H&R Block Inc.
) reported adjusted loss from continuing operations of 40 cents
per share for the first quarter of fiscal 2014, ended Jul 31.
Loss was wider than the Zacks Consensus Estimate expected loss of
35 cents and widened by 3% year over year.
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Including professional fees related to pending HRB Bank
transaction of 2 cents, H&R Block reported net loss of 42
cents per share, deteriorating 7% year over year.
Quarterly Operational Performance
H&R Block's revenues stood at $127 billion, improving
approximately 32% year over year. Revenues surpassed the Zacks
Consensus Estimate of $98 million.
Total expense of H&R Block was $306.7 million, increasing
14.1% 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 4.1% year over year to $179 million.
revenues in the reported quarter improved approximately 35% to
The improvement stemmed from timing differences in Australian
operations resulting in increase in revenues in international
operations. Higher fees from financial services also added
Pre-tax loss widened 2.5% year over year to $144 million.
Corporate and Eliminations
posted revenues of $5.5 million in the fourth quarter, down 11.7%
year over year.
The segment's pre-tax loss in the quarter was $40 million, wider
than the loss of $28 million in the year-ago quarter.
H&R Block ended first quarter with cash and cash equivalents
of $1.22 billion, 24.5% higher year-over-year. Total outstanding
long-term debt of H&R Block at the end of the reported
quarter was $0.9 billion, surging from the year-ago level of $0.4
billion at year-ago end.
Net cash used in operating activities in first quarter was $318
million, lower than $33 million used in the year-ago period.
On Oct 1, 2013, H&R Block will pay a dividend of 20 cents per
share to the shareholders of record as of Sep 10, 2013. The
dividend will mark the 204th consecutive quarterly dividend paid
since the company went public in 1962.
Update on H&R Block Bank Sale
On Jul 11, H&R Block inked an agreement with Republic Bank
and Trust Company to divest the assets and transfer the
liabilities of H&R Block Bank.
The divestiture will allow the company to be free from being
subjected to regulations by the Federal Reserve Bank as a savings
and loan holding company. In light of the proposed laws,
which demand higher capital requirements for savings and loan
holding companies like H&R Block Bank, H&R Block decided
to go for the divestiture. These laws were proposed by the
Federal Reserve to execute the changes as per the Dodd-Frank Act.
Following the divestiture, H&R Block will incur one-time cost
of about 3-4 cents per share in fiscal 2014. H&R Block also
estimates dilution of about 6-9 cents per share on an annualized
basis, stemming from the service agreement with Republic.
Apart from regulatory approval, the transaction is subject to
negotiation of additional agreements. Under these agreements,
Republic Bank will act as the bank for H&R Block's core
financial services products. The core financial services products
include Refund Transfers, Emerald Advance lines of credit and the
Emerald Prepaid MasterCard.
If regulatory approvals are obtained by Sep 30, 2013, the
transaction will see light in 2013. If regulatory approvals are
obtained after Sep 30, 2013 but before Apr 30, 2014, the deal
will see light between Apr 30, 2014 and Jun 18, 2014.
Meanwhile, Republic filed an application with its regulators to
convert to a national bank charter which is being processed.
) broke even in fourth-quarter 2013 on non-GAAP basis from
continuous operations compared to the year-ago quarter's earnings
per share of 1 cent.
Shares of H&R Block slipped 0.1% to close at $27.88 on
Tuesday after the tax preparer missed the expectation for the
third time in a row.
Though the quarter experienced improved top-line, higher expenses
limited the upside.
Nevertheless, 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. According to management, the company has
successfully captured market share in the digital online category
from Intuit. Its efforts to return value to its shareholders will
also help retain investor confidence on the stock.
Additionally, to improve operational efficiency H&R Block
announced an agreement with
Sears Holdings Corporation
), to focus on 112 best performing Sears locations, while
shutting down the rest. Likewise, it has not renewed its
) in the United States, as the performance and results from the
channel failed to match its expectations.
H&R Block presently carries a Zacks Rank #3 (Hold).