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H&R Block's Profit Dips on Weak Tax Season

Friday, 25 June 2010 12:25 PM

H&R Block Inc. said Thursday that a weak tax season led to a 2 percent decline its fiscal fourth-quarter net income.

Uncertainty about its business and the economy kept the nation's largest tax preparation company from issuing guidance for its new fiscal year. Its shares fell in after-hours trading following the release.

For the three months ended April 30, Block posted net income of $690.8 million, or $2.10 per share, down from $706.9 million, or $2.08 per share, in the year-ago quarter.

Revenue fell 5 percent to $2.34 billion, from $2.47 billion last year.

Wall Street was expecting profit of $2.04 per share, on revenue of $2.34 billion.

"Our business results reflect the challenging economic conditions of this tax season, caused by record levels of sustained unemployment that led to fewer returns being filed by our core retail tax client base," said Russ Smyth, H&R Block's president and CEO, said in a statement. During a conference call, Smyth said unemployment among low-income tax filers, key customers early in the tax season, was higher than the 10 percent national average, which hurt H&R Block's results as many of these former customers didn't file returns this year.

Revenue in tax services, its largest business, fell 5 percent as total tax returns prepared slid 4.3 percent to 20.1 million returns, with declines heavier in January and February. That compares with a 1.7 percent dip in total filings with the Internal Revenue Service nationwide.

Tax returns prepared at H&R Block's retail offices open at least a year dropped 3.9 percent. Digital returns, those filed using H&R Block software and its online product, edged up 0.4 percent.

Smyth said the company's main goals for the next tax season include reducing losses of customers early in the tax season and changing its approach to be more competitive in digital tax preparation.

In an interview, the CEO said the company missed an opportunity to increase its business among people seeking refund anticipation loans, or short-term loans based on their expected tax refunds. That was partially due to a shift in marketing away from emphasizing "rapid refunds," he said, and partially due to confusion among consumers about whether these loans were available at all.

"That is clearly an area that we have to leverage better," he said during the call, particularly because competitors have lost backing for such loans, while H&R Block has funding secured through 2013.

The company is also working to improve its website to drive customer growth in the digital segment, and to emphasize its free digital product to draw customers.

Smyth said the company can expect some customers to migrate from using retail offices to its software or online products. But with most people filing electronically now, Block will have to compete with other digital providers to boost its market share in this category.

Smyth also maintained that attracting young people to the digital product can provide a client base for retail offices in the future, as their taxes become more complicated.

"This whole idea that digital is going to take over the assisted category and there will not be an assisted category in five years, I think that is overblown completely," he said during the interview with The Associated Press.

For the fiscal year, H&R Block posted net income of $479.2 million, or $1.43 per share, compared with $485.7 million, or $1.45 per share, last year. Revenue fell 5.1 percent to $3.87 billion, from $4.08 billion.

The company, which is based in Kansas City, Mo., previously said it is eliminating 400 positions and closing 400 tax offices. That is expected to reduce annual operating expenses by $140 million to $150 million by the end of the current fiscal year.

Smyth said the company will record a lower one-time pretax charge for severance related to the reorganization than previously expected. The charge is expected to be about $19 million, most of which will occur in the first quarter, ending in July. Block previously estimated a $28 million charge.

The CEO also said that the search for a new chief financial officer is progressing and the goal is to complete it within the next few weeks. Former Chief Financial Officer Becky Shulman stepped down on April 30 after two years in the post.

In aftermarket electronic trading, H&R Block shares fell 51 cents, or 3.4 percent, to $14.45, from their close in the regular session at $14.96.

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H R Block Inc. said Thursday that a weak tax season led to a 2 percent decline its fiscal fourth-quarter net income.Uncertainty about its business and the economy kept the nation's largest tax preparation company from issuing guidance for its new fiscal year. Its shares...
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2010-25-25
Friday, 25 June 2010 12:25 PM
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