NEW YORK ? H&R Block Inc. on Thursday said its fiscal fourth-quarter profit fell 5 percent, as revenue declined and the company booked charges related to its loss of its refund-backed loan program.
The nation's largest tax preparation company said it earned $658.6 million, or $2.14 per share, in the quarter ended April 30. That compared with net income of $690.8 million, or $2.11 per share, in the year-earlier period.
The number of outstanding shares dropped 6 percent from last year, which helped lift per-share earnings in the recent quarter.
While it lost its refund loan business due to regulatory decisions, H&R Block gained market share after beefing up its online tax preparation offerings and targeting younger customers with free simple tax form preparation. The free offering contributed to lower revenue, but the company argues it created a pool of new customers that can be converted to more expensive return preparation in years to come.
Results were weighed by charges equal to 6 cents per share, including costs related to the legal fight over the loss of its refund-anticipation loan program at the end of 2010. Adjusted profit was $2.20 per share.
Revenue slipped one half percent to $2.33 billion from $2.34 billion last year. Revenue in the Kansas City, Mo.-based company's tax services division edged down in the quarter. Business services revenue ? its RSM McGladrey consulting unit ? fell 6 percent.
The results still beat expectations. Analysts on average forecast adjusted profit of $2.14 per share on revenue of $2.32 billion, according to data provided by FactSet.
Block prepared 21.4 million tax returns this year, up 6.5 percent from 2010.
Chief Financial Officer Jeff Brown said in an interview the company invested a good deal of effort in improving its online products to make them more appealing to customers, and in marketing its tax preparation expertise.
Growth came in both its retail stores, which added 500,000 customers, and through its digital products, which added 800,000 customers, with online do-it-yourself preparation leaping 29 percent. That was a significant gain, because Block's digital products lag rival Intuit's TurboTax.
He pointed to the retail store gains as important, especially following the loss of refund-backed loans. "We really entered the tax season disadvantaged," he said.
Brown added that the client growth, particularly among younger customers lured by Block's free preparation of 1040EZ forms, bodes well for the future. The company maintains that as these customers grow older and their tax returns become more complex and more expensive, they'll stick with Block.
Reflecting the free 1040EZ promotion, Block's average fee for returns prepared at retail stores fell more than 3 percent to $182.96 for the 2011 season, compared with $189.25 for the 2010 season.
Digital remains an area the company has targeted for more growth.
CEO Bill Cobb, during a conference call to discuss the results, said that Block plans to fight the move by the government to prevent the company's planned acquisition of privately held 2SS Holdings Inc., which makes the tax prep software TaxACT.
The Justice Department filed an antitrust lawsuit last month to block the attempted $287.5 million buyout. Government attorneys say a tie-up would leave just two companies, Block and Intuit, controlling more than 90 percent of the tax software market.
"Both H&R Block and TaxACT remained committed to the transaction," Cobb said. "Combining H&R Block and TaxACT will do exactly what the Justice Department wants, bring competition to a digital marketplace that's currently dominated by one player, Intuit."
The CEO said Block and TaxACT will "vigorously pursue" litigation against the Justice Department, and is seeking a preliminary injunction hearing by the end of September.
Cobb also addressed the issue of mortgages written by Block's shuttered subprime mortgage unit, now called Sand Canyon Corp.
Investors are concerned the company could get hit with suits demanding it buy back many of the mortgages written before the unit was shut down in 2007, and might not have enough reserves to cover such claims. The unit saw new claims for $55 million during the fourth quarter, on par with prior quarters. Cobb said he is "confident that Sand Canyon will continue to handle all valid claims, and we believe the process will not affect H&R Block."
For the full fiscal year, Block said net income fell 15 percent to $406.1 million or $1.31 per share, from $479.2 million, or $1.43 per share, in the prior year. Adjusted for various charges, full-year profit came to $1.52 per share.
Revenue for the year fell 3 percent to $3.77 billion, from $3.87 billion.
In aftermarket electronic trading, Block shares added 8 cents to $16.15, from their regular session close at $40.79.
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