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Intuit's 4Q Loss Wider Than Expected

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Intuit Inc. (INTU - Free Report) reported a fourth quarter 2012 adjusted loss per share of 8 cents, wider than the Zacks Consensus Estimate for a loss of 4 cents. Shares moved lower in after-hours trading reflecting the lackluster revenue and earnings per share (EPS) guidance for the coming quarter.


Intuit reported revenues of $651.0 million in the fourth quarter, up 13.6% from $573.0 million in the prior-year quarter. Reported revenue was within management’s guidance of $647.0 million to $662.0 million.

Product revenues increased 2.6% year over year to $240.0 million, while Services and Other revenues climbed 21.2% from the prior-year quarter to $411.0 million.

Segment-wise, the Small Business Group posted a 19.0% year-over-year growth based on the strength of its sub-segments. Revenue for Financial Management Solutions increased 17.0%, driven by higher subscription for QuickBooks Online and QuickBooks Enterprise. Employee Management Solutions revenue was up 13.0%, led by growth in Intuit Online Payroll and Enhanced Payroll subscribers, as well as improved adoption of direct deposit services. Online payroll subscribers grew 19.0%. Payment Solutions revenue increased 31.0%, with 13.0% growth in merchant customers.

The Consumer Tax segment posted 16.0% revenue growth. Financial Services revenue was slightly down from the year-ago quarter. Revenue for the Accounting Professionals segment increased 8.0%. Other Businesses revenue grew 5.0% on the back of Intuit’s global business.

Operating Results

Reported gross margin fell 160 basis points (bps) from the year-ago quarter to 70.7%. Operating margin was (6.9%) versus (10.0%) in the year-ago quarter. Though total operating expenses increased 7.0%, the percentage on total revenue contracted.

GAAP net loss was $32.0 million or 11 cents per share, compared with $56.0 million or 19 cents per share delivered in the year-ago quarter. Excluding one-time expenses but including stock-based compensation expenses, the adjusted net loss in the quarter was $22.6 million or 8 cents per share versus $24.3 million or 8 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Intuit ended the quarter with cash, equivalents and investments of $744.0 million, down from $1.52 billion in the previous quarter. Accounts receivables were $183.0 million compared with $294.0 million in the previous quarter. Long-term debt remained flat sequentially at $499.0 million.

Intuit used $182.0 million of operating cash in the fourth quarter. Capital expenditure was $61.0 million. During the quarter, Intuit repurchased shares worth $107.0 million and paid off $178.0 million in dividend. The company also announced a 13.0% increment in quarterly cash dividend. The increased dividend of 17 cents per share will be paid effective October 2012.


For the first quarter of fiscal 2013, the company expects revenues in the range of $630.0 million to $640.0 million. GAAP operating loss is expected at $85.0 million to $90.0 million. Non-GAAP operating loss is estimated in the $20.0 million to $25.0 million range. GAAP loss per share is projected at 20 cents to 21 cents. The company also expects non-GAAP loss per share in the 6 cents to 7 cents range.

For fiscal 2013, the company expects revenues between $4.55 billion and $4.65 billion, 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 to grow 12.0% to 14.0%. GAAP diluted EPS is expected to grow in the range of 6.0% to 8.0% to between $2.76 and $2.82. Non-GAAP diluted EPS is expected between $3.32 and $3.38, indicating a growth of 12.0% to 14.0%.

Our Take

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 disappointing fourth quarter results, missing the Zacks Consensus Estimate on the bottom line. We are also concerned about first quarter 2013 guidance.

However, 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 - Free Report) in the SMB arena, seasonality of Intuit’s tax business and ongoing uncertainty in the economy concerns us.

Currently, Intuit has a Zacks #4 Rank, which translates into a short-term Sell rating.

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