H&R Block 2Q Loss Grows

Yahoo! Finance ^ | November 30, 2006 | David Twiddy

[Toddsterpatriot]

H&R Block 2Q Loss Grows on Continued Mortgage Problems

KANSAS CITY, Mo. (AP) -- H&R Block Inc. on Thursday said its second-quarter loss almost doubled, missing Wall Street expectations as the company's mortgage lending arm continued to hemorrhage cash.

The company said it will make a decision on whether to sell the mortgage business during the first quarter of 2007, with Chief Executive Mark Ernst telling reporters, "We think there will be a strong demand for it."

For the three months ended Oct. 31, the Kansas City-based company reported an overall loss of $156.5 million, or 49 cents per share, compared with a loss of $81.3 million, or 25 cents per share, during the same period a year ago.

Revenue during the period declined 7 percent to $563.2 million.

Analysts surveyed by Thomson Financial had expected a loss of 32 cents per share on revenue of $582.2 million.

H&R Block, the nation's largest tax preparer, regularly posts losses during its first and second quarters with the majority of its revenue coming during the U.S. tax season.

The company's mortgage lending unit, Option One, has struggled this year with rising interest rates and an increase in defaulting borrowers.

During the second quarter, the unit saw sales fall 40 percent to $140.6 million and recorded a $39 million loss, compared to a $48.8 million profit during the year-ago period.

H&R Block has already said the Irving, Calif.-based subsidiary is closing 12 branch offices in hopes of consolidating one-third of its loan fulfillment operations. Earlier this month, the company said it may shed the company, either to a buyer or as a tax-free spin-off.

Speaking with reporters Thursday, Bill Trubeck, the company's chief financial officer, said while the spin-off is still a possibility, "we've had a high level of interest from a lot of sophisticated potential investors in the property."

The company's tax business reported a 2 percent increase in revenue to $82 million and a pretax loss of $167.4 million, which has increased as the company opens new retail offices and makes other preparations for the coming tax season.

H&R Block last week began selling a new type of refund-anticipation loan, called Instant Money, that doesn't require the borrower to provide a W-2 form. While Ernst in June criticized competitors Jackson Hewitt Tax Service and Liberty Tax Service for selling the products, calling them little better than "payday lending," the company obviously felt pressured after estimating around 250,000 tax filers took advantage of the loans last season.

Chi Chi Wu, staff attorney for the National Consumer Law Center, a frequent critic of the tax preparation industry's practices, said she was disappointed in the move but was thankful that H&R Block's version charges lower fees and doesn't require a deposit like its competitors.

"This is a situation where companies are driven to appeal to the lowest common denominator because of a lack of appropriate regulation," Wu said.

H&R Block's business accounting unit reported revenues increasing 37 percent to $229 million, while its financial services arm, which includes investment advisers and banking services, saw revenue slip 7.6 percent.

The company released its earnings after the markets closed for the day. H&R Block shares, which have traded in a 52-week range of $19.80 to $25.75, gained 6 cents to $24 in trading on the New York Stock Exchange.

http://www.hrblock.com

[Toddsterpatriot]

The company's mortgage lending unit, Option One, has struggled this year with rising interest rates and an increase in defaulting borrowers.

I guess in their case, defaults were a losing proposition.