Back to top

Image: Bigstock

Intuit (INTU) Beats on Q3 Earnings & Revenues, Raises View

Read MoreHide Full Article

Intuit Inc. (INTU - Free Report) reported better-than-expected results for the third quarter of fiscal 2016. Both the top and the bottom line also witnessed a significant year-over-year improvement.

The company reported adjusted earnings (including stock-based compensation but excluding amortization and other one-time items) from continuing operations of $3.27 per share, which fared better than the Zacks Consensus Estimate of $3.03. Moreover, on a year-over-year basis, adjusted earnings surged 24.3%.

On a GAAP basis, earnings from continuing operations came in at $3.26 per share, compared with the year-ago earnings of $2.33.

The bottom line was mainly driven by higher revenues, efficient cost management and a lower share count.

Quarter in Detail

Tax-preparation related software maker reported revenues of $2.304 billion, which came above management’s guided range of $2.210–$2.260 billion and surpassed the Zacks Consensus Estimate of $2.246 billion as well. On a year-over-year basis too, revenues were up 7.9% mainly on the back of the company’s ongoing transformation into a global cloud company and higher demand resulting from the U.S. tax season.

Services and Other revenues climbed nearly 9% to $1.845 billion while product revenues were up 3.8% to $459 million.

Segment-wise, Small Business Group recorded 12% year-over-year growth driven mainly by strong customer acquisition, along with continuous subscriber growth for QuickBooks Online and QuickBooks Self-Employed. The company recorded the addition of 140,000 QuickBooks Online subscribers during the quarter, bringing the total global count to 1.397 million.

Revenues from Consumer Tax grew 7% year over year. On the other hand, ProTax revenues were roughly flat at $126 million.

Coming to operational metrics, Intuit reported adjusted gross profit of $2.093 billion, up 7.8% year over year, mainly backed by higher revenues. However, gross margin contracted 10 basis points (bps) to 90.8%.

The company reported a 2.6% year-over-year increase in adjusted operating expenses. However, as a percentage of revenues, adjusted operating expenses contracted 180 bps to 34.7% primarily due to efficient cost management.

The company posted adjusted operating profit of $1.294 billion, up 11.4%. Adjusted operating margin expanded 180 bps to 56.2%.

Intuit posted adjusted net income from continuing operations of $851.2 million or $3.27 per share, compared with the third-quarter fiscal 2015 level of $742.9 million or $2.63 per share.

Balance Sheet and Cash Flows

Intuit exited the fiscal third quarter with cash and investments of $1.613 billion. Long-term debt was $500 million at the quarter end.

Further, Intuit generated $1.711 billion of cash from operational activities during the first nine months of fiscal 2016. During the same time frame, the company also repurchased shares worth $2.190 billion and paid $238 million as dividend.

Outlook

Bolstered by the solid performance, Intuit raised its fiscal 2016 guidance and issued an encouraging outlook for the fiscal fourth quarter.

The company now anticipates revenues of $4.660 billion to $4.680 billion, up from its earlier guidance of $4.525–$4.600 billion. The Zacks Consensus Estimate is pegged at $4.602 billion.

Non-GAAP operating income is now expected in the range of $1.490 billion to $1.510 billion, up from the previous projection of $1.450–$1.480 billion. Non-GAAP earnings per share are now projected between $3.63 and $3.65, up from prior guidance of $3.45–$3.50. The Zacks Consensus Estimate currently stands at $2.79.

Additionally, during the fiscal first quarter, the company had projected capital expenditure of $490–$510 million. Nothing was mentioned in this regard during this quarter.

For the fourth quarter, the company anticipates revenues in the range of $720 million to $740 million, higher than the Zacks Consensus Estimate of $718 million.

It expects non-GAAP operating loss of $15 million to non-GAAP operating income of $15 million.

While the company expects to report breakeven non-GAAP results in the fourth quarter, the Zacks Consensus Estimate stands at a loss of 22 cents.

Our Take

Intuit reported better-than-expected fiscal third-quarter results that also recorded a year-over-year improvement. Driven by the solid performance, the company also issued an encouraging guidance for both the fourth quarter and the fiscal year.

Moreover, we are positive about Intuit’s growing SMB exposure and believe that its strategic acquisitions will boost the segment. Increased adoption of its cloud-based services and products is another positive.

Intuit has also restructured its business to focus on the QuickBooks services. It expects to continue investing in this portfolio, which is likely to hurt its near-term profitability.

Moreover, rising competition from payroll solution providers such as Paycom Software Inc. (PAYC - Free Report) and Automatic Data Processing (ADP - Free Report) is a concern, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.

Currently, Intuit has a Zacks Rank #2 (Buy). Another stock worth considering in the technology sector is Synopsys Inc. (SNPS - Free Report) , which sports a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in