Margins matter. The more H&R Block
Here's the current margin snapshot for H&R Block over the trailing 12 months: Gross margin is 36.5%, while operating margin is 18.0% and net margin is 9.3%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where H&R Block has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for H&R Block over the past few years.
Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.
Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.
Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.
Here's how the stats break down:
- Over the past five years, gross margin peaked at 39.2% and averaged 37.1%. Operating margin peaked at 20.0% and averaged 18.8%. Net margin peaked at 12.8% and averaged 3.4%.
- TTM gross margin is 36.5%, 60 basis points worse than the five-year average. TTM operating margin is 18.0%, 80 basis points worse than the five-year average. TTM net margin is 9.3%, 590 basis points better than the five-year average.
With recent TTM operating margins below historical averages, H&R Block has some work to do.
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