For the millions of people who rely upon advice given by tax professionals, H&R Block's
Compounding the company's problem were software glitches that caused it to lose 250,000 customers to competitors like Jackson Hewitt
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
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.
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