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Intuit Inc. (INTU - Snapshot Report) reported second-quarter 2013 adjusted earnings per share (EPS) of 23 cents, missing the Zacks Consensus Estimate of 28 cents.
Intuit reported revenues of $968.0 million in the second quarter, down 3.1% from $999.0 million in the prior-year quarter. Reported revenues were in line with management’s revised guidance range. The revenue decline was mainly due to shift in tax revenues from the second to the third fiscal quarter due to late legislation and Internal Revenue Service delays.
Product revenues decreased 4.1% year over year to $402.0 million, while Services and Other revenues dropped 2.4% from the prior-year quarter to $566.0 million.
Segment-wise, Small Business Group posted 16.0% year-over-year growth based on the strength of the group’s sub-segments and the synergies from the acquisition of Demandforce on May 12. Financial Management Solutions revenues increased 17.0%, driven by higher subscription for QuickBooks Online, QuickBooks Enterprise and contribution from Demandforce. Employee Management Solutions revenues were up 13.0%, led by growth in Intuit Online Payroll subscribers. Payment Solutions revenues increased 18.0%, aided by customer growth for Intuit’s GoPayment mobile payment solution.
The Consumer Tax segment posted 12.2% revenue decline due to shift in revenues (roughly $140.0 million). Financial Services revenues were up 1.0% from the year-ago quarter, led by higher revenues in online and mobile banking, and addition of the Mint business. This was partially offset by the sale of corporate banking business in Mar 2012. Accounting Professionals segment revenues decreased 7.0%. Other Businesses revenues declined 10.0% due to the shift of Mint business, partially offset by growth in global business.
Reported gross margin decreased 100 basis points (bps) from the year-ago quarter to 78.5%. Operating margin in the quarter was 9.6% versus 19.5% in the year-ago quarter. Total operating expenses increased 11.4% year over year.
GAAP net income from continuing operations was $71.0 million or 23 cents per share, compared with $121.0 million or 40 cents per share delivered in the year-ago quarter. The quarter’s result was lower than the company’s guided range. Excluding one-time expenses but including stock-based compensation expenses, adjusted net income in the quarter was $71.2 million or 23 cents per share versus $129.6 million or 42 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Intuit ended the quarter with cash, equivalents and investments of $678.0 million, up from $558.0 million in the previous quarter. Accounts receivables were $541.0 million compared with $184.0 million in the previous quarter. Long-term debt remained flat sequentially at $499.0 million.
Intuit used $256.0 million of operating cash in the second quarter, as against $145.0 million cash used in the prior quarter. Capital expenditure was $45.0 million. During the quarter, Intuit repurchased shares worth $100.0 million. The company paid a quarterly cash dividend of 17 cents per share amounting to $51.0 million.
For the third quarter of fiscal 2013, the company expects revenues in the range of $2.215 billion to $2.275 billion. GAAP operating income is expected in the range of $1.290 billion to $1.315 billion. Non-GAAP operating income is estimated in the $1.350 billion to $1.375 billion range. GAAP EPS is projected in the range of $2.83 to $2.88. The company also expects non-GAAP EPS in the $2.99 to $3.04 range.
For fiscal 2013, the company expects revenues in the $4.55 billion to $4.65 billion range, representing growth of 10.0% to 12.0%. GAAP operating income is estimated between $1.315 billion and $1.345 billion, reflecting growth of 12.0% to 14.0%. Non-GAAP operating income is projected in a range of $1.57–$1.60 billion, representing growth of 12.0% to 14.0%. GAAP diluted EPS is expected to grow in the range of 14.0–16.0% to $2.96–$3.022. Non-GAAP EPS is expected between $3.40 and $3.46, indicating growth of 14.0% to 16.0%.
Intuit is also likely to expand globally with the help of its connected services that are gaining traction. The increasing preference toward digital solutions is reflected by the growing popularity of its software-based TurboTax, SnapTax, QuickBooks small-business accounting solutions. The company looks forward to add more recurring revenues within its Consumer Tax and Small Business segments, capitalizing on the ongoing shift toward digital solutions.
Intuit is a leading provider of business and financial management solutions to small and medium-sized businesses, consumers, accounting professionals and financial institutions. The company delivered a lower-than-expected second quarter driven by tax revenue shift to the third quarter. But we are encouraged by the third quarter guidance and we believe that the main driver would be the Consumer Tax business.
We are positive on Intuit’s growing SMB (small & medium business) exposure and believe that the closure of the Demandforce acquisition will provide further support to the segment. But stiff competition from the leading payroll solution provider Paychex Inc. (PAYX - Snapshot Report) in the SMB arena, seasonality of Intuit’s tax business and the ongoing uncertainty in the economy concerns us.
Currently, Intuit has a Zacks Rank #4 (Sell). However, not all software stocks are performing as badly as Intuit. Investors can have a look at Adobe Systems (ADBE - Analyst Report) and Advent Software (ADVS - Snapshot Report), which have a Zacks Rank #1 (Strong Buy) and are worth buying.
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