Intuit beats Street, offers stock buyback

"We remain on track to grow pro forma operating income much faster than our revenue growth," Chief Financial Officer Greg Santora said during a conference call with analysts.

After market close Tuesday, the provider of financial software for consumers and small businesses reported better-than-expected third-quarter earnings, raised its profit projection for the next quarter, predicted revenue would be just below analyst expectations for the year and announced its first share buyback ever.

The company posted a third-quarter loss of $14.3 million, or 7 cents per share. On a pro forma basis, Intuit earned $118.4 million, or 55 cents per share. The pro forma numbers exclude acquisition-related charges, reorganization costs, investment gains and losses, business sales and an accounting change for derivatives.

First Call's survey of 16 analysts predicted a pro forma profit of 53 cents per share for Intuit's third quarter ended April 30.

Shares of Intuit traded at $33.76 in after-hours activity on the Island ECN immediately following the release of quarterly results. Intuit shares fell 47 cents to $31.15 in Tuesday's regular trading ahead of the earnings report.

The company now expects fiscal 2001 revenue of $1.26 billion. That figure is the low end of the year's sales range that Intuit predicted in March, and is slightly below the analyst consensus expectation of $1.29 billion.

But the year's earnings will grow more than analysts anticipated, if the company is correct. Operating income should grow at least 34 percent from fiscal 2000, Intuit said. First Call consensus called for 28 percent growth in earnings per share this year.

Intuit also sees 2002 operating income rising 25 percent to 30 percent, with revenue increasing 15 percent to 20 percent. Analysts were looking for earnings growth of 22 percent and sales growth of 20 percent in 2002.

Profit vs. revenue
Company executives have repeatedly emphasized boosting profits ahead of revenue. At least some of the profit margin improvement has come from higher prices. In the third quarter, for instance, the number of tax software packages shipped increased 19 percent year over year, but revenue from that business increased 27 percent because Intuit added new features to TurboTax and raised the price.

Raising prices is only one element in Intuit's plan to lift margins, Vice President Raymond Stern said in a telephone interview after the analyst call. "But our strategy is not predicated on raising price," he said.

Third-quarter revenue for Intuit increased 29 percent year over year to $425.2 million. First Call consensus forecast third-quarter sales of $435 million.

The fiscal third quarter is typically Intuit's strongest part of the year because it includes the U.S. tax-filing season, which boosts sales of Intuit's TurboTax software and related services.

Intuit's QuickBooks product line for small businesses continued to lag behind the rest of the company. QuickBooks revenue increased only 5 percent year over year in the third quarter; company executives blamed the slow growth on last year's unusually large number of QuickBooks upgrades.

In addition, CEO Steve Bennett said Intuit missed some chances to boost revenue from packaged software of QuickBooks by focusing too much on online, hosted versions.

However, small business remains Intuit's main growth area, Stern said. Intuit hopes to sell other services to current QuickBooks customers and also plans to sell a version of QuickBooks for small business with more than 25 employees. "We have a base of 2.5 million or thereabouts active users of QuickBooks," Stern said. "They're very loyal users. We see that as a very, very large, untapped opportunity."

Also Tuesday, Intuit said it would spend up to $500 million to buy back shares over three years. It will be the company's first stock buyback since Intuit went public more than eight years ago.

Intuit's stock has fallen more than 10 percent since Prudential Securities downgraded the stock last week. However, Intuit was "unfairly punished" by investors worried about the company's revenue, said Jim McDonald, analyst with First Analysis.

"The company has a lot of opportunities going forward to raise profits," McDonald said. "It's very difficult to get to the zero-to-25 person business, and Intuit just has a fantastic channel there. It's very unique."