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H&R Block Inc. (HRB): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

By: Zacks.com
Posted: 12/20/2013 7:00:00 AM
Referenced Stocks: HRB

Summary:
H&R Block's fiscal second quarter loss widened year over year and lagged the Zacks Consensus Estimate. The wider-than-expected loss stemmed largely from an increase in expenses. Nonetheless revenues increased over the prior year on higher tax service revenues, though missed the expectation. Tax Services revenues, in turn, was fueled by higher tax prep fees in the U.S. and Australia, and improved off season usage of Emerald Card. Vending H&R Block Bank will free up additional capital, which can be deployed in strategic opportunities. Moreover, the implementation of the Affordable Care Act will open up revenue generating avenues for H&R Block. The company's association with Go Health helps it to foray into the health insurance brokerage business. However, higher expenses, higher leverage and fluctuating cash position keep us cautious.

Overview:

H&R Block Inc. (HRB) is a leading provider of tax preparation services. The company employs some 100,000 tax professionals and has served more than 550 million clients. Through its subsidiaries, the company provides tax, retail banking, accounting and business consulting services and products. Brothers Henry W. Bloch and Richard A. Bloch founded the company in 1955. It was organized as a corporation that year under the laws of the State of Missouri and is headquartered in Kansas City, MO.

H&R Block offers tax services through retail tax offices in the U.S., Canada and Australia, and its H&R Block At Home software and online solutions.

Currently, the company has two reportable segments: the Tax Services segment and the Corporate segment. Effective May 1, 2009, the company realigned certain segments of its business to reflect a new management reporting structure. The operations of H&R Block Bank have now been reclassified, with activities that support its retail tax network's inclusion in the Tax Services segment, and the net interest margin and gains and losses relating to its portfolio of mortgage loans held for investment and related assets included in the Corporate segment.

The Tax Services segment provides income tax return preparation services, electronic filing services and other services and products related to income tax return preparation to the general public in the U.S., Canada and Australia. This segment also offers the H&R Block Prepaid Emerald MasterCard and Emerald Advance lines of credit through H&R Block Bank.

The Corporate segment includes interest income from U.S. passive investments, interest expense on borrowings, net interest margin and gains or losses relating to mortgage loans held for investment, real estate owned, residual interests in securitizations and other corporate expenses principally related to finance, legal and other supporting departments.

As most of the clients file their tax returns from January through April of 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 Tax Services segment generally operates at a loss through the first eight months of a fiscal year.


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