H&R Block’s Q3 Earnings Suffer From Delayed Tax Filings

Kansas City-based H&R Block blamed a huge quarterly loss on the delayed opening of the Internal Revenue Service’s electronic filing system, which left a large amount of revenue unable to be reported until the following quarter.

Photo courtesy of Bloomberg
Photo courtesy of Bloomberg

The IRS e-file system opened on Jan. 31, when the company’s third quarter ended. Since H&R Block doesn’t recognize revenue from a completed tax return until it has been filed,  $277 million of revenue related to tax returns prepared but not yet filed will be pushed to fourth quarter financials, the company said.

The country’s largest tax preparation company on Thursday reported  a net loss of $213 million in the third quarter, compared to a loss $17 million in the same period last year.

That translated into a loss of 78 cents per share compared with a loss of 6 cents per share in the third quarter 2013. Analysts polled by Bloomberg had anticipated a net loss of $28.7 million and a loss of 11 cents per share.

Block’s revenue slipped to $200 million from last year’s $472 million, due in large part to the revenue unable to be claimed. Analysts had forecast $519 million in revenue.

In an earnings call Thursday, H&R Block chief financial officer Greg McFarlane noted that third quarter revenues would have essentially been flat when taking the $277 million shift into account.

Total U.S. returns prepared by and through the company were down 5.9 percent through February. Bill Cobb, Block’s president and CEO, said much of the decline could be attributed to the discontinuation of free 1040EZ form filings that did not generate any revenue and the harsh weather this winter.

Cobb expressed excitement about the company’s “Get Your Billion Back America” promotion, which he cited from market research as being familiar to 75 percent of Americans, 90 percent of whom associate it with the company.

Cobb said the company remains committed  to selling H&R Block Bank and anticipates a transaction will be completed in time for the next tax season. H&R Block intended to sell the bank to Republic Bank & Trust in October, but the deal fell through.

A sale would allow Block to avoid oversight as a savings and loan holding company, which limits its ability pay dividends and otherwise use capital tied up in the bank.

H&R Block’s share price at the end of regular trading Thursday was down 17 cents to $30.96, but slipped $1.06, more than 3 percent, to $29.90, in after-hours trading.

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