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Earnings Preview: H&R Block Inc.

The Associated Press

KANSAS CITY, Mo. (AP) — H&R Block Inc. reports earnings for its fiscal second quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: H&R Block is in the midst of the U.S. income tax filing season, which is when the nation's largest tax preparer makes the majority of its revenue and profit.

Besides earnings, the company will also on Friday release tax return statistics through Feb. 28.

Chief Executive Officer Russ Smyth warned in January the tough economy would likely keep the total number of tax returns being filed flat or slightly below last year.

While Smyth didn't give any client predictions for the quarter, which ended Jan. 31, he said the company would try to grab a larger slice of the market by adding a net of 42 offices to its more than 13,000 retail locations and increasing its television advertising, especially toward clients with higher incomes, whose often complex returns can generate higher fees.

The company has also tried to compete better on the digital side, providing a free online tax filing program for lower income customers and keeping the price of its TaxCut tax preparation software below that of industry leader Intuit Inc.'s TurboTax software.

No. 2 tax preparer Jackson Hewitt Tax Service Inc. provided a possible glimpse of the rough going Wednesday as it lowered its expectations for the year, saying its preparers saw a 3 percent decline in tax returns through its first three quarters from a year ago and expected annual tax returns to decline between 12 percent and 13 percent.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect the company to earn 10 cents per share for the quarter on $975.3 million in revenue. The company hasn't provided its own guidance for the quarter but has said it expects to earn between $1.60 and $1.70 for the year. Analysts are expecting $1.61 per share.

ANALYST TAKE: Barrington Research analyst Alexander Paris wrote in a research note that he felt the stock was attractively priced and should see a 5.8 percent increase in tax services revenue to $700 million.

"The concern, however, continues to be HRB's ongoing exposure to the mortgage market," Paris wrote, noting the company sold the last remnants of its subprime-lending Option One Mortgage Co. subsidiary more than a year ago. "While the company appears well reserved with a loan loss allowance of approximately $64 million at October 31, H&R Block Bank carried over $800 million of net mortgage loans for investment and loan losses could be higher."

He continues to rate the stock "market perform."

STOCK PERFORMANCE: Shares of H&R Block rose 6 percent during the quarter, to close at $20.73. Shares ended trading Wednesday at $18.09.