Next Tuesday, Intuit (NASDAQ: INTU ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, kneejerk reaction to news that turns out to be exactly the wrong move.
Intuit is best known for its TurboTax and QuickBooks software suites for individuals and small businesses, helping to make complex tax and accounting tasks simpler. But the company has much bigger ambitions in seeking to go after other lucrative business segments. Let's take an early look at what's been happening with Intuit over the past quarter and what we're likely to see in its quarterly report.
Stats on Intuit
| Analyst EPS Estimate | $2.93 |
| Change From Year-Ago EPS | 16.7% |
| Revenue Estimate | $2.18 billion |
| Change From Year-Ago Revenue | 11.9% |
| Earnings Beats in Past 4 Quarters | 3 |
Source: Yahoo! Finance.
How will Intuit sustain its growth path?
In recent months, analysts have had a few concerns about Intuit's long-term earnings prospects. Despite keeping estimates unchanged for the just-ended quarter, they've marked down their consensus for fiscal 2013 by $0.03 and doubled that markdown for fiscal 2014. Those concerns have stalled out the stock's advance, with the shares falling about 2% since mid-February.
We've already gotten a sense of how weak Intuit's results are likely to be next week from the earnings warning it issued in late April. Although the company said it expected to see TurboTax sales rise 4% in the fiscal year, that was far below Intuit's previous projection of 10% growth, as it cited a 2% reduction in IRS returns received in cutting revenue and net profit estimates for the quarter. It also came as a surprise given the company's more encouraging report from earlier in tax season that had suggested stronger growth.
As important as taxes are for Intuit, however, the company is working hard to move beyond that segment to cultivate a wider set of services, especially for businesses. Historically, Automatic Data Processing (NASDAQ: ADP ) and Paychex (NASDAQ: PAYX ) have largely carved up the market for payroll processing and HR services between them, with ADP tending to focus on the largest businesses, while Paychex looks to mid-sized and smaller businesses for its market. Intuit hopes to use its QuickBooks success as an entry point to offer not just payroll processing but also other high-growth services, such as health-care benefits processing, which has become a hot-button issue as Obamacare nears full implementation.
Intuit is also looking to serve banks and credit unions with a mobile application for online banking. With features like branch-search functions, funds transfer, and bill payment, Intuit's app appeals to smaller financial institutions that don't have the resources to build their own mobile applications in-house.
But one controversial issue that came up during the quarter stemmed from the company's participation in a group advocating against return-free tax filings. Despite the benefits to the public from simpler taxes, a ProPublica investigation identified Intuit as opposing the concept. Clearly, the harder it is to prepare tax returns, the more likely people are to use tax-preparation services like TurboTax.
In Intuit's quarterly report, look closely at the mix of sales between consumer and business products and services. In order for Intuit to challenge ADP and Paychex, it needs to show that business customers see the company as a legitimate alternative beyond its core software. The size of the opportunity, though, makes it essential that Intuit work hard to make the most of potential growth from serving businesses.
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