Intuit (INTU) Tops Q3 Earnings & Revenues, Raises FY17 View

Intuit Inc. (NASDAQ:INTU) reported stellar third-quarter fiscal 2017 results. The company reported adjusted income (including stock-based compensation but excluding amortization and other one-time items) from continuing operations of $3.71 per share, surpassing the Zacks Consensus Estimate of $3.67.

On a GAAP basis, earnings from continuing operations were $3.70 per share compared with the year-ago figure of $3.26.

Intuit’s share price movement has been quite impressive of late. Over the last one year, its shares have gained 31.9% compared with 26.3% increase recorded by the Zacks categorized Computer-Software industry.

Quarter in Detail

This tax-preparation related software maker reported revenues of $2.541 billion, which came within management’s guided range of $2.50 billion to $2.55 and surpassed the Zacks Consensus Estimate of $2.486 billion. On a year-over-year basis, revenues were up 10.3% mainly on the back of higher demand emanating from the U.S. tax season and better-than-expected growth in QuickBooks Online.

Services and Other revenues climbed nearly 12.4% to $2.074 million while product revenues were up 1.7% to $467 million.

Segment-wise, Small Business Group recorded 16% year-over-year growth driven mainly by strong customer acquisition. Continued subscriber growth for QuickBooks Online and QuickBooks Self-Employed also acted as a catalyst.

The company recorded an increase of 59% in QuickBooks Online subscribers for the quarter, bringing the total global count to 2,220,000. QuickBooks Self-Employed subscribers totaled 360,000. Revenues from the Small Business online ecosystem increased 30% on a year-over-year basis, primarily due to online customer acquisition.

Revenues from Consumer Tax were up 10% during the quarter and has improved 9% year to date. ProConnect professional tax revenues were roughly $168 million.

Coming to operational metrics, Intuit reported adjusted gross profit of $2.304 billion, up 10.2% year over year, backed by higher revenues. Gross margin was flat on a year-over-year basis and came in at 90.8%.

The company reported a 7.5% year-over-year increase in adjusted operating expenses. However, as a percentage of revenues, adjusted operating expenses contracted 90 bps to 33.8%.

The company posted adjusted operating income of $1.448 billion compared with $$1.294 billion in the year-ago quarter. Operating margins expanded 80 bps to 57% during the quarter.

Intuit posted adjusted net income from continuing operations of approximately $966.7 million compared with third-quarter fiscal 2016 net income of $851.2 million.

Balance Sheet and Cash Flows

Intuit exited fiscal third quarter with cash and investments of $1.593 billion compared with $637 million in the previous quarter. Long-term debt was $450 million at quarter end.

Cash from operational activities during the nine months ended Apr 30, 2017 was $1.889 billion. During the same quarter, the company repurchased $88 million shares, with $1.9 billion remaining under the share repurchase authorization.

The company received an authorization to pay a dividend of 34 cents per share on Jul 18, 2017.

Outlook

Intuit raised its fiscal 2017 guidance and issued projections for the fiscal fourth quarter.

The company now anticipates revenues of $5.13 billion to $5.15 billion in fiscal 2017, up 9% to 10% year over year (previously $5 billion to $5.1 billion). The Zacks Consensus Estimate is pegged at 6.019 billion.

Non-GAAP operating income is now expected in a range of $1.705 billion to $1.725 billion, representing growth of 10% to 11% (previously $1.675 billion to $1.725 billion). Non-GAAP earnings per share are projected between $4.38 and $4.40, up 16% (previously $4.30 and $4.40 per share). The Zacks Consensus Estimate currently stands at $3.44 per share.

For the fiscal fourth quarter, the company anticipates revenues in a range of $795 million to $815 million. The Zacks Consensus Estimate is pegged at $1.441 billion.

Intuit expects fiscal fourth quarter non-GAAP operating income in the range of $50 million to $70 million. The company expects to report non-GAAP earnings in the band of 16 cents to 18 cents per share. The Zacks Consensus Estimate stands at $3.65 per share.

Our Take

Intuit reported encouraging fiscal third-quarter 2016 results. Its revenue performance improved on a year-over-year basis due to better-than-expected growth in QuickBooks Online. The company also issued encouraging earnings guidance for the fiscal fourth quarter and raised its fiscal 2017 guidance.

We are positive about Intuit’s growing SMB exposure and believe that its strategic acquisitions will boost the segment. Increased adoption of its cloud-based services and products is another positive.

The company has also restructured its business to focus on the QuickBooks services. It expects to continue investing in this portfolio, which might hurt its near-term profitability.

Stiff competition from payroll solution providers such as Paycom Software Inc. (NYSE:PAYC) and Automatic Data Processing (NASDAQ:ADP) is a concern, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.

Currently, Intuit has a Zacks Rank #4 (Sell). A better-ranked stock in the technology space is DXC Technology Company. (NYSE:DXC) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXC has a long-term expected earnings per share growth rate of 8%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>