Olde Puts New Face on H&R Block (Breakfast News) September 1, 1999


Wednesday, September 1, 1999

"The magic of compounding interest is truly the eighth wonder of the world!"
-- Albert Einstein

Olde Puts New Face on H&R Block

By Brian Graney (TMF Panic)

Tax preparer H&R Block (NYSE: HRB) announced this morning that it will acquire the country's fourth largest discount broker, privately held Olde Financial Corp., for $850 million in cash. With the purchase, H&R Block adds Olde's 181 branches in 35 states to its existing network of nearly 9,000 tax offices and also picks up Olde's 600,000 active accounts with $37 billion in aggregate equity. Olde will help smooth out H&R Block's earnings and revenue streams and boost EPS by $0.06 to $0.08 in fiscal 2000. In fiscal 2001, the earnings accretion from the deal is expected to be between $0.20 and $0.30 per share.

Olde is another piece of the puzzle as H&R Block tries to break away from its image as a pure-play tax preparer and reinvent itself as a one-stop personal finance supermarket. The company rolled out H&R Block Financial Centers in four markets during the most recent tax season and is gearing up to open an additional 70 centers by year-end. The concept stores offer financial planning, investment services, home mortgages and, of course, tax preparation. Olde will provide the back-office infrastructure and management experience in the brokerage area to support the new financial centers. Adding a discount brokerage also offers H&R Block an opportunity to take a greater share of its business online, where it could sell brokerage and tax preparation services side-by-side.

Not surprisingly, H&R Block's financial results are heavily weighted toward its fiscal fourth quarter, which ends April 30. For the full fiscal year 1999, 73% of total revenues and 100% of operating income were derived during that quarter. The addition of Olde won't reverse the company's single-quarter dependency, but selling brokerage services will help offset some of the operating losses that the core tax preparation business absorbs during the other nine months of the year. Furthermore, a serious push into the high-flying online discount brokerage area could prove to be the catalyst that will add an extra capital gains taxes boost for the company's shareholders, who have watched H&R Block's stock appreciate 23.6% so far this year.

News to Go

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Branded baked foods maker Flowers Industries (NYSE: FLO) restated its second quarter results to show a loss of $0.03 per share before charges, down from a previously announced profit of $0.10 per share before charges, after a review of its Mrs. Smith's Bakeries unit prompted the company to revise the carrying value for some of the unit's assets.

Generation Y outfitter Delia's Inc. (Nasdaq: DLIA) reported a fiscal second quarter loss of $0.42 per share, deeper than last year's loss of $0.01 per share, as lower summer catalogs circulation and slumping sales at its TSI Soccer unit partially offset higher retail store sales. The Zacks mean estimate had called for a loss of $0.41 per share during the period.

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