Intuit Q3 Earnings Miss Estimates, Up Y/Y - Analyst Blog

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Shares of Intuit Inc. ( INTU ) dropped 3.88% in after-hours trade on Tuesday after the company reported adjusted earnings per share from continuing operations of $3.42 in the third quarter of 2014, which missed the Zacks Consensus Estimate of $3.50. Nevertheless, earnings increased 18.8% on a year-over-year basis.

Adjusted earnings include stock-based compensation but exclude amortization and other one-time expense.

Quarter Details


Intuit reported revenues of $2.39 billion which increased 14.2% on a year-over-year basis. Reported revenues also compared favorably with the Zacks Consensus Estimate of $2.38 billion. The year-over-year increase was attributed to higher customer additions and higher adoption on Intuit's cloud-based solutions.

Product revenues increased 15.2% year over year to $735.0 million, while Services and Other revenues increased 13.8% from the year-ago quarter to $1.65 billion.

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 4.0%, primarily driven by higher QuickBooks revenues (up 7% year over year). Revenues from Payments remained flat on a year-over-year basis.

Intuit witnessed strong year-over-year subscriber growth in its QuickBooks Online (36%), QuickBooks Desktop (up 22%) and QuickBooks Enterprise (up 18%). The company reported 624K QuickBooks Online subscribers at quarter-end. The rapid adoption of the QuickBooks Online can also be gauged by the 130% surge in subscribers to 64K outside the U.S.

Moreover, Small Business Management Solutions revenues grew 16% while revenues from Employee Management Solutions increased 13.0% year over year primarily due to customer growth in Online Payroll services. Subscriber growth for Demandforce was 44%, primarily boosted by the acquisition of CustomerLink.

Intuit reported adjusted operating income (including share-based compensation but excluding amortization expenses) of $1.51 billion which increased 16.5% from the year-ago period. Margins improved 120 basis points on a year-over-year basis to 63.1%. During the same period of time, the company's total expenses increased 10.8% year over year.

Intuit's adjusted net income from continuing operations (including share-based compensation but excluding amortization expenses) came in at $990.9 million or $3.42 per share compared with $874.4 million or $2.87 per share reported in the year-ago quarter.

Intuit ended the quarter with cash, equivalents and investments of $2.63 billion versus $1.33 billion in the previous quarter. Long-term debt remained flat sequentially at $499.0 million.

Intuit generated $1.53 billion in cash from operations in the first nine months of fiscal 2014. During the period, Intuit repurchased shares worth $1.43 billion and paid $165 million as dividends.

Outlook

The company has also revised its fiscal 2014 outlook. For fiscal 2014, the company expects revenues in the range of $4.475 to $4.505 billion, an increase of 7% to 8% year over year, compared with its previous guidance of $4.440 to $4.525 billion, which represented 6.0% to 8.0% growth. The Zacks Consensus Estimate is pegged at $4.499 billion.

Non-GAAP operating income is now projected in the range of $1.58 to $1.60 billion, an increase of 7% to 9%, compared with its earlier guidance of $1.58-$1.61 billion, representing 7.0% to 10.0% growth. Non-GAAP earnings per share are expected between $3.54 and $3.58, up 11% to 12% year over year versus earlier estimate of $3.52-$3.60. The Zacks Consensus Estimate is pegged at $3.13.

However, Intuit toned down the fourth-quarter revenue as well as earnings guidance. The company expects fourth-quarter revenues to range between $683 million and $713 million (previous guidance $710 to $720 million) while non-GAAP earnings are expected in the range of 6 to 8 cents (earlier guidance 11-13 cents). The Zacks Consensus Estimate for the fourth quarter is pegged at $713 million for revenues and a break-even for earnings.

Our Take

Intuit reported encouraging third-quarter results due to strong tax season and robust customer additions. However, the company provided a modest guidance. 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 share buyback program would aid the bottom line.

However, stiff competition from the other payroll solution providers such as 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 #2 (Buy). Investors may have a look at Rambus Inc. ( RMBS ) which sports a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADP , INTU , PAYX , RMBS

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