Stock Story -
Tax preparation company H&R Block (NYSE:HRB) reported Q2 CY2024 results beating Wall Street analysts’ expectations, with revenue up 3% year on year to $1.06 billion. The company’s full-year revenue guidance of $3.72 billion at the midpoint also came in 1.5% above analysts’ estimates. It made a non-GAAP profit of $1.89 per share, down from its profit of $1.97 per share in the same quarter last year.
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H&R Block (HRB) Q2 CY2024 Highlights:
- Revenue: $1.06 billion vs analyst estimates of $1.03 billion (3.4% beat)
- EPS (non-GAAP): $1.89 vs analyst estimates of $1.74 (8.5% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $3.72 billion at the midpoint, beating analyst estimates by 1.5% and implying 3% growth (vs 4.3% in FY2024)
- EPS (non-GAAP) guidance for the upcoming financial year 2025 is $5.25 at the midpoint, beating analyst estimates by 12.2%
- EBITDA guidance for the upcoming financial year 2025 is $997.5 million at the midpoint, in line with analyst expectations
- EBITDA Margin: 37.3%, down from 41% in the same quarter last year
- Market Capitalization: $7.94 billion
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 ServicesSome 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 GrowthA 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 tends to grow for years. Unfortunately, H&R Block’s 3.1% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis. 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 2.1% 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 87.4%, 1.8%, and 2.4% 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 2.7% and 7.7%. On the other hand, its Financial Services revenue (Emerald Card, Spruce, interest income) averaged 14.2% declines.
This quarter, H&R Block reported reasonable year-on-year revenue growth of 3%, and its $1.06 billion of revenue topped Wall Street’s estimates by 3.4%. 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.
Operating Margin H&R Block’s operating margin has been trending up over the last year and averaged 22.2%. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.
This quarter, H&R Block generated an operating profit margin of 34.4%, down 2 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue. Because H&R Block is a seasonal business, we prefer to analyze longer-term performance rather than one quarter.
Key Takeaways from H&R Block’s Q2 Results We were impressed by H&R Block’s optimistic full-year revenue and earnings guidance, which blew past analysts’ expectations. We were also glad this quarter's revenue and EPS came in higher than Wall Street’s estimates. Overall, this was a solid quarter with some key areas of upside. The stock traded up 5.4% to $60.57 immediately after reporting.
