H&R Block profit beats Street, sees higher margins

By Jonathan Spicer

NEW YORK (Reuters) - H&R Block Inc (HRB.N), the largest U.S. tax preparer, said on Monday profit rose 26 percent in the quarter that includes the main tax filing season, beating expectations as higher fees helped offset fewer returns.

The company, whose shares rose 5.5 percent in after-hours trade in response to the results, also promised higher margins and delivered a better-than-expected profit forecast in the coming fiscal year.

Overall retail tax returns fell 5.8 percent in fiscal 2009, while the net average retail fee per return prepared increased 7.2 percent, H&R Block said. There was a 45.2 percent rise in returns prepared online.

"Despite the growth in profits this fiscal year in a difficult economy, we're not satisfied with the results," said Russ Smyth, the company's chief executive, who stressed the need to change several business areas, including marketing and the retention of existing clients.

"We need to grow our client base," he said on a conference call with analysts, adding the company will rely less on fee increases in coming years.

Net income for the fiscal fourth quarter ended April 30 rose to $706.9 million, or $2.09 per share on a diluted basis, from $543.6 million, or $1.66, a year earlier. Revenue was down 2.7 percent at $2.47 billion.

Analysts on average had expected profit of $2.05 per share. H&R Block typically generates most, if not all, its annual profit and well over half its annual revenue in the fiscal fourth quarter.

Management noted on the call that fewer customers filed returns this year partly due to U.S. job losses, adding it believes "online is the key battleground of the future."