H&R Block (HRB) Q3 Loss Wider Than Expected, Revenues Beat

H&R Block, Inc. (NYSE:HRB) incurred third-quarter fiscal 2020 adjusted loss per share from continuing operations of 59 cents, higher than the Zacks Consensus Estimate of loss of 54 cents.

Loss increased year over year due to rise in pre-tax loss (11.6% year over year to $177 million) and lower shares outstanding, partially offset by increased tax benefit. The company usually incurs loss in the first three quarters of fiscal year due to the seasonality of its tax business.

We observe that shares of H&R Block have declined 11.5% over the past year, against the 11.6% rally of the Zacks S&P 500 composite.

Revenues

Revenues of $519.2 million surpassed the consensus estimate by 6.2% and increased 10.9% year over year. The improvement was driven by contribution from acquired franchises and Wave, and improved tax return volumes in both Assisted and DIY.

Expenses

Total operating expenses were $671.8 million, up 10.8% year over year. The increase was due to technology and Wave Financial related investments, increased compensation associated with higher Assisted tax return volumes and timing of marketing expense recognition.

Financial Position

H&R Block exited the quarter with cash and cash equivalents balance of $192.3 million compared with $245.3 million at the end of the prior quarter. Long-term debt and line of credit borrowings were $1.9 billion. The company used $774.5 million of cash in operating activities and capex was $23.7 million.

The company paid out dividends of $50.8 million in the quarter. H&R Block repurchased and retired 2.8 million shares at an aggregate price of $65.8 million.

Outlook

The company reaffirmed its fiscal 2020 revenue growth and margin outlook. It continues to expect total revenue growth of 1.5% to 3.5%. EBITDA margin is expected between 24% and 26%. The company’s effective tax rate expectation is 19-21%.

Zacks Rank and Other Stocks to Consider

H&R Block currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the broader Zacks Business Services sector are Interpublic (NYSE:IPG) , Omnicom (NYSE:OMC) and Genpact (NYSE:G) , each carrying a Zacks Rank #2.

Long-term expected EPS (three to five years) growth rate for Interpublic, Omnicom and Genpact is 4.5%, 5.6% and 14%, respectively.

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