H&R Block posts profit in fiscal 3rd quarter

H&R Block Inc. said Friday its third-quarter profits surged as it prepared more tax returns in the early season and saw smaller losses from discontinued operations.

Shares of H&R Block jumped $1.07, or 6.2 percent, to $18.40 in morning trading.

The Kansas City-based company reported earning $47.4 million, or 14 cents per share, during the three months ended Jan. 31. By comparison, H&R Block lost $47.4 million, or 14 cents per share, during the same period a year ago.

Analysts surveyed by Thomson Reuters had expected earnings of 10 cents per share, on average.

Income from continuing operations jumped to $66.8 million, or 20 cents per share, from $7.1 million, or 2 cents per share. Meanwhile, losses from discontinued operations declined 64 percent to $19.5 million, or 6 cents per share, from $54.5 million, or 16 cents per share.

The discontinued operations include the H&R Block Financial Advisors unit, which was sold in November. Last year's results also included the last parts of the company's sale of its mortgage lending operation.

Revenue during the quarter rose 11 percent to $993.5 million, surpassing analysts' expectations of $975.3 million.

"At this stage we remain generally on track to our financial program and to our performance expectations for the full year, although achieving even the bottom end of our earnings guidance is not risk-free," Chairman Richard Breeden told analysts during a conference call, noting that the bulk of the company's revenue and profits come in the fourth quarter. "Overall, we have recorded financial growth while also significantly improving what we believe to be the quality of our client mix and our position in the online battleground."

Tax services revenue increased 15 percent to $761.7 million as the company said it saw a 3 percent increase in the number of tax returns prepared by its retail offices, software and online products through Jan. 31.

Including February returns, however, the number of tax returns prepared declined 1.8 percent versus a year ago, which was partially offset by an 8.5 percent increase in average fees. Those results don't include an additional leap day in February last year or clients who filed tax returns only because it was required to receive an economic stimulus payment.

Retail operations, through February, saw a 3.9 percent decrease in tax returns filed and 5.7 percent fewer taxpayers used H&R Block's TaxCut software to prepare their taxes themselves. The company's online products, including a new free service aimed at lower-income consumers, saw a 56.5 percent jump in returns filed, the company said.

Chief Executive Officer Russ Smyth said the economy is driving more of the company's traditional early season base of customers, especially those with low incomes, to either avoid filing a tax return this year or try preparing their tax returns themselves.

"How long will that last? Part of the answer to that is how long we think people are going to be extremely price-sensitive. It's probably a good couple years," Smyth said.

He added that the decline in low-income customers is being offset by a continued increase in customers with average gross incomes of $90,000 or more, who typically generate higher fees, and that the company plans to spend more on advertising to that base in the last few weeks of the tax season.

The company's consumer financial services unit, which includes the H&R Block Bank, lost $3.3 million pretax during the quarter as it set aside another $13.5 million to cover potential losses on mortgage loans.