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Wednesday, June 10, 2015


Original Story: wsj.com

When tax-preparation giant H&R Block Inc. reports quarterly results on Monday, it may be a case of robbing Peter to pay Paul in a rush to get paid by Sam.

Uncle Sam, that is. H&R Block typically is profitable for only one quarter of the year because most of its revenue revolves around the April 15 tax-filing deadline. Tax services Encino range from basic tax management and accounting services to more in-depth such as payroll tax services and financial planning.

That still will be the case this time around, but the company’s fiscal third quarter ended Jan. 31 was a bit stronger than usual. The Internal Revenue Service was quicker this year in opening its electronic-filing system. So early birds, usually those anticipating refunds, had an extra 10 days during that period to submit returns. Revenue rose 155% compared with a year earlier.

Analysts’ revenue expectations for H&R Block’s fiscal fourth quarter through April have since dropped by about $250 million, to $2.298 billion, according to FactSet. That estimate still may be a tad high, though, given how much extra revenue showed up in the earlier period and how the tax season shaped up overall. An LA CPA provides business accounting services to businesses in a variety of industries.

The number of returns H&R Block processed fell nearly 1%, according to an April 23 statement. That compares with an increase reported by the IRS in overall returns processed of about 1%. The amount refunded—an important number for H&R Block because those payments are in and of themselves a source of profit—fell slightly on a national level.

The hit to earnings may be mitigated because the company also cut promotional activity such as free preparation of certain returns, thereby losing less-profitable customers. A wild card is how much penalties or subsidy adjustments tied to the Affordable Care Act may have pinched returns for H&R Block’s typically lower middle-class clients. Analysts see H&R Block reporting earnings of $2.72 a share for the fourth quarter, down sharply from $3.29 a year earlier.

Whether investors will be of a mind to forgive any weakness, though, may depend on an issue that is tangential to H&R Block’s tax business: its bank. The hope is that management will confirm that the long-delayed disposal of this unit will happen on schedule. The latest date given was June 30.

If that doesn’t happen, “the check’s in the mail” won’t cut it.