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Can H&R Block Survive Against Intuit and Liberty Tax Service?

By Dan Caplinger – Dec 8, 2013 at 8:35PM

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Shareholders have seen H&R Block stock hit a plateau for months, while Intuit and Liberty-owner JTH Holdings have soared. Will H&R Block survive threats on two fronts? Find out here.

H&R Block (HRB -2.72%) will release its quarterly report on Tuesday, and as you'd expect outside of tax season, the tax-preparation company will almost certainly post a sizable loss. But the bigger question investors want answered is whether H&R Block can meet the long-term threat of Intuit (INTU -3.23%) and its TurboTax software on one end, as well as the live tax-preparation competition of JTH Holdings' (NASDAQ: TAX) and its Liberty Tax Service chain.

H&R Block has a long history of providing tax-preparation services, and it has recognized the need to go beyond live preparation to offer tax software of its own. Yet TurboTax remains the most popular tax software in the market by a wide margin, forcing H&R Block to try to use its bricks-and-mortar offices as weapons in its competitive fight. Yet now, JTH Holdings has entered the field, with its ownership of Liberty Tax Service and the leadership of John Hewitt, co-founder of Jackson Hewitt. Let's take an early look at what's been happening with H&R Block over the past quarter and what we're likely to see in its report.

Stats on H&R Block

Analyst EPS Estimate


Year-Ago EPS


Revenue Estimate

$137.85 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can H&R Block earnings improve in the future?
Analysts have gotten slightly more optimistic about H&R Block earnings in the long-run, keeping October-quarter estimates steady but boosting full-year fiscal 2015 projections by $0.02 per share. The stock has climbed back toward the high end of its range for the year, rising 9% since early September.

Just as with this quarter's results, H&R Block's results for the July quarter were similarly weighed down by the fact that most of the company's earnings come in the key April quarter. A loss of $0.40 per share was worse than investors had expected to see, though, raising concerns about controlling costs during the tax off-season.

Another concern comes from H&R Block's efforts to sell off its banking-services division. The company had hoped to sell its banking division to Republic Bancorp in order to get out from under tighter regulation of banking-services companies. Yet Republic decided not to comply with one of the required conditions under the deal, forcing H&R Block to seek out other counterparties in an effort to cut costs and leave itself able to compete more nimbly against Intuit, Liberty, and others.

The wild card that H&R Block, Intuit, and Liberty all face at this point is the uncertainty surrounding the coming tax season in 2014. Last year, both Intuit and H&R Block were surprised by a relative lack of growth in return preparation, with Intuit saying that it saw a much smaller shift toward software from manual preparation than it had expected. Smaller competitors took away market share from Intuit, and H&R Block said that IRS returns fell about 1%, defying its own expectations of modest growth.

In the H&R Block earnings report, focus less on the actual backward-looking earnings and more on comments about the coming tax season. With the high-season for H&R Block earnings looming ever closer, the company needs to demonstrate that it has what it takes to keep Intuit and JTH Holdings at bay as it seeks to offer customers a way to deal with increasingly complex tax return needs.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of Intuit. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

H&R Block Stock Quote
H&R Block
$42.27 (-2.72%) $-1.18
Intuit Stock Quote
$402.63 (-3.23%) $-13.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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