shares jumped nearly 10% Monday after the tax preparer reported a solid fourth quarter with revenues jumping 11% to $2.6 billion.
The company recorded net profit for the quarter at $1.66 per share -- a big improvement over the previous year's loss of 26 cents per share. Factoring out its former Option One mortgage unit, H&R Block earned $691.1 million, or $2.11 a share, vs. $591.2 million, or $1.81 a share, in the year-ago period. This easily beat the consensus expectation of $2.03 a share reported by Thomson Reuters.
"During fiscal 2008, H&R Block served the tax needs of 23.5 million clients, the highest level in our history," Chairman Richard Breeden said in a company statement. "Full-year earnings per share from continuing operations exceeded our expectations, and reflect the best tax season for H&R Block since 1999."
H&R Block also recorded a net loss from discontinued operations in the fourth quarter of $147.6 million, or 45 cents a share, vs. a loss of $676.8 million, or $2.07 a share, in the year-ago period. The company stopped originating mortgages through Option One in December 2007 and sold it to an affiliate of WL Ross for $1.3 billion. The sale was effective on April 30.
"Following senior management changes in late 2007, we think
H&R Block is increasing its focus on its core tax preparer business going forward, which we view positively given its strong market share position in that business," Pearl Wang of Standard & Poor's wrote in a note.
The economic stimulus package also gave the company's results a boost. Many one-time filers came to H&R Block in order to qualify for the checks. Total U.S. clients rose 3.8% as 290,000 clients seeking checks filed their taxes through H&R Block. Excluding these clients the company enjoyed a 1.9% increase for the 2008 tax season.
H&R Block's board voted to increase the dividend by three cents a share to 60 cents, the 11th consecutive year of dividend increases. However, the company said it did not expect to buy back shares before the fourth quarter of 2009, even though it has a program approved by the board and in place, saying it "expects to be particularly disciplined" this year.
H&R Block also made gains in its digital tax business, which consists of online filing services through Hrblock.com and TaxCut software. This tax business increased online customers by 14 % and increased revenues 10 % year over year.
In 2006, the tax preparer had to restate three years of earnings due to internal accounting errors.
H&R Block's gain was felt by competitor
, which reported its earnings earlier in June. Jackson Hewitt experienced a decline in tax return processing and reported a 13% drop in earnings. Its main online competition,
, which operates the TurboTax.com tax filing Web site, said last week that it
expects to lose between 7 cents and 9 cents a share
in the fourth-quarter, excluding items.
H&R Block expects to deliver earnings from continuing operations of $1.60 to $1.70 per share for 2009, its current fiscal year. According to Thomson Reuters, analysts are expecting $1.58 a share.
Wang's current forecast is for $1.56 and she has a 12-month target price of $24 and a hold rating on the stock. She is concerned about litigation. "Our risk assessment reflects uncertainty surrounding a pending
Internal Revenue Service ruling regarding refund anticipation loan products," she wrote.
H&R Block shares rose as much as $22.85 on Monday morning, but were up 3.7% to $21.58 in recent trading.