Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



H&R Blockheads

For the millions of people who rely upon advice given by tax professionals, H&R Block's (NYSE: HRB  ) guarantee that it will stand behind its work is a welcome sign that they know what they're doing. Or so you would think. What then is a taxpayer supposed to think when the leading tax return prep company admits to understating its own taxes, thus causing a restatement of earnings going back as far as 2004?

Compounding the company's problem were software glitches that caused it to lose 250,000 customers to competitors like Jackson Hewitt (NYSE: JTX  ) , as well as legal problems stemming from its unsavory "refund anticipation loans" program. Ratcheting down guidance, the maker of the popular Tax Cut self-help tax prep program said earnings would only manage to hit a high of $1.85 a share, down from a previous expectation of $2.15 a share.

Brothers Block said it underestimated its state income tax liability by approximately $32 million; that would hit earnings by a total of $0.09 a share -- $0.07 in 2005 and $0.02 in 2004. However, since the company was still reviewing its control mechanisms, these were only preliminary figures that could very well change.

The software problems caused a delay in the company's tax prep season: The malfunction would look fixed one day, only to go down again the next. A lot of taxpayers like to get a jump on filing their returns before the April deadline, but the problems prevented H&R Block from servicing them and they eventually lost one quarter million. Some undoubtedly went to Jackson Hewitt, while others may have taken the self-help route and used TurboTax from Intuit (NYSE: INTU  ) to get their returns in on time.

Taxpayers' early-filing urges also led to Block's other headache, its refund loan program. The company gives taxpayers who are owed a refund a check for the refund amount upon filing. Thing is, Block subtracts not only the tax prep and filing fees from the refund, but also a processing fee which equates to a loan with an interest rate as high as 500% or more. California has sued the company over this practice, and it has already settled one lawsuit about the loans for $62 million last year, but it continues to offer the program because of the lucrative fees involved.

H&R Block reported earnings of $28.9 million, or $0.09 per share, down 68% from the year before, on an 11% increase in revenues of $1.16 billion. Analysts had been expecting $1.21 billion in sales and profits of $0.26 per share. But add in a slowing mortgage business, and the stock tumbled after hours. Yet the truth is, tax season is Block's bread-and-butter moneymaker and we are only just getting there as more people turn their attention to the April filing deadline.

In reality, the tax snafu is more of a public relations embarrassment than a commentary on Block's ability to compute John Q. Public's taxes. You expect a company preparing and certifying your tax liability to correctly calculate its own. While not fatal, it certainly makes them look like a bunch of blockheads.

Compute the damage with these related Fool articles:

Intuit is aMotley Fool Inside Valuerecommendation.

Fool contributor Rich Duprey does not only any stock mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 511905, ~/Articles/ArticleHandler.aspx, 10/24/2016 6:52:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
HRB $23.39 Up +0.10 +0.43%
H and R Block CAPS Rating: ***
JHTXQ.DL $0.00 Down +0.00 +0.00%
Jackson Hewitt Tax… CAPS Rating: **