H&R Block Reports Fiscal 2009 Second Quarter Results
Company Reports Net Off-Season Loss from Continuing Operations of $0.40 Per Share Compared to Prior-Year Loss of $0.42 Per Share; Consolidated Net Off-Season Loss Improves Significantly to $0.41 Per Share Versus Prior-Year Loss of $1.55 Per Share.
KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal 2009 second quarter ended Oct. 31, 2008, of $133.2 million, or 40 cents per share compared to a loss of $134.9 million, or 42 cents per share in the second quarter a year ago. Improved off-season results from Tax Services were offset by a larger loss in the Consumer Financial Services segment, mainly due to an increase in loss reserves at H&R Block Bank. H&R Block typically reports a second quarter operating loss due to the seasonality of all of its businesses.
“Over the last twelve months, the company has moved quickly to refocus on its core business and to restore its financial strength and resilience. We are pursuing a variety of initiatives seeking to boost the rate of growth in our tax business, while increasing efficiency and profit margins in all our activities. We are heading into tax season in a stronger position than last year, and we are excited about opportunities in the business,” said Richard C. Breeden, Chairman of the Board of H&R Block. “We have the largest and most highly trained group of tax professionals, and our ability to deliver excellence to clients has never been higher,” he added.
Results from discontinued operations for the second quarter improved significantly to a net loss of $2.7 million compared to a net loss of $367.3 million in the prior-year period, reflecting the Company’s exit from the subprime mortgage business. Beginning in the second quarter, discontinued operations include the results of H&R Block Financial Advisors, which was sold to Ameriprise Financial effective Nov. 1, 2008. As a result of lower losses in discontinued operations, the fiscal second quarter consolidated net loss of $135.9 million, or 41 cents per share, was also much lower than the loss of $502.3 million, or $1.55 per share, in the second quarter a year ago.
“We saw continued positive momentum in Tax Services and Business Services in our second quarter. Tax Services reported solid top-line growth during the pre-season period while also achieving meaningful expense control. RSM McGladrey improved its bottom line, again reflecting good cost management,” said Russ Smyth, President and Chief Executive Officer of H&R Block. “While our Bank’s mortgage loan portfolio continues to be negatively impacted by the depressed housing market, we are encouraged by early results from initiatives we have taken to keep people in their homes and paying what they can afford,” added Smyth.
For the six months ended Oct. 31, 2008, H&R Block reported a consolidated net loss of $268.6 million, or 82 cents per share, compared with a loss of $804.9 million, or $2.48 per share, for the same period of fiscal 2008. Six month revenues were $623.4 million in fiscal 2009 versus $650.7 million in the prior-year period. Discontinued operations in the first half of fiscal 2009 recorded a net loss of $7.0 million, or 2 cents per share, compared with a year-ago loss of $557.7 million, or $1.72 per share.
Second quarter Tax Services revenues rose 9.1 percent year-over-year to $99.1 million, driven by a 6 percent increase in core U.S. retail clients served, or an increase of 12 percent including one-time Economic Stimulus Act filers.
The segment reported a pretax loss of $184.6 million for the quarter, a 7.3 percent improvement year-over-year, largely due to the Company’s ongoing cost reduction efforts, fewer new office openings and lower bad debt.
For the first six months of fiscal 2009, Tax Services revenues of $174.4 million were up 8.5 percent from $160.7 million last year. The pretax loss of $348.5 million was improved compared with a loss of $371.4 million in the prior-year period.
RSM McGladrey achieved an 11 percent year-over-year improvement in fiscal second quarter pretax income despite a 2.5 percent decline in revenues. Core accounting, tax and consulting revenues increased 8 percent over the prior-year period. Those gains were offset by a decline in capital markets revenues stemming from fewer transactions, and an operational change whereby amounts previously reported as leased-employee revenue have been eliminated in the current year. The latter change had no impact on earnings, as related costs were also eliminated. Excluding this change, revenues would have been up nearly 2 percent year-over-year.
Pretax income for the fiscal second quarter was $13.1 million compared with $11.8 million a year ago, reflecting savings in ongoing operating expenses and earlier reductions made to costs.
Six-month segment revenues were $407.7 million, down 5.6 percent from $431.9 million a year ago. Pretax income for the first six months of fiscal 2009 rose 29.5 percent to $12.8 million compared with income of $9.9 million in the prior-year period.
Consumer Financial Services
Consumer Financial Services, now comprised only of H&R Block Bank, reported a fiscal second quarter pretax off-season loss of $18.6 million compared to a pretax loss of $4.4 million in the second quarter a year ago. Higher losses were driven by a $13.3 million increase in current-quarter loan loss reserves as compared with the prior-year period, primarily reflecting ongoing declines in housing values.
For the first six months of fiscal 2009, Bank revenues declined 29 percent to $35.8 million compared with $50.3 million in the prior-year period. The pretax off-season loss of $32.7 million compares with pretax income of $0.4 million a year ago. The increase is primarily due to a $32 million increase in loan losses and reserves.
The Company is reaffirming its fiscal 2009 earnings guidance of $1.60 to $1.70 per share from continuing operations. It is important to note that the Company is only halfway through its fiscal year and it generates nearly all of its earnings in its fiscal fourth quarter. The Company looks forward to sharing more information regarding the tax season as well as longer term plans for accelerated business growth at its Investment Community Conference on Jan. 13.
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