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Taxes Killing H&R Block

The company misses estimates and guides lower.

Tax-preparation firm

H&R Block


reported disappointing third-quarter profits and reduced its full-year earnings guidance.

In the quarter, the Kansas City-based firm earned $28.8 million, or 9 cents a share, compared to $92.3 million, or 28 cents a share a year ago.

Third quarter earnings were depressed by a previously announced 10-cent-a-share after-tax charge to settle a pending lawsuit. The firm also was hit by weaker-than-expected revenues from its mortgage business.

Analysts, as surveyed by Thomson Financial, were expecting H&R to earn 26 cents a share. Even without the 10-cent litigation charge, the company's earnings fell far short of analyst expectations.

Revenue rose 12% to $1.2 billion, largely in line with analyst expectations.

The company, meanwhile, slashed its full-year earnings outlook, saying the fourth quarter looks weak because of "aggressive pricing in the mortgage industry and our slow start to the tax season."

H&R now says it expects to earn between $1.65 a share and $1.85 a share for the full year. It previously had predicted full-year earnings of between $1.90 a share and $2.15 a share. The consensus estimate had H&R earning $1.86 a share.

"A later start to the tax season for both H&R Block and the industry has put us behind where we were at this point last year," said CEO Mark Ernst. "The first peak of the filing season has been occurring later and later over the past few years."

The company blamed its late start to the tax year on a technological screwup that caused some clients to look elsewhere for tax guidance. H&R says the problems have been fixed, but the technology woes caused the company to miss "the opportunity to serve nearly 250,000 clients, at a time of year when quick access to their tax refunds was the key concern in selecting a tax services provider."

Separately, H&R said it would be restating its prior-year earnings to correct a $32 million underreporting of its state income tax obligation. Last August, the firm said its auditor found a "material weakness'' in the firm's accounting for income taxes.

In after-hours trading, shares of H&R were down $1.78, or 7%, to $23.41. The stock closed Thursday at $25.19, down 31 cents.