H&R Block earnings flat, revenues up despite drop in returns handled

H&R Block Inc. handled fewer tax returns in the filing season that ended April 15 but still collected more money from customers.

The Kansas City-based tax preparation company on Monday credited price increases and higher volumes of digital do-it-yourself customers for a 1.8 percent increase in revenues for its fiscal year. Block previously reported the decline in the number of tax returns it handled.

Profits remained flat despite the revenue bump. Block earned $473.7 million, or $1.71 per share, in its fiscal year that ended April 30. A year earlier, it earned $475.2 million, or $1.72 a share.

Revenue for the year reached nearly $3.08 billion compared with $3.02 billion a year ago.

Block handled fewer returns partly because there weren’t that many to handle. Normally, the number of tax returns filed with the Internal Revenue Service climb between 1 percent and 2 percent a year.

“We were surprised this year that the unit count (growth) was under 1 percent,” Block’s chief executive, Bill Cobb, said during a conference with analysts.

And Cobb said he sees no reason to account for the scant increase in total returns filed nationally. Next year’s growth should be normal.

There were other surprises for the company.

The Affordable Care Act, commonly called Obamacare, hit the tax returns of only 16 percent of Block customers, the company said. It had expected 25 percent of customers to “intersect” with the health care reform as they filed taxes this spring.

A documentation loophole may account for some of that difference.

Taxpayers faced a penalty this spring for not having health care coverage last year. Tax forms simply allowed filers to check a box saying they had coverage, with no additional information required to prove it.

“A lot of people used the check box to avoid ACA penalties,” Mark Ciaramitaro, H&R Block’s vice president of health care, said during the call with analysts.

Next year, tax filers will have to include new forms proving they have health care coverage, closing the loophole.

In addition, H&R Block still has not completed the sale of its bank, H&R Block Bank in Kansas City. Regulators have not approved the sale to the Bank of the Internet. Block would rely on other banks to provide the services H&R Block Bank provides now.

Cobb is keen on selling the bank because owning it requires the company to keep more capital on hand than it would need otherwise. Wrapping up the sale would give the company an extra $1 billion in capital to put to other uses.

Cobb said the slow approval process has been frustrating but emphasized that the bank will go eventually.

“No. 1, we are going to get out of this business,” he said.

H&R Block previously reported about a 1 percent decline in the number of U.S. tax returns it prepared in the season that ended April 15. The drop to 20.49 million returns in the U.S. was heavier among its assisted returns, which saw a 4.4 percent dip in returns.

Globally, H&R Block handled 0.1 percent fewer returns for a total of 24.2 million worldwide.

This story was originally published June 8, 2015 at 3:20 PM with the headline "H&R Block earnings flat, revenues up despite drop in returns handled."