H&R Block (NYSE:HRB) Beats Q3 Sales Targets
Tax preparation company H&R Block (NYSE:HRB) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 5.4% year on year to $193.8 million. The company expects the full year’s revenue to be around $3.72 billion, close to analysts’ estimates. Its GAAP loss of $1.24 per share was also 2.4% above analysts’ consensus estimates.
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H&R Block (HRB) Q3 CY2024 Highlights:
- Revenue: $193.8 million vs analyst estimates of $187.7 million (3.3% beat)
- EPS: -$1.24 vs analyst estimates of -$1.27 (2.4% beat)
- EBITDA: -$187.6 million vs analyst estimates of -$187.6 million (small beat)
- The company reconfirmed its revenue guidance for the full year of $3.72 billion at the midpoint
- EBITDA guidance for the full year is $997.5 million at the midpoint, in line with analyst expectations
- Gross Margin (GAAP): 47.7%, up from -41.1% in the same quarter last year
- Operating Margin: 6.1%, up from -112% in the same quarter last year
- EBITDA Margin: -96.8%, down from -90.5% in the same quarter last year
- Free Cash Flow was -$347.3 million compared to -$347.9 million in the same quarter last year
- Market Capitalization: $8.65 billion
"We had a good start to the year and I am pleased with our performance in the quarter," said Jeff Jones, President and CEO.
Company Overview
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 is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, H&R Block’s 3.1% annualized revenue growth over the last five years was sluggish. This fell short of our expectations, but there are still things to like about H&R Block. 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.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. H&R Block’s annualized revenue growth of 2.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 
We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Tax Preparation, Financial Services, and Wave Financial, which are 48.4%, 4.6%, and 13.6% 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 3.1% and 6.7%. On the other hand, its Financial Services revenue (Emerald Card, Spruce, interest income) averaged 7.2% declines.
This quarter, H&R Block reported year-on-year revenue growth of 5.4%, and its $193.8 million of revenue exceeded Wall Street’s estimates by 3.3%.
We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals H&R Block could be a hidden gem because it doesn’t get attention from professional brokers.
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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.
H&R Block has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 19.7% over the last two years, quite impressive for a consumer discretionary business.
Key Takeaways from H&R Block’s Q3 Results
It was good to see H&R Block beat analysts’ revenue and earnings expectations this quarter. However, it didn't matter much because its full-year guidance was in line - HRB must be viewed from an annual lens because it's a seasonal business. The stock traded down 2.3% to $61.92 immediately after reporting.
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.
