Log In | Register
KANSAS CITY — H&R Block Inc. said Friday it lost $133.6 million in the first quarter, about the same as a year ago but slightly more than Wall Street expected, as acquisition expenses and other costs offset slightly higher revenues.
The nation's largest tax preparer typically records losses in its first two fiscal quarters outside the normal tax season.
Chief Executive Officer Russ Smyth told analysts in a conference call that the Internal Revenue Service expects a 1 percent to 2 percent decline in tax returns filed next year due to unemployment and other economic factors. He added that the economy will likely push more people to do their taxes themselves or to use online tax filing services.
In response, Smyth said the company is retooling its marketing message and how it operates its network of retail tax offices to attract and retain more clients. He also said economic recovery efforts this year will boost the complexity of some tax returns, requiring people to seek help.
"There are headwinds but we think we have a lot of good operational things ... that should help us gain market share to potentially offset some of the headwinds that we face," he said.
H&R Block's retail offices prepared 5.8 percent fewer returns in the 2009 tax season.
Smyth also said the company will likely lose a net of 1,200 locations, including 300 poorly performing retail offices. The rest are "alternate" locations, such as kiosks in Wal-Mart stores, which ended a partnership with H&R Block this year.
The Kansas City-based company said its loss amounted to 40 cents per share for its fiscal first quarter ended July 31. It lost $132.7 million, or 41 cents per share, in the year-ago quarter.
Not including discontinued operations, the company said it would have lost 39 cents per share, slightly above the loss of 37 cents a share expected by analysts.
Revenue edged up 1.3 percent to $275.5 million from $271.9 million but fell short of analysts' expectations of $280 million.
Shares closed down 39 cents, or 2.3 percent, at $16.62 Friday.
The company said revenue in its tax division rose almost 8 percent, thanks to tax return business in Australia. But costs rose as well, including $7.4 million from last year's acquisition of franchisee offices in Texas, Oklahoma and Arkansas, $3.5 million in severance expenses and $2.9 million in technology upgrades in preparation for next year's tax season.
Revenue for the company's business services division increased 1.7 percent and generated a $1.3 million profit versus a loss of $295,000 a year ago.
The company is trying to salvage a partnership with McGladrey & Pullen LLP, which provides business audit services for H&R Block's RSM McGladrey subsidiary and wants to end the partnership. If the two sides can't reach an agreement, Smyth said H&R Block is also negotiating with potential new partners and would try to hold on to as many of its audit clients as possible.
Becky Shulman, H&R Block's chief financial officer, said the company may have to record a charge if it can't work out an agreement with McGladrey & Pullen but didn't offer details.
H&R Block's corporate division, which includes the H&R Block Bank, said its losses improved because of better performance of its mortgage loan securitization portfolio. The company still set aside an additional $7.6 million to cover potential loan losses.
The company said it still expects annual earnings of between $1.60 and $1.80 per share. Analysts are expecting $1.65 per share on $4.17 billion in revenue.
