Intuit Announces Record Third-Quarter Revenue; Raises Full-Year Revenue and Earnings Guidance:

Intuit Inc. (INTU) today announced its third-quarter 2007 revenue increased 21 percent over the year-ago quarter to $1.15 billion. This marks the first time Intuit revenue has exceeded $1 billion in a quarter.

Intuit posted GAAP (Generally Accepted Accounting Principles) net income of $367 million in the quarter compared to $299 million in the third quarter of 2006. This represents diluted net income per share of $1.04 compared to diluted net income per share of $0.84 in the year-ago quarter. Intuit posted non-GAAP net income of $399 million, or $1.13 per share versus $318 million, or $0.89 per share in the third quarter of 2006.

The results handily beat analyst expectations of $1.08 in EPS on $1.11 billion in sales. Furthermore, the full-year guidance offered was ahead of expectations for $1.36 in EPS on $2.66 billion in sales:

• Revenue - Former guidance: $2.625 billion to $2.675 billion, representing annual growth of 12 percent to 14 percent. New guidance: $2.685 billion to $2.7 billion, representing annual growth of approximately 15 percent.
• GAAP diluted earnings per share - Former guidance: $1.10 to $1.14. New guidance: $1.15 to $1.17.
• Non-GAAP diluted earnings per share - Former guidance: $1.33 to $1.37. New guidance: $1.38 to $1.40. The new guidance represents annual EPS growth of 14 percent to 16 percent.

I tried to get excited about the news, which sent the shares up 10% after market hours. But the thing is, I don’t think the news had anything to do with the rally. As I’ve pointed out time and time again, share returns for Intuit are nearly as predictable as the passage of time. In fact, about the only variable one apparently needs to know is whether it is April (buy) or November (sell). Anything in between should use the signal as a reference point to know whether there may still be a play. It’s enough to send Eugene Fama into fits.

I, on the other hand, am laughing all the way to the bank.

The Earnings Calendar is fairly light.

• Tuesday’s CPI is estimated at 0.5%, 0.2% ex food and energy.
• Wednesday’s Housing Starts are expected to come in at a 1.475 million rate.
• Industrial Production, also on Wednesday, is expected to rise 0.2%.

Earnings season is winding down but there are still a few important reports due.

• Applied Materials (AMAT - Annual Report) reports on Tuesday and is expected to earn $0.28 on $2.35 billion in sales. I’m stocked up on tequila.
• BEA Systems (BEAS) reports on Wednesday but has already preannounced. Their guidance for next quarter needs to beat the estimate of $0.14, but investors will probably be disappointed by anything short of a buyout.
• Hewlett Packard (HPQ - Annual Report) also reports on Wednesday, and preannounced in the other direction. Guidance for next quarter is as close to a lay-up to exceed current estimates (sequential decline and year/year deceleration) as one can typically find.
• Intuit (INTU) reports on Thursday. Both earnings and guidance are anyone’s guess, but the long and short of it is that we expect tax refunds will be put to work.

There are a few other companies reporting (Autodesk and Marvell among them) in which I am interested but don’t have anything pithy to say about.

Late filers swamp Intuit’s Turbo Tax e-file system: Financial News - Yahoo! Finance

A flood of last-minute tax filers swamped Intuit Inc.’s e-filing system early Tuesday, causing long delays for taxpayers trying to check that their electronic returns had been submitted successfully.

The story supports the increased web filing thesis proposed by one of our commenters rather than the losing market share thesis. However, we have maintained all along that neither of those theses are what drives Intuit stock. Instead, it tends to perform seasonally.

Here’s the chart of monthly stock performance for the last 10 years, according to Thompson.

Very consistent underperformance during tax season, which ironically is the best time for their fundamentals (sales and profits.) In February we said:

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.

So far the stock has been performing exactly as the seasonal script lays out.

We just bought some call options in hope that that continues.

When Intuit (INTU) recently reported its interim sales figures for TurboTax, we said:

Sales since November are up 1%, but the company expects sales for the full season - ending in less than a month - to be up 3-5%? We know people procrastinate on their taxes, but didn’t they procrastinate last year as well? By sticking to the previous guidance, Intuit is saying people are significantly more likely to procrastinate this year than they were last year.

And even with the implausible guidance, consensus estimates were at the high end of management’s range. No wonder the shares are down after hours. For those procrastinators out there, however, it’s time to file your taxes. If you’re getting a refund it should arrive just as the stock is bottoming.

A commenter begged to differ, saying:

The guidance isn’t at all implausible. Intuit delivers TurboTax two basic ways: through software installed on desktop computers, and with a web version. With the desktop version, you pay up front; with the web version, you pay only when you file. Both products cost the same amount.

If the broad trend toward the web version continues, you would expect a higher percentage of turbotax purchases to occur when people finish their taxes, not when they start them. And it’s not completely a guessing game, either; Intuit can track activity on the web version, and they should have a pretty good idea of who is and isn’t likely to ultimately purchase and file through TurboTax.

We found that to be a solid argument. However, it appears to be at least partially refuted by H&R Block’s Interim Tax Season Results:

H&R Block Inc. (HRB - Annual Report) today reported tax season results for the interim period from Nov. 1, 2006, through March 15, 2007.

Total clients served (for both the company’s retail operations and digital tax solutions business) reached 14.6 million, an increase of 467,000, or 3.3 percent, over the prior year period. Digital tax clients served advanced 14.1 percent over 2006 while office-based clients increased 0.5 percent.

So H&R Block’s digital customers showed even more growth than its overall rate, which shoots a hole in the increased-web-migration argument (though Intuit could still have more web-based filers as opposed to software purchasers relative to H&R Block.)

