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H&R Block Inc. (HRB - Analyst Report) reported adjusted loss from continuing operations of 77 cents per share for the third quarter of fiscal 2014, ended Jan 31, 2014. Loss was wider than the Zacks Consensus Estimate loss of 8 cents as well as the year-ago loss of 21 cents.

Expenses incurred during the quarter exceeded the amount of revenues generated, thereby inducing losses.

Shares of H&R Block declined 3.42% in the after-market session reflecting the dismal show by the company.

Quarterly Operational Performance

H&R Block’s revenues stood at $200 million, plunging 58% year over year. Revenues missed the Zacks Consensus Estimate of $531 million. The underperformance was largely attributable to revenues related to tax returns prepared but not yet filed which will be recorded during the company's fiscal fourth quarter.

Total expense of H&R Block was $538 million, declining 4.7% over the prior-year quarter, primarily due to lower selling, general and administrative expenses, as well as lower interest expense.

H&R Block’s operating loss in the reported quarter widened to $338.2 million from a loss of $92.6 million incurred in the year-ago quarter.

Segment Performances

Tax Services revenues in the reported quarter plummeted 58% to $194 million as a result of revenues from completed tax returns not being realized in the quarter but being shifted to the next quarter.

Pre-tax loss widened to $322.1 million from $64.2 million loss incurred in the year-ago quarter.

Corporate and Eliminations posted revenues of $5.8 million in the third quarter, down 21.4% year over year.

The segment’s pre-tax loss in the quarter was $26 million, narrower than the loss of $32.1 million in the year-ago quarter.

Financial Position

H&R Block exited the third quarter with cash and cash equivalents of $482.3 million, 5.7% higher on a year-over-year basis. Total outstanding long-term debt of H&R Block at the end of the reported quarter was $506 million, improving 44.1% year over year.

Net cash used in operating activities in the first nine months of fiscal 2014 was $1.12 billion, lower than $1.31 billion used in the year-ago period.

Dividend Update

On Apr 1, 2014, H&R Block will pay a dividend of 20 cents per share to shareholders of record as of Mar 17, 2014. The dividend will mark the 206th consecutive quarterly dividend paid since the company went public in 1962.

Peer Comparison

Intuit Inc. (INTU - Snapshot Report) reported adjusted loss per share from continuing operations of 10 cents in the second quarter of fiscal 2014, which compared unfavorably with the Zacks Consensus Estimate of earnings of 2 cents.

Our Take

This tax preparer missed the expectation for the fifth time in a row. A considerably low top line induced a higher year-over-year loss.

As most of the clients file their tax returns from January through April 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 company incurs loss through the first eight months of a fiscal year. Nonetheless, with plans for the upcoming tax season, the company is well positioned to deliver strong results going forward.

Additionally, 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. Its efforts to return value to its shareholders will also help retain investor confidence in the stock. The company expects total U.S. filing growth in the industry of 0% to 1% and envision adjusted EBITDA margin to hover around 30% in fiscal 2014, consistent with fiscal 2013.

H&R Block presently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same sector include Rentrak Corporation (RENT - Snapshot Report) and Viad Corp. (VVI - Snapshot Report). Both of these have a Zacks Rank #2 (Buy).

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