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H&R Block Earnings Face a Tough Off-Season

Thursday - 8/29/2013, 7:49am  ET

H&R Block will release its quarterly report next Tuesday, and investors have generally liked the company's prospects, sending shares to all-time record-high levels before falling back somewhat in just the past month. Yet given the company's seasonal business, expecting H&R Block earnings to look good in its off-season quarters isn't realistic, and the real goal is just to minimize the pain until next year's tax season rolls around again.

Obviously, a company that handles tax preparation will do most of its business when tax returns are due. Although H&R Block theoretically could have work to do for businesses and others needing help on a quarterly basis, it primarily gets most of its revenue from traditional personal income tax returns and software, for which demand primarily comes in the month of April. With those hard truths in mind, let's take an early look at what's been happening with H&R Block over the past quarter and what we're likely to see in its report.

Stats on H&R Block

Analyst EPS Estimate

($0.37)

Year-Ago EPS

($0.38)

Revenue Estimate

$98.40 million

Change From Year-Ago Revenue

2%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How well will H&R Block earnings hold up this quarter?
In recent months, analysts have had mixed views on H&R Block's earnings prospects, narrowing their loss estimates for the July quarter by $0.03 per share but cutting their views on full-year fiscal 2014 and 2015 earnings. The stock has taken the more negative view, falling more than 4% since late May.

H&R Block's April-quarter results showed the same level of uncertainty for the company. On one hand, cost-cutting efforts paid off for the company's bottom line, with a rise in earnings-per-share from continuing operations of $0.25. Yet the number of tax-filings H&R Block helped with fell by 2.7%.

The longer-term threat to H&R Block comes from a broader set of alternatives for tax preparation. Rival Intuit and its TurboTax software is an industry leader, but both companies reported weaker-than-expected return-processing figures this year. Up-and-coming TaxACT software-provider Blucora has also made a splash in the industry, picking up double-digit market share and putting itself in position to challenge H&R Block's own tax software. With a greater number of free e-filing vehicles available to millions of taxpayers, the need to visit an H&R Block specialist or to use its own proprietary tax software to gain access to the speedier refunds available from e-filed returns has diminished greatly.

Still, H&R Block has one thing in its favor: tax laws are getting more complicated. With Obamacare introducing new complexities that many taxpayers aren't even aware of, tax preparers are likely to have a lot more business come next tax season. It'll be up to H&R Block to make sure it reaps as much of that new business as possible, even as Intuit, Blucora, and locally based tax accountants seek to claim their fair share as well.

In the H&R Block earnings report, see how well the company is able to continue its cost-cutting initiatives in order to minimize losses during the off-season. By cutting expenses to the bone during its off-season, H&R Block will be in a better position to make a strong push against its competitors in the new year.

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This article was originally published as H&R Block Earnings Face a Tough Off-Seasonon Fool.com

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