There's a lot to like about tax advisor Jackson Hewitt (NYSE:JTX). First and foremost, the ex-subsidiary of Motley Fool Inside Value pick Cendant (NYSE:CD) has better operating and net margins than either primary competitorH&R Block (NYSE:HRB) or rival and Inside Value pick Intuit (NYSE:INTU). But there's still enough to dislike about Jackson that I think a fair number of investors are going to be disappointed by tomorrow's earnings release.
Jackson is due to release its fiscal Q2 2006 earnings bright and early Thursday morning. It provided no earnings guidance in its last earnings press release, issued in August, nor has it since. For now, all we really have to go on are the consensus estimates of the 10 analysts following the company. Those analysts are doffing their usual rose-colored glasses, figuring they'll see more than enough red ink to compensate tomorrow. Consensus estimates currently call for Jackson to report $0.33 per share in losses for the quarter just ended, which would be a 14% increase (in a bad way) from last year's $0.29 per-share loss.
But before you feel that sense of deja vu sweeping over you -- stop. To paraphrase Sen. Lloyd Bentsen, "Jackson Hewitt, you're no Intuit." Earlier this month, Intuit, too, was expected to show increased losses per share (it ultimately reported fewer losses than expected). But in Jackson's case, the fact that analysts believe Jackson's per-share losses have mounted has less to do with the company's ongoing share buyback program than with its declining business.
Jackson bought back about 2.3% of outstanding shares last quarter and had authorization to buy back 4.7% more. We'll find out tomorrow exactly how much of that authorization was used in fiscal Q2, and those buybacks will certainly help to magnify Jackson's losses per share (despite having no effect on the actual loss incurred by the firm as a whole.) But in contrast to Intuit, where revenues rose year over year, analysts believe that Jackson's revenues declined 19% to just $6 million in the first fiscal quarter.
It's only logical that, whatever its margins, the fewer dollars a company brings in as revenue, the fewer pennies of profit it can extract from those revenues. Which means that tomorrow, Foolish investors should be looking primarily for two things in Jackson's press releases: First, confirmation of the volume of share buybacks undertaken this quarter (because fewer shares will do at least something to boost per-share profits in the coming, usually profitable, third and fourth fiscal quarters.) And second, some hint that the company is turning its sales numbers around.
Audit Jackson Hewitt's past performance in:
- Cendant Divides to Conquer
- Jackson Hewitt's Sly Spin
- Finding Value in Tax Preparation
- No Jeopardy for Jackson Hewitt
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Fool contributor Rich Smith has no interest, short or long, in any company named above.
