With the books finally closed on fiscal Q4, the nation's leading paid tax preparer, H&R Block (NYSE:HRB), reports on the tax season (and full fiscal year) that was tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Eight analysts follow H&R Block, with two calling the stock a buy, four a hold, and the last two a sell.
  • Revenues. Analysts are looking for a 6% rise in quarterly revenues tomorrow.
  • Earnings. Profits, however, are predicted to edge down 2% to $1.80 per share for the quarter.

What management says:
If you read the last quarterly earnings report from H&R Block, and compared it to the earnings report that Jackson Hewitt (NYSE:JTX) put out last week, you could be forgiven for thinking these two companies were talking about two different years -- or two different industries. Here's what Jackson Hewitt CEO Michael Lister had to say: "We are very pleased with the results of the past year. An early and aggressive start to the tax season, coupled with more locations, new themed advertising and enhanced products and services, was the catalyst for the great momentum that carried us through a very successful tax season."

Now listen to H&R Block CEO Mark Ernst: "As we head into our busiest quarter of the year, we've seen an industry-wideslower start to the tax filing season than in previous years. Early season operating challenges experienced in our tax business further hurt our January comparative results." [italics added]

What management does:
There's nothing surprising about two different companies having two different levels of success within a single time period. What's a bit surreal about the above statements is that H&R Block asserts that the entire tax "industry" is hurting. Meanwhile, chief rival Jackson Hewitt (aka a good portion of the rest of that "industry") saw things 180 degrees differently.

After reading those two conflicting views of reality, you probably won't be surprised to learn that Jackson Hewitt's rolling margins are improving, while H&R Block has been performing like this:

Margins %

10/04

1/05

4/05

7/05

10/05

1/06

Gross

42.3

39

45.3

44.8

43.3

41.9

Op.

24.7

23.2

23.8

23.2

21.6

19.7

Net

14.5

13.6

14.1

14.2

13.3

10.9

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
H&R Block has had a rough time of things lately. It lost $52 million to a legal settlement last quarter, and had to restate its earnings after discovering (oops) that it had understated its own state tax liability. Although such blunders seem to be recurring with disturbing frequency, they are -- in theory at least -- just one-time items rather than long-term problems.

Big-picture, however, this Fool can't help but notice that even after deducting the costs of its several blunders, H&R Block still looks a lot more profitable from the perspective of generally accepted accounting principles, than it truly is from the perspective of cash profits -- free cash flow. Over the last two trailing-12-month periods, H&R Block has reported a total of $1.1 billion in net profits. However, reviewing the company's cash flow statements reveals that operating cash flow was just $680 million, and after deducting capital expenditures to arrive at free cash flow, the firm actually generated only $260 million in real cash profits. Which makes me wonder just how "cheap" the company's trailing P/E of 14 really is.

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Fool contributor Rich Smith does not own shares of any company named above.