The Affordable Care Act and Obamacare has brought some good news to the tax preparers. Effective from January 1, 2014, the Act has increased the demand for tax preparation services as well as it has increased the complexity of tax filing. Each U.S. citizen, according to the new act, should either have a health insurance or pay a penalty through this year's tax return.
Thus, tax preparers such as H&R Block (HRB, Financial) and Intuit (INTU, Financial) are witnessing gains. H&R Block reported its second-quarter results for this fiscal very recently. Although the numbers missed the Street's expectations, investors seem to be hopeful about its future.
The details of the quarter
Revenue for the quarter stood at $134.6 million, an increase of 0.7% over last year. However, the top line failed to meet the analysts' estimate of $142 million. Through the enactment of the ACA, the company is expected to add more customers. This is mainly because people who were doing their taxes through other independent taxpayers or by themselves are likely to come up to H&R Block for these services.
The tax services segment is the most profitable category during the last three months of a fiscal year since tax preparations are done during that time of the year. However, the rest of the eight months of the year are in losses, for this particular segment. The company prepares tax returns for almost 25 million customers in one year.
But, the bank services segment is where the company makes money during this time. The service agreement with the Bofl Federal Bank is expected to benefit the company in the future.
The bottom line of the company was not so impressive. The tax preparer reported a loss of $0.45 per share, higher than the estimate of a loss of $0.42 per share. This was mainly due to higher SG&A expense which resulted in a rise of 6% in total expenses.
Further, Block faces intense competition from Intuit. It reported a loss of $0.23 per share, which was better than the analysts' estimate of $0.34 per share. Its TurboTax software is attracting customers.
Strategies undertaken
However, H&R Block introduced a new Tax Plus strategy, which allows customers to raise the level of support per their needs. Also, it launched newly redesigned software which would compete with Intuit's TurboTax software.
Furthermore, the company declared a 10% bonus to customers who put $100 of their tax refund in H&R Block's gift card. This gives added reasons for customers to come to Block for tax preparation services. Moreover, the tax preparer has carried out an extensive marketing campaign related to the tax impact of ACA. These efforts should help Block in overcoming competitive barriers.
Final words
Although H&R Block faces stiff competition from its peer, it is making a number of measures to overcome it. Also, the company is making efforts to improve customer experience and productivity. In addition, it declared a cash dividend of $0.20 per share for the quarter, which made investors happy. Its annual dividend yield is 2.5%. However, one should not jump onto this company until it shows clear signs of being profitable.