Yet another possibility is that filers start out on Intuit’s software, then give up and hire a human. So regardless of Intuit’s customer awareness, we’re sticking with our Intuit-ion and repeat our thesis that their guidance sounds implausible.

We recently said that “As we have pointed out before, Intuit’s (INTU) 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…     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 latest news is yet another example. Intuit 2006 TurboTax Sales Up 1 Percent:

Personal finance and business software maker Intuit Inc. said Wednesday sales of its TurboTax software for the 2006 tax period have increased 1 percent from the same period last year.

The period includes sales of TurboTax software since the launch of the 2006 version, released in late November, through March 17, 2007.The company also said it continues to expect TurboTax unit sales growth of 3 percent to 5 percent for the full season, and backed a February forecast for full-year earnings of $1.10 per share to $1.14 per share, or $1.33 to $1.37 per share on an adjusted basis, on $2.63 billion to $2.68 billion in revenue.

Analysts expect average earnings of $1.37 per share on $2.66 billion in revenue, according to a Thomson Financial survey. Analysts typically exclude charges in their estimates.

Sales since November are up 1%, but the company expects sales for the full season - ending in less than a month - to be up 3-5%? We know people procrastinate on their taxes, but didn’t they procrastinate last year as well? By sticking to the previous guidance, Intuit is saying people are significantly more likely to procrastinate this year than they were last year.

And even with the implausible guidance, consensus estimates were at the high end of management’s range. No wonder the shares are down after hours. For those procrastinators out there, however, it’s time to file your taxes. If you’re getting a refund it should arrive just as the stock is bottoming.

ANSYS Latest Release Features Unique Simulation Technologies and Integrated Solutions

ANSYS, Inc. (ANSS), a global innovator of simulation software and technologies designed to optimize product development processes, today announced Version 11.0 of its ANSYS(R) software. This latest version of the ANSYS family of engineering simulation solutions offers new and enhanced tools and capabilities that enable users to complete jobs efficiently and fully leverage Simulation Driven Product Development for a wide range of applications. This release represents the leading edge in integrated, best-in-class computer- aided engineering (CAE) functionality including advanced analysis, meshing, optimization, multiphysics and multibody dynamics.

We have previously noted that many software companies, such as Adobe (ADBE) and Intuit (INTU) for example, tend to rally in anticipation of new product releases and then sell off on the news. So it is fair to wonder whether this exciting new software release for Ansys signals a temporary top in the stock.

Ansys Version 10 was released on June 2, 2005. Turning to the stock chart, we see no evidence that the release had much of a short-term impact. The stock had been steadily climbing in advance of the release, but continued the steady climb after the release as well.

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.

No matter what one is trying to accomplish, in the process of learning mistakes will be made. The key is trying to learn from them. Although fairly experienced with stocks, we are learning the ropes on options, and have noticed the same mistake several times. It is time to learn from it.

For example, in early May 2006 we bought put options against the Nasdaq (QQQQ) at a $42 strike price. When the Qs bottomed at $36 in July we considered selling (and placed a limit order.) We were too greedy and lost it all in the subsequent market rally.

Then, in December we bought put options on FedEx (FDX - Annual Report) with a $115 strike price. Until this morning, they were up more than 100% as the call was right on the money.

Ahead of the Bell: FedEx Gets Upgrade: Financial News - Yahoo! Finance

Shares of FedEx Corp. rose Tuesday in premarket trading, after a J.P. Morgan analyst raised his rating on the shipping and delivery service, citing a growing parcel market and lower fuel prices.

Since our options expire on Friday, chances are we missed the maximum-gain boat. We should have sold and rolled over any continued bearish feelings into a new option with a lower strike price and more distant expiration date.

We are ready to learn from the mistake, and are establishing an initial trading rule to sell when a long option position is up 100% net of trading costs. On that basis we are selling our Intuit (INTU) puts. While we may still refine the rule in the future, for now we have to stop being too greedy. It is too painful to keep getting calls so right and not make money.
Disclosure: At the time of publication the author is still (unfortunately) long FedEx (FDX - Annual Report) put options.

Intuit Founder Sells Shares - Forbes.com

The founder and chairman of the executive committee of software maker Intuit Inc. sold 316,734 shares of common stock, according to Securities and Exchange Commission filings Monday.

Interesting timing, with the stock down approximately 20% from recent highs (and in line with the weak seasonality we warned about). Since the seasonal patterns are there for all to see, one would expect the founder to have noticed them as well. The idea that there may be something more than seasonality could have contributed to Monday’s sell-off.

Disclosure: At the time of publication the author holds put options on shares of Intuit.

Last week Intuit (INTU) offered about $1.35 billion for online banking services provider Digital Insight (DGIN), based in Calabasas, Calif. The deal, expected to close in the first quarter of 2007, will bring Digital Insight’s operations into Intuit as a new financial institutions business unit.

This week they are upping it to an even $1.5 billion or so. Intuit to buy Electronic Clearing House for $142M: Financial News - Yahoo! Finance

Mountain View-based Intuit and Camarillo-based Electronic Clearing House Inc. (ECHO) said Intuit will pay $18.75 per share in cash in exchange for each share of Echo common stock. That’s about 15 percent above Echo’s closing price Thursday of $15.Echo provides end-to-end payment processing products, including check and bank card processing as well as check verification, collection, and guarantee services and automatic clearing house capabilities.

Whether or not Intuit makes a splash in online banking services, we continue to believe Intuit’s stock price will follow a seasonal pattern. If anything, the acquisitions will give traders an extra excuse to sell in the short term.

Disclosure: At the time of publication, author owns Intuit put options.