H&R Block (NYSE:HRB) Exceeds Q1 Expectations

Tax preparation company H&R Block (NYSE:HRB) beat analysts' expectations in Q1 CY2024, with revenue up 4.4% year on year to $2.18 billion. The company expects the full year's revenue to be around $3.56 billion, in line with analysts' estimates. It made a non-GAAP profit of $4.94 per share, improving from its profit of $4.14 per share in the same quarter last year.

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"There are many things to be pleased about in the quarter, from our strong DIY performance, virtual tax growth, and positive trends in small business, to important progress for both Spruce and Wave. At the same time, I know we can execute better to improve the Assisted client experience for so many consumers who are choosing H&R Block," said Jeff Jones, H&R Block's president and chief executive officer.

Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE:HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.

Specialized Consumer Services

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. H&R Block's revenue declined over the last five years, dropping 2.9% annually. We note H&R Block is a seasonal business because it generates most of its revenue during tax season, so the charts in our report will look a bit lumpy. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. H&R Block's annualized revenue growth of 1.7% over the last two years is a reversal from its five-year trend, suggesting some bright spots.

We can better understand the company's revenue dynamics by analyzing its three most important segments: Tax Preparation, Financial Services, and Wave Financial, which are 92.9%, 2.9%, and 1.1% of revenue. Over the last two years, H&R Block's Tax Preparation (DIY, assisted, add-on services) and Wave Financial (business software) revenues averaged year-on-year growth of 2.8% and 9.1%. On the other hand, its Financial Services revenue (Emerald Card, Spruce, interest income) averaged declines of 22.8%.

This quarter, H&R Block reported reasonable year-on-year revenue growth of 4.4%, and its $2.18 billion of revenue topped Wall Street's estimates by 2.2%.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, H&R Block has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 8.1%, subpar for a consumer discretionary business.

Key Takeaways from H&R Block's Q1 Results

It was good to see H&R Block beat analysts' revenue and EPS expectations this quarter, driven by better-than-expected pricing and volumes in its assisted tax preparation business. On the other hand, its Wave Financial revenue missed; this is a tiny segment for the company but is key for diversifying its revenue away from taxes and becoming a less seasonal business. Zooming out, we think this was still a decent quarter, showing that the company is staying on track. The stock is up 1.6% after reporting and currently trades at $50 per share.

So should you invest in H&R Block right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.