Will H&R Block's Growth Strategies Help It Improve?

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Dec 01, 2014

This tax preparer has a lot to speak about its results posted recently, which missed estimates but managed to keep investors happy and hopeful about it. H&R Block (HRB, Financial) posted results which were below expectations on earnings. But it has definite reasons to believe in a bright future for itself. Let’s understand how.

A look at how it performed

Although the company prepared an increased number of tax returns, its revenue took a hit because it gave advance refunds free of cost to the customers using its prepaid MasterCards. This definitely boosted the number of cards issued, an increase of 24%, but affected the top line. Reorganization costs and loss from discontinued operations had a little more than a strenuous effect on the tax preparer. On the positive side, H&R prepared 4% more tax returns, taking its total clients to 25.6 million.

Focusing on growth

A major pullback came from the severance and impairment costs related to closure of 200 stores and 350 job cuts. The motive behind the strategic shift was to stay more focused on the company’s core business of tax preparation. Also, the move is expected to improve margins by up to $100 million every year.

However, H&R Block’s performance was not up to the mark as compared to its competitor, Intuit (INTU, Financial), which performed much better than Block in its recent third-quarter results. Its revenue witnessed a 5.2% growth to $1.95 billion with earnings per share of $2.43 well ahead of market’s expectations.

Expansion moves

International revenue grew 13% to almost $233 million for the quarter and with the sweet results at this front the company is planning to enter into India in a big way making its presence in the country for the first time. It has started with the initiative with some new offices in the country.

A silver lining

Along with the cost-saving initiatives and expansion of its geographical presence, it’s tightening its grip by introducing new products which will help it serve customers anywhere and any time. With the launch of Block Live and Mobile applications, customers will get more flexibility and this will make Block’s service more desirable.

Conclusion

Despite a not so good fourth quarter and weak performance as compared to peers, Block seems to have a spark in it. It has been picking up speed with good efforts in place like reducing costs and investing in marketing its new product launches. It has also been trying to bring a new dimension to its geographical presence which is expected to bring great business to the tax preparer. Moreover, it has been keeping in good humor by declaring dividends regularly and buying back shares. With these positives going forward H&R looks like it has a bright future ahead.