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Intuit (INTU) Q1 Loss Lower than Expected, Revenues Beat

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Shares of Intuit Inc. (INTU - Free Report) went up more than 2% yesterday after the company reported encouraging first quarter of fiscal 2017 results. Also, the company provided an encouraging second-quarter and fiscal 2017 guidance, which positively impacted the share price.

The company reported adjusted loss (including stock-based compensation but excluding amortization and other one-time items) from continuing operations of 11 cents per share, which fared better than the Zacks Consensus Estimate of a loss of 17 cents per share.

On a GAAP basis, loss from continuing operations was 12 cents per share compared with the year-ago loss of 11 cents per share.

Quarter in Detail

This tax-preparation related software maker reported revenues of $778 million, which came above management’s guided range of $740 million to $760 million and surpassed the Zacks Consensus Estimate of $753 million. On a year-over-year basis too, revenues were up 9.1% mainly on the back of higher demand resulting from the U.S. tax season and better-than-expected growth in QuickBooks Online.

Services and Other revenues climbed nearly 8.8% to $481 million while product revenues were up 9.6% to $297 million.

Segment-wise, Small Business Group recorded 11% 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 an incresae of 41% QuickBooks Online subscribers for the quarter, bringing the total global count to 1,638,000. QuickBooks Self-Employed subscribers totaled 110,000 during the quarter. On the other hand, revenues from the Small Business online ecosystem increased 26% on a year-over-year basis, primarily due to online customer acquisition.

Revenues from Consumer Tax during the quarter came in at $60 million. ProConnect professional tax revenues were roughly $112 million during the quarter.

Coming to operational metrics, Intuit reported adjusted gross profit of $598 million, up 8.1% year over year, mainly backed by higher revenues. However, gross margin contracted 70 basis points (bps) to 76.9%.

The company reported a 14.1% year-over-year increase in adjusted operating expenses. Also, as a percentage of revenues, adjusted operating expenses expanded 370 bps to 84.2%, primarily due to higher cost of sales. This in turn impacted operating results.

The company posted adjusted operating loss of $57 million compared with an adjusted loss of $21 million reported in the year-ago quarter.

Intuit posted adjusted net loss from continuing operations of $28.1 million compared with first-quarter fiscal 2016 loss of $25.2 million.

Balance Sheet and Cash Flows

Intuit exited fiscal first quarter with cash and investments of $605 million compared with $1.080 billion in the previous quarter. Long-term debt was $475 million at the quarter end.

Intuit used $205 million of cash from operational activities during quarter. During the same time frame, the company repurchased shares worth $1.8 billion and paid dividends worth $89 million.

For the second quarter of fiscal 2017, the company received an authorization to pay a dividend of 34 cents per share.

Outlook

Intuit reaffirmed its fiscal 2017 guidance and issued outlook for the fiscal second quarter.

The company anticipates revenues of $5 billion to $5.1 billion in fiscal 2017, up 7% to 9% year over year. The Zacks Consensus Estimate is pegged at $5.046 billion.

Non-GAAP operating income is expected in the range of $1.675 billion to $1.725 billion, representing growth of 8%-11%. Non-GAAP earnings per share are projected between $4.30 and $4.40 (an increase of 14-16%). The Zacks Consensus Estimate currently stands at $3.55.

For the second quarter, the company anticipates revenues in the range of $1.045 billion to $1.065 billion. The Zacks Consensus Estimate is pegged at $1.002 billion.

It expects non-GAAP operating income to be in the range of $142 million to $152 million. While the company expects to report non-GAAP earnings in the range of 33 cent to 36 cents per share in the second quarter, the Zacks Consensus Estimate stands at 14 cents.

INTUIT INC Price, Consensus and EPS Surprise

Our Take

Intuit reported better-than-expected fiscal first-quarter 2016 results. Its performance also improved on a year-over-year basis. Though the company posted a loss in the quarter, it fared better than Zacks Consensus Estimate. Also, revenues surpassed the same. The company also issued an encouraging guidance for second quarter and fiscal 2017.

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 #3 (Hold). A better-ranked stock in the technology space is Seagate Technology plc (STX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Seagate has a long term expected earnings per share growth rate of 4.05%.

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