment. The higher adoption rate of its cloud-based services and products is another positive factor. Moreover, the company’s accelerated share buyback program would aid the bottom line.
However, stiff competition from the leading payroll solution provider, Paychex Inc. (PAYX) and Automatic Data Processing (ADP), seasonality of Intuit’s tax business and the ongoing uncertainty in the economy concern us.
Currently, Intuit has a Zacks Rank #5 (Strong Sell). Investors may have a look at Lexmark International (LXK) which sports a Zacks Rank #1 (Strong Buy).
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