INTU: Intuit Has Some ‘Splainin To Do

By William Trent, CFA of Stock Market Beat

Accounting and tax software maker Intuit (INTU) announced earnings today. According to the press release:

its second-quarter 2007 revenue increased 3 percent year-over-year to $763 million, in line with expectations. For the first six months of the fiscal year, the company reported revenue growth of 8 percent.

Growth in the quarter was driven by strong sales in Consumer Tax, which were up 18 percent over the year-ago period, and Payroll and Payments segment, which was up 15 percent year-over-year. This growth was offset partly by revenue shifts in QuickBooks and Pro Tax, which moved about $45 million in revenue from the second quarter to the first and third quarters, compared to last year.

The $20 million that shifted into the first quarter due to the earlier release of Quickbooks was disclosed then, and thus clearly factored into the guidance. But what about the other $25 million, presumably from a later release of Pro Tax?

Intuit provided detailed guidance in a fact sheet, but there were several moving parts affecting it.

Forward-looking guidance has been adjusted to reflect the acquisition of Digital Insight, the disposition of certain fully outsourced payroll assets, and a lower effective tax rate. For fiscal 2007 Intuit now expects:

• Revenue of $2.625 billion to $2.675 billion, representing annual growth of 12 to 14 percent.
• GAAP operating income of $585 million to $611 million, and non-GAAP operating income of $725 million to $751 million.
• GAAP diluted earnings per share, or EPS, of $1.10 to $1.14, and non-GAAP diluted EPS of $1.33 to $1.37.

The consensus was for $1.39 on $2.6 billion in revenue. The new guidance calls for higher revenue, which would reflect the acquisition of Digital Insight (since the revenue shift to the next quarter doesn’t affect the fiscal year). Why will income be lower as a result of the factors above – particularly given a lower tax rate?

Intuit has some ’splainin to do, but the funny thing is that none of this is likely what is affecting the stock price. As we have pointed out before, Intuit’s stock price is highly seasonal.  It goes up in anticipation of tax season, but “sells on the news” while tax season is actually here. The confusion around today’s earnings and all the buying and selling is simply part of the overall process – Intuit getting cheaper during tax season, possibly presenting an opportunity to buy shares with your refund in April.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options;

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