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Intuit (INTU) Q4 Loss Widens Y/Y; Issues Weak FY16 Outlook

Zacks Equity Research
Updated

Intuit Inc. INTU recently reported fourth-quarter fiscal 2015 results, wherein it incurred an adjusted loss per share of 23 cents (including stock-based compensation but excluding amortization and other one-time items) from continuing operations. Though the figure was wider than the year-ago quarter loss of 15 cents, it was narrower than the Zacks Consensus Estimate of a loss of 25 cents.

Intuit Inc. - Earnings Surprise | FindTheBest

On a GAAP basis, Intuit’s loss from continuing operations widened to 37 cents per share from 10 cents incurred a year ago mainly due to higher operating expenses.

Quarter in Detail

Revenues of $696 million came below the guided range of $720–$745 million and missed the Zacks Consensus Estimate of $740 million. However, on a year-over-year basis, revenues grew 7.2% mainly on the back of Intuit’s ongoing transformation into a global cloud company.

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Services and Other revenues grew 7.2% year over year to $415 million, while product revenues improved 7.3% to $281 million.

Segment-wise, Small Business Group recorded 5% year-over-year decline due to changes in desktop offerings as the company continues to focus on online solutions. Total desktop ecosystem revenue declined year over year as a result of 14% drop in desktop units.

The company added 110,000 QuickBooks Online subscribers during the quarter bringing the total to 1075,000.

Coming to the operational metrics, Intuit reported adjusted gross profit of $528 million, up 8% year over year mainly supported by higher revenues and lower cost of sales as a percentage of sales. Consequently, gross margin expanded 60 basis points (bps) to 75.9%.

The company reported 14.6% year-over-year increase in adjusted operating expenses primarily due to higher research & development, selling and marketing and general & administrative expenditure.

Higher operating expenses led to an adjusted operating loss of $86 million, which compared unfavorably with $47 million operating loss suffered a year ago.

Intuit posted adjusted net loss from continuing operations (including share-based compensation but excluding amortization and other one-time items) of $67.2 million or 23 cents per share as against net loss of $42.6 million or 15 cents in the year-ago quarter.

Balance Sheet and Cash Flows

The maker of tax-preparation software TurboTax exited fiscal 2015 with cash and investments of $808 million. Long-term debt stood at $500 million at the end of fiscal year. Further, Intuit generated cash flow of $1.504 billion from operating activities. During the fiscal year, the company repurchased shares worth $1.245 billion and had roughly $2.6 billion remaining under the share buyback authorization.

Outlook

Intuit issued weak top-line guidance for the first quarter and fiscal 2016. The company expects revenues in the range of $4.525–$4.600 billion in fiscal 2016. The mid-point of $4.563 billion is lower than the Zacks Consensus Estimate of $5.025 billion.

Non-GAAP operating income is projected within $1.45 billion to $1.48 billion. Non-GAAP earnings per share are expected between $3.40 and $3.45. The Zacks Consensus Estimate is pegged at $3.24.

For the first quarter, the company expects to incur non-GAAP loss per share between 3 cents and 4 cents while the Zacks Consensus Estimate is pegged at a loss of 8 cents.

Further, the company expects revenues in the range of $660–$680 million in the first quarter. The Zacks Consensus Estimate currently stands at $776 million.

Our Take

Intuit concluded fiscal 2015 on a dismal note. Although revenues grew on a year-over-year basis, loss widened. Moreover, the company issued weak top-line guidance for the first quarter and fiscal 2016.

Nevertheless, we are positive on Intuit’s growing SMB exposure and believe that the strategic acquisitions will boost the segment. The increased adoption of its cloud-based services and products is another positive.

Intuit has also restructured its business to focus more on QuickBooks services. The company expects to continue to invest in the portfolio, which is likely to impact its near-term profitability.

Moreover, the rising competition from payroll solution providers such as Paychex Inc. PAYX and Automatic Data Processing ADP is a concern, in our view, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.

Currently, Intuit has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Mellanox Technologies, Ltd. MLNX sporting a Zacks Rank #1 (Strong Buy).

 

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