H&R Block Inc.’s (HRB - Analyst Report) fiscal fourth-quarter net income of $2.01 per share, modestly surpassed the Zacks Consensus Estimate but lagged the year-ago results. For fiscal 2012, H&R Block’s adjusted income came in at $1.26 per share, exceeding the Zacks Consensus Estimate by $0.05.
Though fourth quarter and fiscal year revenue were in line with our expectation, it lagged the year-ago results as higher revenues from tax preparation were offset by lower revenues from financial product.
Given the mixed results delivered by H&R Block, we retain our Neutral recommendation on the company.
Counting on the positives, H&R Block has a sustained focus on expense reduction initiatives. To serve clients better, have better efficiency and accountability and line up resources to balance long-term client and revenue growth, the company announced that it had undertaken realignment strategies that included eliminating 350 positions and closure of 200 underperforming offices. It expects to realize net annualized savings of $85 to $100 million from this strategic realignment by the end of fiscal year 2013.
H&R Block is also increasing market share in the digital as well as assisted space. The company’s client base in digital increased by 750,000, while in assisted space clients augmented by 150,000. Also, with refund anticipation loans (RAL) losing importance, the company is at an advantageous position with its Refund Anticipation Check (RAC).
H&R Block has always remained focused on returning more value to its shareholders. In fiscal 2012, H&R Block spent $200.0 million to buyback 14.6 million shares. The company has already spent $315.0 million to buyback 21.3 million shares in the first quarter of fiscal 2013.
H&R Block also boasts of a dividend yield of 5.01%, sufficiently higher than the industry average of 1.83% as well as that of its nearest peer Intuit Inc. (INTU - Snapshot Report) with a dividend yield of 1.01%.
On the flip side, H&R Block dropped its plan of acquiring 2SS Holdings, Inc, developer of Tax ACT digital tax preparation solutions as the federal judge passed a ruling against it on antitrust grounds. The acquisition was intended to augment the company’s digital tax offerings as well as performance.
Had the acquisition materialized, H&R Block would have had an enlarged client base. Also, the merger would have heated up competition in the digital market, which is presently dominated by Intuit.
Additionally, H&R Block’s performance is tied to the overall health of the economy. With the continuation of a stressed economic environment and unemployment levels, the overall tax filing market is expected to remain under pressure.
The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates a slight upward boost on the stock over the near term.