H&R Block Guides Lower

Mortgage results are weaker than expected.
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H&R Block's

(HRB) - Get Report

side line in mortgage lending is going to cost the company on the bottom line this year.

Block guided 2006 earnings to below the low end of its previous range, which had been $1.65 a share. The company, whose shares were hit in March when Eliot Spitzer said he was investigating its marketing practices, reported solid results for the 2006 tax season but said the mortgage unit underperformed.

Analysts surveyed by Thomson First Call were forecasting earnings of $1.70 a share in the year to April 2006.

For the tax season, fees for preparation and related services in the company's U.S. retail operations rose 4.5% to $2.5 billion, with the average fee paid per client up 6.6% from a year ago to $160. Total clients served in the retail and digital tax business rose 1.4% to 19 million.

"The 19% increase in digital tax clients this year demonstrates both the momentum we're building in this business along with the importance of offering a full range of ways for clients to access our services," it said. "We benefited from stepped-up marketing programs and better end-to-end client service ... following early 2006 technical problems that had cost several hundred thousand clients versus prior year."

For the 2006 tax season overall, total clients served in U.S. retail offices was off 2 percent from prior year.

The stock fell 77 cents, or 3.7%, to $22.23.