H&R Block (NYSE:HRB) Beats Q2 Sales Expectations, Full-Year Sales Guidance is Optimistic

Yahoo

16 hours ago

Tax preparation company H&R Block (NYSE:HRB) announced better-than-expected revenue in Q2 CY2025, with sales up 4.6% year on year to $1.11 billion. The company's full-year revenue guidance of $3.89 billion at the midpoint came in 1.5% above analysts' estimates. Its non-GAAP profit of $2.27 per share was 19.9% below analysts' consensus estimates.
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H&R Block (HRB) Q2 CY2025 Highlights:
Revenue: $1.11 billion vs analyst estimates of $1.09 billion (4.6% year-on-year growth, 1.6% beat)
Adjusted EPS: $2.27 vs analyst expectations of $2.83 (19.9% miss)
Adjusted EBITDA: $413.2 million vs analyst estimates of $419.1 million (37.2% margin, 1.4% miss)
Revenue guidance for the upcoming financial year 2026 is $3.89 billion at the midpoint, beating analyst estimates by 1.5%
Adjusted EPS guidance for the upcoming financial year 2026 is $4.93 at the midpoint, missing analyst estimates by 4.3%
EBITDA guidance for the upcoming financial year 2026 is $1.03 billion at the midpoint, in line with analyst expectations
Operating Margin: 34.5%, up from 33% in the same quarter last year
Free Cash Flow Margin: 21.7%, down from 27.4% in the same quarter last year
Market Capitalization: $7.29 billion
"Fiscal 2025 marked another year of meaningful progress in our transformation journey, with strong revenue growth, disciplined capital allocation, and continued innovation across our client offerings,' said Jeff Jones, president and Chief Executive Officer.
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.
Revenue Growth
Examining a company's long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, H&R Block grew its sales at a sluggish 7.3% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a poor baseline 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.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. H&R Block's recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend.
We can better understand the company's revenue dynamics by analyzing its three most important segments: Tax Preparation, Financial Services, and Wave Financial, which are 87.8%, 1.4%, and 2.7% 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 4.2% and 10%. On the other hand, its Financial Services revenue (Emerald Card, Spruce, interest income) averaged 9% declines.
This quarter, H&R Block reported modest year-on-year revenue growth of 4.6% but beat Wall Street's estimates by 1.6%.
Looking ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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Operating Margin
H&R Block's operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 22.3% over the last two years. This 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 margin profit margin of 34.5%, up 1.5 percentage points year on year. Because H&R Block is a seasonal business, we prefer to analyze longer-term performance rather than one quarter.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth is profitable.
H&R Block's EPS grew at a remarkable 18.4% compounded annual growth rate over the last five years, higher than its 7.3% annualized revenue growth. However, this alone doesn't tell us much about its business quality because its operating margin didn't improve.
In Q2, H&R Block reported adjusted EPS of $2.27, up from $1.89 in the same quarter last year. Despite growing year on year, this print missed analysts' estimates, but we care more about long-term adjusted EPS growth than short-term movements. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data.
Key Takeaways from H&R Block's Q2 Results
It was great to see H&R Block's full-year revenue guidance top analysts' expectations. We were also happy its revenue growth accelerated from the same quarter last year, outperforming Wall Street's estimates. On the other hand, its EPS missed due to a one-time tax benefit of $0.50 per share getting pushed to next quarter - including the $0.50, EPS would have only missed by ~2%. Zooming out, we think this was a decent quarter. The stock remained flat at $51.38 immediately following the results.
So should you invest in H&R Block right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it's free.
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