H&R Block Loss Widens, 2006 Outlook Lowered

CHICAGO – H&R Block Inc. (HRB) said on Thursday that its net loss widened more than expected in the most recent quarter, pulled down by a sharp fall in profits at its mortgage unit.

The U.S. tax-preparation company, which also provides home-loan and investment services, also cut its earnings estimate for the full year, blaming the "unsettled market dynamics" in the mortgage industry. The news sent the company's shares lower in after-hours electronic trading.

The pressures on Option One, H&R Block's home-loan unit, overshadowed what Bill Trubeck, the company's chief finance officer, characterized as strong performances at the company's tax and financial advisory units.

"It's all mortgage driven," Trubeck said of the results and the reduced outlook for the whole year. "We're doing what we can."

Indeed, the company's financial advisory unit reported a 30 percent increase in revenues and the company's RSM McGladrey corporate accounting unit reported its ninth consecutive quarter of double-digit organic revenue growth.

Even Option One saw its originations and revenues rise. But competition from other mortgage lenders, coupled with a rising cost of funds, sent pretax income in the unit skidding 44 percent.

As a result, H&R Block reported a fiscal second-quarter loss of $72.2 million, or 22 cents per share, compared with a loss of $49.9 million, or 15 cents per share, last year.

Sales rose 14 percent to $620.4 million.

H&R Block's earnings are highly seasonal because of the surge in tax work between January and April, and it's not unusual for the company to report losses in its first and second quarters.

But the reported losses were larger than expected. Analysts, on average, expected H&R Block to report a net loss of 14 cents a share on revenue of $643 million, according to Reuters Estimates.

H&R Block also cut its estimate for fiscal 2006 earnings to between $1.90 and $2.15 a share, down from a previous estimate of between $2.12 and $2.32.

That sent the company's shares lower in after-hours electronic trading. They were last at $22.89 after closing at $23.95 on the New York Stock Exchange.