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Earnings preview: Expenses likely to drown H&R Block to loss in Q2

Tax preparation company H&R Block (HRB) is set to release its earnings for the second quarter of fiscal 2019 on Thursday before the bell. The company is likely to face with a wider loss due to the seasonality of its tax business. An increase in expenses could weigh more on the bottom line while the top line growth remained scarce.

Analysts, on average, expect the company to report a loss of $0.93 per share on revenue of $139.8 million for the second quarter. In comparison, during the previous year quarter, the company posted a loss of $0.71 per share on revenue of $140.85 million. Majority of the analysts has recommended a “hold” rating on the stock with an average price target of $25.43.

The company normally reports a fiscal second-quarter loss due to the seasonality of its tax business and this typically represents less than 5% of annual revenues and approximately 15% of annual expenses. H&R Block could post a wider loss in the second quarter as the modest rise or decline in revenue would not overshadow the increase in expenses.

Companies reporting earnings this week: Dec 3 – 7

For the first quarter, H&R Block posted a 5% rise in revenue primarily due to the timing of revenues related to its Tax Plus products. Loss from continuing operations widened year-over-year due to a lower effective tax that negatively impacted those fiscal quarters with a seasonal net loss.

The company has been positioning itself to achieve its goal of sustainable growing clients, revenue and earnings by investing in pricing, technology, and operational excellence. Operating expenses for the first quarter rose 1.3% primarily due to increases in compensation and consulting expenses, partially offset by lower depreciation and amortization and bad debt expense.

For the full year 2019, the company had expected revenue in the range of $3.05 billion to $3.10 billion and EBITDA margin in the range of 24% to 26%. The effective tax rate was predicted to be in the range of 23% to 25% for the full year. CFO Tony Bowen confirmed that the company is on track to achieve its financial outlook for the fiscal year.

Shares of H&R Block ended Monday’s regular session up 3.67% at $27.98 on the NYSE. The stock has risen over 6% in the year so far and over 8% in the past year.

 

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text.

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