updated 8/25/2004 9:06:20 AM ET 2004-08-25T13:06:20

H&R Block Inc., the world’s biggest tax preparer, reported a loss of $44.1 million for its first quarter Tuesday, saying its mortgage business was hurt by rising interest rates.

But the company said it was standing by its earlier expectations that it would earn between $4 and $4.25 per share for the year.

For the quarter ended July 31, H&R Block said it lost 26 cents per share in contrast to a profit of $5.2 million, or 3 cents per share, during the same period last year.

Revenue slipped to $482.7 million from $495.4 million in the year-ago period.

Analysts polled by Thomson First Call had expected a loss of 5 cents per share on revenue of $525 million.

The company blamed its mortgage lending subsidiaries, Option One Mortgage Corp. and H&R Block Mortgage Corp. The two operations reported a 43 percent decline in combined earnings to $93.5 million from $163.8 million a year ago.

H&R Block said it produced a record $6.8 billion in loans for the quarter as loan production increased 28.4 percent over the previous year. However, loan originations in its retail mortgage subsidiary, H&R Block Mortgage Corp., were down 7.8 percent as customers shied away in the face of rising interest rates.

Chairman and CEO Mark Ernst said he wasn’t too worried by the numbers and expected the company to hit its target earnings figures for the year.

“These results are consistent with what we expected for this quarter,” Ernst said. “We made sure that Wall Street heard that (during conference calls last quarter) but I’m not sure they did.”

In tax services, the company reported a pretax loss of $113 million, compared to a loss of $99.6 million a year ago.

Officials said that while the company, which sees the bulk of its tax business earlier in the year, saw tax services revenue increase from $46 million to $50.4 million during the quarter, it had to pay $9 million to acquire former major franchise territories during the company’s second quarter of last year. It also is ramping up to open more than 500 new tax offices and add 400 tax kiosks to the 500 kiosks it already has in Wal-Mart locations.

In business services, the company reported a $10.1 million loss, compared to a $6.7 million loss a year ago. The division saw an increase in sales from $98.5 million last year to $109.1 million. Officials said a backlog in capital markets business at the end of fiscal year 2003 helped boost the numbers last year.

Investment services, which are still a new part of the company’s portfolio, reported a loss of $18.3 million, an increase over the loss of $13.8 million a year ago. Revenues for the division also dropped from $57 million to $53.6 million.

The results were reported after the close of the stock market. H&R Block shares rose $1.26 to close at $51.23 Tuesday on the New York Stock Exchange. They plunged more than 6 percent, or $3.23, in late trading.

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