Tax preparer H&R Block Inc. set to release fourth-quarter results

Earnings Preview: H&R Block Inc.

KANSAS CIY, Mo. — Financial services company H&R Block Inc. is scheduled to report earnings for its fiscal fourth quarter Monday afternoon. The following is a summary of key developments related to the period.

OVERVIEW: Kansas City-based H&R Block, the nation’s largest tax preparer, relies on its third and fourth quarters to generate the majority of its annual revenue and profits as they coincide with the U.S. federal income tax filing season.

This year was not kind to private tax preparers as the economy persuaded more taxpayers to fill out their tax forms themselves or turn to cheaper tax filing alternatives on the Internet.

No. 2 tax preparer Jackson Hewitt Tax Service Inc. on Thursday said its fourth-quarter profit fell 28 percent as it saw a double-digit decline in the number of tax returns prepared and revenue fell 17 percent.

H&R Block fared a little better on the tax return front, reporting in April that total tax returns prepared slipped 3.1 percent and revenue from those returns rose slightly because of price increases.

But the downturn was enough for H&R Block to announce last month that it was restructuring some of its operations to lower costs and improve responsiveness. The company said it will combine its retail tax, digital tax, franchise operations, field operations and corporate units into a single unit to be overseen directly by Chief Executive Officer Russ Smyth.

Chairman Richard Breeden has said the company can focus more on operating its tax business after divesting its mortgage lending and securities brokerage businesses in the past year.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters predict earnings of $2.05 per share on revenue of $2.5 billion.

In the fourth quarter of last year, H&R Block earned $543.6 million, or $1.66 per share. Not including discontinued operations, including its Option One Mortgage Corp. subsidiary, the company said it would have earned $691.1 million, or $2.11 per share.

Revenue was $2.6 billion during the year-ago quarter.

ANALYST TAKE: Barrington Research analyst Alexander Paris Jr. wrote in a research note earlier this month that he was lowering his fourth-quarter and annual earnings and revenue estimates for H&R Block, based on the weaker-than-expected tax season.

Paris said he was expecting fourth-quarter revenue of $2.65 billion, down from his previous estimate of $2.73 billion, and diluted earnings of $2.07 per share, down from $2.17 per share.

But he said he was still most concerned about continued fallout from the company’s foray into subprime mortgage lending. Despite selling the business, H&R Block still has had to set aside money for those loans that have gone bad and to cover loans held by the H&R Block Bank.

“While the company appears well reserved with a loan loss allowance of approximately $78 million (approximately 10 percent of its total mortgage loan portfolio) at Jan. 31, loan losses can potentially be higher,” he wrote.

STOCK PERFORMANCE: H&R Block’s shares fell 7 cents to $15.42 in trading Friday. Over the past 52 weeks, the stock has traded in a per-share range of $13.73 to $27.97.