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We have retained our Neutral recommendation on H&R Block Inc. (HRB - Analyst Report) as it reported a mixed fourth quarter and fiscal 2013 results. H&R Block’s fourth quarter and fiscal 2013 earnings per share missed the Zacks Consensus Estimate. However, it improved year over year on the back of successful cost containment measures. The stock carries a Zacks Rank #3 (Hold).

Why Reiterate?

H&R Block’s adjusted income from continuing operations of $2.54 per share for the fourth quarter of 2013 missed the Zacks Consensus Estimate of $2.59 by 1.9%. It improved nearly 24% year over year.

H&R Block’s revenues stood at $2.2 billion, improving approximately 10% year over year. Revenues lagged the Zacks Consensus Estimate of $2.3 billion.

H&R Block has been trying to focus on its core tax business. As such, it inked an agreement with Republic Bank and Trust Company to divest the assets and transfer the liabilities of H&R Block Bank.

This divesture will free up additional capital, which otherwise would have been held back according to the Dodd-Frank Act. In Dec 2011, the company had divested RSM McGladrey to McGladrey & Pullen, LLP. RSM McGladrey offered accounting, tax and consulting services to middle-market companies.

H&R Block remains focused on expense reduction initiatives and enhancing its operational efficiency. H&R Block surpassed its expectation to reduce costs by $85 to $100 million, thereby augmenting earnings and margin expansion. The company is not renewing its agreement with Wal-Mart in the United States, as the performance and results from the channel failed to match its expectations. These initiatives further reinforce the company’s efforts to improve operational efficiency.

In addition, the company has successfully captured market share in the digital online category from Intuit for the third consecutive year.

H&R Block has always remained focused on returning increasing value to its shareholders. In fiscal 2013, it spent $315 million to buy back 21.3 million shares and is left with $875.5 million under its authorization. H&R Block also boasts of a dividend yield of 2.53%, better than the industry yield of 1.7%. It is also higher than Monro Muffler Brake Inc. (MNRO - Snapshot Report) with yield of 1.0% and Weight Watchers International, Inc. (WTW - Snapshot Report) with yield of 1.8%.

Both these companies are providers of miscellaneous consumer services. With a strong financial position, we expect the company to continue to enhance its shareholder value.

On the tepid side, the performance of H&R Block is tied to the overall health of the economy.

Furthermore, if H&R Block  was successful in acquiring 2SS Holdings, Inc., a developer of Tax ACT digital tax preparation solutions, the company would have gained an enlarged clientele. This is turn would have subsequently intensified competition in the digital market, which is presently dominated by Intuit Inc. (INTU - Snapshot Report).

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