H&R Block posts 5 percent drop in 4th-qtr profit

By EILEEN AJ CONNELLY | June 23, 2011 | 4:59 PM EDT

NEW YORK (AP) — H&R Block Inc. on Thursday said its fiscal fourth-quarter profit fell 5 percent, as revenue declined and a series of unusual charges weighed down results.

The nation's largest tax preparation company said it earned $658.6 million, or $2.15 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 for the recent quarter.

The results were affected by several charges, including costs equal to 6 cents per share related to the legal fight over the loss of its refund-anticipation loan program at the end of 2010 and severance costs for departed employees.

Revenue slipped one half percent to $2.33 billion from $2.34 billion last year. Revenue in its tax services division edged down in the quarter. Business services revenue — its RSM McGladrey consulting unit — fell 6 percent.

Analysts on average expected 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. 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.

Chief Financial Officer Jeff Brown said in an interview the company invested a significant amount of effort in improving its online products to make them more appealing to customers, and in marketing its tax preparation expertise.

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.

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 were flat with their regular session close, at $40.79.