Monday, financial services company H&R Block Inc. (HRB) reported a fourth quarter profit, compared to a loss in the same period last year, primarily due to a narrower net loss from discontinued operations resulting from the sale of its mortgage unit. The company also raised its annual cash dividend and authorized share repurchases. Reporting its first profit in two years, the company also provided outlook for earnings from continuing operations for fiscal year 2009 above Street expectation.
Among others in the industry, financial software maker Intuit Inc. (INTU) reported an increase in third quarter earnings in May, helped by a 15% growth in revenues, driven by exceptional performance in the consumer and professional tax segments.
For the fourth quarter of fiscal 2008, the largest tax preparer in the U.S. said consolidated net earnings were $543.6 million, or $1.66 per share, compared to a consolidated net loss of $85.6 million, or $0.26 per share in the fourth quarter of fiscal 2007.
For the fourth quarter of the fiscal year ended April 30, the Kansas City, Missouri-based company's earnings from continuing operations advanced 17% to $691.1 million, or $2.11 per share from $591.2 million, or $1.81 per share in the prior-year period.
On average, seven analysts polled by First Call/Thomson Financial expected earnings of $2.03 per share.
During the fourth quarter, the net loss from discontinued operations narrowed to $147.6 million, or $0.45 per share from $676.8 million, or $2.07 per share in the prior year, reflecting provisions for loan repurchase obligations, impairments of residual interests and expenses related to the company's exit from its subprime mortgage business.
The subprime crisis that began hurting financial firms in 2006 also affected H&R Block's Option One Mortgage Corp. or OOMC subsidiary. In April 2008, the company sold the unit to an entity sponsored by private equity firm WL Ross & Co. LLC for about $1.1 billion. A year earlier, H&R Block had made the sale offer to Cerberus Capital Management, LP, but the offer did not materialize and the company subsequently shut down OOMC's mortgage origination activities. When the housing boom was at its peak, Option One was ranked eighth among U.S. sub prime lenders.
Fourth quarter revenues rose 11% to $2.615 billion from $2.351 billion, exceeding the Street target of $2.50 billion. The Tax Services segment generated revenues of $2.166 billion, up over 13% from last year. Revenues from the company's Consumer Financial Services division advanced 6% to $127.22 million.
Business Services revenues edged up nearly 1% to $317.93 million. The company noted that results reflect significantly improved margins at its RSM McGladrey unit, the nation's fifth largest accounting firm.
During the fourth quarter, the company incurred a pretax loss of $191 million on discontinued operations that includes the effect of increasing loss-severity on repurchased loans. About $203 million was added to the company's reserves in anticipation of future representation and warranty repurchases, bringing the total level of such reserves to over $240 million.
Full year consolidated net loss narrowed to $308.6 million, or $0.94 per share from $433.7 million, or $1.33 per share reported in the previous year. For fiscal year 2008, earnings from continuing operations grew 21% to $454.5 million, or $1.39 per share, from $374.3 million, or $1.15 per share in the prior year.
Full year revenues rose 10% to $4.4 billion, primarily reflecting growth in Tax Services. Analysts expected full year earnings of $1.35 per share on revenues of $4.27 billion.
For fiscal 2008, net loss from discontinued operations was $763.1 million, or $2.33 per share, compared to a prior-period net loss of $808.0 million, or $2.48 per share.
Total U.S. retail clients served increased 3.8% overall for 2008, and 1.9% excluding Economic Stimulus Package filers.
Cash and cash equivalents at the end of April 30, 2008 was $726.85 million, while it was $921.84 million as of April 30, 2007. Total current liabilities for the two periods are $4.636 billion and $6.129 billion, respectively.
The company's Board of Directors has voted to increase the annual cash dividend by three cents per share to 60 cents per share, resulting in a quarterly dividend of 15 cents per share beginning with the dividend payable October 1. This will represent the 11th consecutive year of dividend increases.
The board also voted to authorize $2 billion of share repurchases during the four-year period 2009-2012, although the company expects to be particularly disciplined in 2009 as it rebuilds its balance sheet. Initial purchases are not anticipated before the fourth quarter of fiscal 2009. The new authorization replaces and increases the previous remaining repurchase authorizations of 22 million shares.
Looking ahead, the company expects fiscal 2009 earnings from continuing operations in the range of $1.60-$1.70 per share. For 2009, the Street expects earnings of $1.58 per share on revenues of $4.53 billion.
While announcing the third quarter results, Intuit also raised its earnings and revenue outlook for fiscal 2008 and authorized the repurchase of up to $600 million shares.
According to Alan Bennett, Interim Chief Executive Officer of H&R Block, "… we are confident that for the three-year horizon through fiscal 2011, we can realize significant gains in earnings per share through unit growth, greater efficiency in our tax and other operations, and capital deployment, rather than relying solely on annual price increases for growth."
On June 16, analysts at Oppenheimer & Co upgraded shares of H & R Block to "Outperform" from "Perform", while setting the target price to $27.
HRB is currently trading at $21.61, up $0.79 or 3.79%, on 5.50 million shares. For the past year, the stock trended in the range of $16.89-$24.64.
For comments and feedback: editorial@rttnews.com