h&r block lagging behind last year

h&r block reports that its pace of filing is down from the year-ago period, but not as much as the rest of the industry.

more tax season data: pro e-filing own 10%  |  tax refunds up slightly | tax filings data looking less squirrely | tax return filings still lag, but pros hold 57% of market | tax filings down, but irs blames the calendar

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h&r block return volume outperformed industry results when compared to irs data reported through february 24. market share gains were realized in both the 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%. 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.

fiscal third quarter and tax season highlights:

• h&r block assisted and do-it-yourself (diy) tax preparation businesses achieve market share gains in the first half of the tax season.
• revenues and earnings for the fiscal 2017 third quarter impacted by delayed tax season; company reiterates financial outlook for full year.
• revenues declined $23 million due to the delayed tax season, while total operating expenses declined $18 million primarily due to cost reduction efforts, which led to lower compensation and benefits and marketing costs.
• loss per share increased $0.15 due entirely to reductions in the company’s effective tax rate and shares outstanding. the reduction in shares outstanding will be accretive on a full year basis, but negatively impacts those quarters with a seasonal net loss.
• repurchased approximately 4.4 million shares for an aggregate purchase price of $100 million during the third quarter, bringing total share repurchases for fiscal 2017 to approximately 14.0 million shares for $317 million.

ceo perspective

“we are delivering what we promised in december. through aggressive assisted and diy offers, we are achieving our goal of new client growth and i’m pleased that we gained market share in both the assisted and diy tax preparation categories in the first half of the tax season,” said bill cobb, h&r block’s president and chief executive officer. “i’m proud of what we have accomplished so far. these results are in line with our expectations for the first half of the season. and with our new partner, ibm watson, we are focused on continued execution of our reinvented client experience over the remainder of the tax season.”

the growth in market share is attributable to solid execution of an aggressive plan designed to change the trajectory of prior year client losses. in the assisted tax preparation business, this included the launch of the no-interest, no-fee refund advance loan product and the free federal 1040ez promotion. the company also introduced a new, exclusive client experience that incorporates ibm watson, bringing the power of cognitive computing technology and the expertise of over 60 years of tax preparation experience together for the first time in the industry. in the company’s diy business, it expanded its free filing option with the launch of h&r block more zero^sm and introduced significant product enhancements.

for the fiscal year, h&r block expects to deliver results in line with its annual financial outlook previously provided in december 2016.

income statement

• total revenues decreased $22.7 million to $451.9 million, primarily due to lower client volumes in the assisted and diy tax preparation businesses resulting from the delay in the overall tax season, coupled with the pricing impact of the early season promotions such as free federal 1040ez and h&r block more zero.
• total operating expenses decreased $17.7 million to $576.7 million. compensation and benefits and marketing expenses declined as a result of prior year cost reduction efforts. the reductions were partially offset by third-party fees associated with the refund advance product.
• pretax loss increased $4.1 million to $150.6 million.
• loss per share from continuing operations increased $0.15 to $0.49, due entirely to reductions in the company’s effective tax rate and shares outstanding. the reduction in shares outstanding will be accretive on a full year basis, but negatively impacts those quarters with a seasonal net loss.

cfo perspective

“we are starting to fully realize the benefits of last year’s cost reduction efforts,” said tony bowen, h&r block’s chief financial officer. “these savings have enabled us to invest in other areas of the business, including our early season promotions and our new diy pricing structure, which have been instrumental in achieving new client growth and taking market share in the first half of this season.”

balance sheet

• mortgage loans and real estate owned were liquidated during the third fiscal quarter for cash proceeds of $188.2 million, which approximated book value.
• seasonal line of credit borrowings, which are included in long-term debt, were $1.1 billion as of january 31, 2017.

discontinued operations

• sand canyon corporation’s accrual for contingent losses related to representation and warranty claims decreased $21 million from the prior quarter to $5 million as a result of settlement payments to counterparties. the settlement payments were fully covered by prior accruals.

share repurchases and dividends

• during the third quarter of fiscal 2017, the company repurchased and retired approximately 4.4 million shares at an aggregate price of $100.0 million, or $22.83 per share bringing the total share repurchases for fiscal 2017 to approximately 14.0 million shares for $317.0 million. as of january 31, 2017, 207.2 million shares were outstanding.
• the company completed these share repurchases under a $3.5 billion share repurchase program approved by the company’s board of directors in august 2015, which runs through june 2019. under this program, the company has repurchased approximately 70 million shares of its common stock, or 25.5% of shares outstanding at the beginning of the program, for an aggregate purchase price of approximately $2.3 billion.
• as previously announced, a quarterly cash dividend of $0.22 per share is payable on april 3, 2017, to shareholders of record as of march 14, 2017. h&r block has paid quarterly dividends consecutively since the company went public in 1962.