After last night reporting quarterly earnings and revenues which came in ahead of market expectations, shares of tax service provider H & R Block (HRB 24.15, +3.31) trade about 15.9% higher.
The writing was on the wall, set up for a bad quarter as peer Intuit (INTU 124.99, -0.41 -0.33%), which owns TurboTax, gave some cautious commentary about a slow start to the tax season, a sentiment reiterated by HRB which called the start to this tax season “delayed.” Evidently, that slow start worked itself out, as HRB’s results displayed no such signs of stress thus far in the 2016 tax season.
Getting back to the results, HRB reported a better than expected Q3 loss per share of $0.49 on better than expected revenues which fell 4.8% compared to a year ago to about $451.9 million.
Specifically, H&R Block highlighted that return volume outperformed industry results when compared to IRS data reported through February 24. In total, the company called attention to the reported IRS decline in e-files of 10% compared to the company's decline of 7%.
Furthermore, market share gains were realized in both the company’s Assisted and DIY categories. In the Assisted category, H&R Block outperformed the industry with a decline of 8% compared to the IRS reported decline of 13%. In the DIY category, H&R Block outperformed the industry with a decline of 5% compared to the IRS reported decline of 8%. HRB also noted that while overall industry and company volume is expected to improve during the second half of the tax season, company performance relative to the industry is expected to moderate given the conclusion of its Free Federal 1040EZ and Refund Advance promotions on February 28.
Also, HRB reiterated its outlook for the full year (which was originally given in December). In December, HRB gave expectations for growth in assisted return volume with a significant reduction in client loss. The company also gave expectations of flat to slightly down net average charge in the assisted business when compared to the prior year. In DIY, HRB gave commentary that they would grow clients this tax season and beyond on a reset in pricing given expectations for lower overall net average charge. Also, HRB expects to end FY17 with adjusted EBITDA margins of 27.6% with long-term EBITDA margins in the range of 27-30%. For CapEx, the company sees FY17 running about $90-95 million with long-term levels around 3-4% of revenues.
As mentioned, the set-up into the print was not looking all that promising. Commentary from peers regarding a slow start to the tax season pressured shares, leaving the stock down about -9.7% into the results. Shares have reacted favorably to the print, however, as HRB seems to have calmed the investor by giving middle of the lane results and guidance.