H&R Block, which provides tax advice to millions of Americans, made an embarrassing confession on Thursday. It goofed on its own taxes.
The company, which is in the middle of its make-or-break season preparing other people’s tax returns, said it had underestimated its own “state effective income tax rate” in previous quarters -- meaning it owes another $32 million in back taxes.
As a result, H&R Block said it would restate previously reported earnings going all the way back to 2004.
The company also cut its forecast for full-year 2006 earnings, blaming, among other things, “a slower start to the tax filing season than in previous years.”
But it acknowledged it compounded the problem by introducing a new technology that went haywire -- and sent a quarter of a million customers to rivals.
H&R Block shares went sharply lower in extended trading after the company issued its earnings report -- which was a disappointment in itself.
The Kansas City, Missouri-based company said fiscal third-quarter net earnings fell 69 percent to $28.8 million, or 9 cents a share, from $92.3 million, or 28 cents per share, during the comparable quarter last year. Revenues for the quarter rose 12 percent to $1.2 billion, the company said.
Analysts expected H&R Block to report earnings of 26 cents a share on sales of $1.19 billion.
The company said its poor performance in the fiscal third quarter resulted from legal settlement costs related to its controversial early refund program and from a smaller-than-expected seasonal surge in filings by U.S. taxpayers.
But in a conference call with investors, Mark Ernst, the company’s chairman and chief executive, said the slow start was exacerbated by “self-inflicted wounds.”
Ernst said software-related technology problems left the company unprepared for a surge in January filings by taxpayers expecting refunds and “created a hole out of which we’re working to climb.”
He said the problem “cost us 250,000 clients” that were ”unable to be recovered.”
The company said a new software distribution system introduced in January had caused its offices glitches that would be fixed for a day, then pop up again, It said the problems left some offices unable to process taxes.
That isn’t the only hole H&R Block dug for itself. The tax-related goof and restatement will also drag down previously reported results for 2005 and 2004 by an estimated 9 cents a share, the company said.
H&R Block, which also provides home-loan and investment services, also cut its 2006 earnings forecast to a range of $1.65 to $1.85 a share, down from its previous range of $1.90 to $2.15 per share. It blamed the slow start to the tax season, as well as continued weakness in the mortgage market, for the reduced forecast.
