Ahead of the Bell: H&R Block 4Q profit drop seen

DAVE CARPENTER

CHICAGO (AP) — H&R Block Inc., the nation's largest tax preparer, will report results for its busiest quarter after the market closes on Tuesday. The company, which is overhauling its business and cutting hundreds of jobs, is expected to post a drop in profit for the tax season.

WHAT TO WATCH FOR: Any progress reports on the reorganization that President and CEO Bill Cobb unveiled in April. H&R Block expects the moves to save up to $100 million per year by the end of fiscal 2013, though restructuring charges will weigh on the year's results. The shake-up included the departures of Chief Financial Officer Jeff Brown and Philip Mazzini, president of retail tax services. Brown was succeeded this month by former Ceridian Corp. CFO Gregory Macfarlane.

Investors will look for commentary on the agreement Block reached in April with the U.S. Securities and Exchange Commission, settling charges that its former Option One Mortgage Corp. unit misled investors about subprime mortgage offerings. The unit, now called Sand Canyon Corp., agreed to pay $28.2 million in the deal. Cobb has said that extensive cost-cutting, the sale of businesses such as ExpressTax and its RSM McGladrey consulting unit, and legal settlements have cleared the decks and set up the company for long-term earnings growth, and better shareholder returns.

And analysts will be seeking additional data on tax season. Block said in April that it processed 22.2 million U.S. tax returns, a 4.5 percent increase over last year. Online returns grew more than 20 percent, while retail returns edged up 1 percent. The company's preliminary analysis suggested that Block gained a half-percent of the total market for U.S. tax preparation. The online increase is particularly significant because Block has struggled in recent years to compete with other companies' tax software, in particular Intuit Inc.'s TurboTax.

WHY IT MATTERS: H&R Block files one of every seven U.S. tax returns. But as it has struggled to right its business and attract clients, the company's stock has lagged. Closing at $15.21 on Monday, the stock is down 9 percent since the overhaul was announced two months ago and trading 15 percent below its price last tax season.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect a quarterly profit of $2.05 per share on revenue of $2 billion. In last year's fourth quarter Block earned $2.20 per share on revenue of $2.33 billion.