Tax preparation firm H&R Block (NYSE:HRB) reported results for its second quarter of fiscal 2024 that beat Wall Street analysts’ expectations. Revenue rose 3% year over year to $1.06 billion. The company’s full-year revenue forecast of $3.72 billion was also 1.5% above analyst estimates. The company posted non-GAAP earnings of $1.89 per share, down from earnings of $1.97 per share in the same quarter last year.

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H&R Block (HRB) Q2 2024 Highlights:

• Revenue: $1.06 billion versus analyst estimates of $1.03 billion (up 3.4%)

• Earnings per share (non-GAAP): $1.89 versus analyst estimates of $1.74 (up 8.5%)

• The management Sales forecast for the upcoming financial Year 2025 averages $3.72 billion, exceeding analyst estimates by 1.5% and representing growth of 3% (compared to 4.3% in FY2024)

• EPS forecast (non-GAAP) for the coming fiscal year 2025 averages USD 5.25, exceeding analyst estimates by 12.2%

• EBITDA forecast for the coming financial year 2025 is on average 997.5 million US dollars, which is in line with analysts’ expectations

• EBITDA margin: 37.3%, compared to 41% in the same quarter last year

• Market capitalization: 7.94 billion US dollars

“In fiscal year 2024, we made great strides in our diverse range of products and services that provide value to our customers and help build their financial confidence,” said Jeff Jones, President and CEO of H&R Block.

Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE:HRB) is a tax preparation firm that provides professional tax assistance and financial solutions to individuals and small businesses.

Specialized consumer services

Some consumer goods companies don’t fit neatly into a category because their products or services are unique. While their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has been around for some time. Technology can be a double-edged sword, however, as it can lower barriers to entry for new competitors and allow them to better serve their customers.

Sales growth

A company’s long-term performance can provide insight into its business quality. Even a poor company can shine for a quarter or two, but a top-notch company typically grows for years. Unfortunately, H&R Block’s annual revenue growth over the past five years has been weak at 3.1%. This shows that it hasn’t been able to expand on a large scale and is a rough starting point for our analysis. We note that H&R Block is a seasonal company, as it generates most of its revenue during tax season, so the charts in our report will look a bit uneven.

The story continues

At StockStory, we place the greatest value on long-term growth, but in the consumer goods space, too broad a historical view can miss a company riding a successful new product or emerging trend. H&R Block’s 2.1% annualized sales growth over the past two years is in line with its five-year trend and suggests demand has been consistently weak.

We can examine the company’s revenue dynamics even more closely by analyzing its three main segments: tax preparation, financial services, and Wave Financial, which account for 87.4%, 1.8%, and 2.4% of revenue, respectively. Over the past two years, H&R Block’s revenues in tax preparation (DIY, assisted, additional services) and Wave Financial (enterprise software) have seen average year-over-year growth of 2.7% and 7.7%, respectively. On the other hand, revenues from financial services (Emerald Card, Spruce, interest income) have seen an average decline of 14.2%.

This quarter, H&R Block reported a decent 3% year-over-year revenue growth, and on revenue of $1.06 billion, it beat Wall Street estimates by 3.4%. We also like to judge companies by their forecasted revenue growth, but not enough Wall Street analysts cover the company to have reliable consensus estimates. This suggests that H&R Block could be a hidden gem, lacking attention from professional brokers.

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Operating margin

H&R Block’s operating margin increased last year, averaging 22.2%. In addition, profitability was outstanding for a consumer goods company thanks to its efficient cost structure and economies of scale.

This quarter, H&R Block generated an operating profit margin of 34.4%, down 2 percentage points from the prior year. This decline shows that the company has been less efficient recently, with its expenses increasing faster than its revenues. Since H&R Block is a seasonal business, we prefer to analyze performance over a longer period rather than a quarter.

Key takeaways from H&R Block’s Q2 results

We were impressed by H&R Block’s upbeat full-year revenue and earnings guidance, which beat analysts’ expectations. We were also pleased to see this quarter’s revenue and earnings come in higher than Wall Street estimates. Overall, this was a solid quarter with some key areas of upside. The stock rose 5.4% to $60.57 immediately after the release.

H&R Block may have had a good quarter, but does that mean you should invest now? When making this decision, it’s important to consider valuation, business qualities, as well as what happened last quarter. We cover that in our actionable full research report, which you can read for free here.