H&R Block Inc., the nation's top tax preparer, on Wednesday lowered its 2006 profit projections for the second time this year due to continued weakness in its mortgage operations.
The Kansas City, Mo.-based company — saddled with class-action lawsuits, financial restatements and a high-profile investigation by New York Attorney General Eliot Spitzer — said it now expects full-year earnings to fall below $1.65 per share, the low end of its previous forecast.
On Feb. 23, H&R Block said slower-than-expected business in its tax and mortgage arms would cut profit to between $1.65 to $1.85 per share. The company's mortgage business saw quarterly revenue decline 4 percent in the third quarter, as rising interest rates cut into margins.
In December, the company had told Wall Street it expected earnings in the range of $1.90 to $2.15 per share for the year.
Analysts, on average, were expecting the company to post earnings of $1.70 per share for the year, according to Thomson Financial. Their average estimate had been as high as $1.86 in February before the company's initial warning.
H&R Block said in a statement that the guidance did not include the effect of previously announced charges to resolve litigation over its refund-anticipation loans, which are short-term cash payments to customers who don't want to wait a few additional weeks for their tax refunds. The plaintiffs had claimed the company failed to adequately explain the loans' high interest and fees.
In April, H&R Block and a banking partner agreed to settle a long-standing class-action lawsuit over the loans for $39 million. The company — which counts billionaire Warren Buffett as a major investor — had agreed in December to a separate settlement of more than two dozen class-action lawsuits over the refund loans for $62.5 million. That settlement covered 8 million customers.
The company still faces a lawsuit filed in February by California Attorney General Bill Lockyear on behalf of 1.5 million state residents who have taken out refund loans since 2001.
The guidance also doesn't include related charges for consolidating a number of mortgage operations to reduce operating costs.
Meanwhile, H&R Block continues to face an expanding investigation by Spitzer that claims management threatened to fire employees who didn't push overpriced individual retirement accounts. The complaint filed in March claims the company pushed 500,000 customers into IRAs that had hidden fees and low interest rates, which cost them millions of dollars.
H&R Block in the past has said the lawsuit was "an unfair attack on a good product that plays a key role in our mission to help lower and middle-income Americans start saving for retirement."
The tax preparer in March restated earnings for 2004 and 2005 and the first two quarters of 2006 to reflect underreporting its state income tax liability by $30.5 million through April 30, 2005.
The company also said Wednesday that tax preparation and related fees for its U.S. retail operations surged 4.5 percent to $2.5 billion during the 2006 tax season, which falls in the company's fiscal fourth quarter. The average fee per client rose 6.6 percent to $160, and the number of clients served by its retail operations and online tax business grew 1.4 percent to 19 million.
In midday trading on the New York Stock Exchange, shares of H&R Block fell 37 cents, or 1.6 percent, to $22.63.