Intuit Earnings Preview

May.17.11 | About: Intuit Inc. (INTU)

Intuit Inc. (NASDAQ:INTU) is scheduled to announce its third quarter fiscal 2011 results on May 19, and we see some upward estimate revisions at this point reflecting a positive sentiment on the stock.

Second Quarter Overview

Intuit reported a modest second quarter, missing our estimates both in terms of revenue and earnings per share (EPS). The quarter's EPS of 25 cents was also lower than 31 cents reported in the year-ago quarter. The miss was due to weak contributions from the Consumer Tax and Accounting Professional segments.

Intuit delivered a 4.9% year-over-year growth in revenue but missed the company's guidance range. The growth in revenue was attributable to year-over-year improvements of 1.9% in Product revenues and 8.0% in Services and Other revenues, partially offset by a tax revenue push-out of roughly $60.0 million to the third quarter.

During the quarter, most of the operating segments generated solid year-over-year growth, while contributions from Consumer Tax and Accounting Professionals segments were muted.

The quarter's revenue lag also pulled down the margins.

Guidance

For the third quarter of fiscal 2011, Intuit expects revenues to range between $1.76 billion and $1.83 billion. Operating income is projected in the range of $1.0–$1.05 billion on a GAAP basis and $1.05–$1.10 billion on a non-GAAP basis. GAAP EPS is projected at between $2.10 and $2.18 and non-GAAP EPS between $2.22 and $2.30.

Intuit reiterated its revenue and operating income guidance for fiscal 2011. The company expects revenues to range between $3.74 billion and $3.84 billion. Operating income is projected in the range of $980.0 million to $1.015 billion on a GAAP basis and $1.22 billion to $1.25 billion on a non-GAAP basis. GAAP loss per share is now projected within the $1.93–$2.00 range, which is higher than the previous expectation of $1.88–$1.95. Non-GAAP loss per share is expected to be between $2.41 and $2.48 versus the previous expectation of $2.36 to $2.43. The improved earnings outlook reflects a lower tax rate due to the extension of the research and development tax credit.

On a segmental basis, Intuit still expects the Small Business Group to grow 8% to 12% year over year in fiscal 2011. The projected year-over-year growth rates are 10% to 13% (previously 8% to 12%) for the Consumer Tax business, 4% to 7% (reiterated) for Accounting Professional, roughly 7% (previously 4% to 7%) for Financial Services and 11% to 16% (reiterated) for Other businesses.

Agreement of Analysts

Out of the 10 and 11 analysts providing estimates for the third quarter and fiscal 2011, only 1 made an upward revision in the last 30 days.

The analysts are positive about Intuit's tax revenue update, which reflects more than 12% total paid unit growth and is higher than the analysts' expectations. Moreover, some analysts believe that Intuit is also gaining market share based on strong brand recognition and a secular shift toward “do-it-yourself” tax preparation.

Magnitude of Estimate Revisions

The magnitude of revisions for the third quarter has been minimal in the last 30 days, but was significant since the company reported its second quarter results. The Zacks Consensus Estimate for the upcoming quarter has gone up a penny to $2.19 per share in the last 30 days. But the estimate was higher than $2.10 in the past 90 days.

For fiscal 2011, estimates jumped from $2.08 90 days ago to $2.14. However, over the past 30 days, estimates increased by a penny. For 2012, estimates went up from $2.42 90 days ago to $2.47, with a marginal variation noticed over the last 30 days.

Recommendation

Intuit is a leading provider of business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals and financial institutions. Management is confident about gaining market share in its Small Business group and Consumer Tax business, aided by accelerating customer growth and improving revenue per customer. We believe that strong contribution from the Consumer Tax segment will allow Intuit to outperform in the third quarter.

The analysts remain positive about stabilization in SMB fundamentals, an expected cyclical recovery and the possibility of a market pull-back.

However, stiff competition from H&R Block Inc. (NYSE:HRB) is a concern.

Currently, Intuit has a short-term Buy recommendation, as indicated by the Zacks #2 Rank.