H&R Block CEO Supports IRS Funding

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. We've been watching shares of H and R Block hitting a record high, the stock nearly doubling this year alone. This is the company reported fourth quarter just ADPs that beat revenue was flat, raised guide and so for fisical adjusted EPs, and it did approve a new buyback of one billion dollars. Really great

to have back on Bloomberg Business Week once again. Jeff Jones. He is president and CEO at H and R Block. We'd like to remind everybody that Jeff has had a really cool career um including Chief Marketing Officer at Gap Target, President of Rideshew her at Uber so really in tune with what's going on in terms of the corporate world. Jeff joins us via zoom from Kansas City, Missouri. Jeff's so nice to have you here. How are you? I'm doing great, Carol, good afternoon, and hey Mike, how are

you guys? Hi? Jeff, Yeah, I had to do. I did a double take looking at your stock chart today. I was like, Jeff's gotta be the one guy. We've been talking about this bear market all year. Jeff's gotta be like, are you talking about you know what? It's It's really amazing to see the market starting to hear our story. And you comment on a Carol, we had a great year. Um, we also provided really strong outlook and so I think it's a really great combination for

the company right now. Well, and you have been you know, you've had a five year plan. You've been really you know, working on small business financial products. A lot of different things. Tell us about the quarter in the look ahead. What's really driving momentum right now? Jeff, Well, let's start with you know, our bread and butter, the core consumer tax business. Um, you know, we continue to make improvements in avenue and client volume, in market share, and our assistant business really

demonstrating just how strong that industry is. You know, we we talked about going into the pandemic and nineteen coming out in twenty two, up in revenue, up in market share, up and earnings reducing shares outstanding. So the core consumer tax business has been very strong. We had a record year in small business UH, and so that means more and more small business owners are recognizing our expertise and

turning us for tax. And then we had a really successful initial launch of Spruce, which is our new challenger bank. You know, Cheff, the big news in politics this week obviously is that Inflation Reduction Act UH. And part of that is, UH they want to add UH. I forget how many thousands, thousands and thousands of IRS agents. I've got to think that's a very big opportunity opportunity for you, but also potentially at challenge. I'm just curious how you're thinking about the ramp up of the I r S

enforcement that is embedded in this bill. Well, we've been very vocal in support of the I r S receiving more funding. UM, you know, they touch more American consumers than any other agency, and they have not had the resources to be equipped to do that. So we absolutely support that. And what we've seen, I guess over history is when the I r S steps up enforcement, the consumer looks for expertise more and more. You know, keep in mind, the stakes for our clients are very high.

Getting this right matters, getting me every dollar they deserve matters whether you're a small business owner, a gig worker, or a consumer. And so you know, we're glad they're getting more support and we're here to help the customer. You know, you did talk jet that you know your core businesses the tax services, but you are expanding in

small business. You mentioned spruce your mobile banking. What kind of growth are we seeing on those platforms and do you anticipate that there is a time where they are as equally as important as your core tax business. Well, there's no question there strategically as important today. Of course they're earlier stage. We've been in the tax business for decades. In small business, we had a record gear we grew that business clients five percent on top of four percent

last year. Uh, and believe there's still lots of upside in serving small businesses just looking at the landscape. You know, those people that have side hustles, ten ninety nine gig workers. They may not consider themselves to be a small business owner, but they absolutely have tax and bookkeeping potentially payroll needs, uh, just like a small business would. And then we with Spruce, we had a fantastic launch. That product has been in

the market only a handful of months. We've had seven major releases of the app since we launched, and right now the team is focused on testing customer acquisition our outside of tax season and then getting ready to launch it in our retail channel next tax season. Obviously, we have a very large install base of customers and we want to take full advantage of introducing them to Spruce next year. Jeff, what was cool about talking to you?

You talk about small business? You know, it's funny. Our colleague on television, Caroline Hyde, she talked about the small cap um the Russell doing really well and out performing the broader market, and a lot of that has to play with kind of domestic businesses here in the US maybe upbeat about the outlook in the economy. So I love hearing what you have to say about small business.

I love hearing about Spruce because you get some inside into consumers and really kind of maybe how much money they've been able to save and so on and so forth. Based on what you are seeing based on your business overall, would you say, yep, we are headed for a recession in the next year, or we're not. If I just had to simply call it, I would say we're not um but like you all do as well. I mean, we're looking at this same data. There are days to be optimistic and then the next day you need to

be cautious. Something that we did and we'll be releasing this very soon is for the second year, we're going to be publishing what we call the Outlook on American Life. And so we aggregate all of the data from all of our clients tax returns to find the themes and trends. And you know that tax return is really like financial d n A. And so we'll be talking about what we're seeing with shifts in employment, retirement, saving, spending, UH and look forward to maybe sharing that with you all

of whom we're ready to release it. Look forward to it absolutely so in terms of okay, so we're gonna look forward to that. You say, not a recession based on this, So you said, I mean, listen, investors are certainly plowing into your stock. You seem very optimistic. What is it that maybe troubles you a little bit? Is there some concern about the FED over doing it and

putting some slow momentum ultimately into the economy. Yeah, I mean, obviously, part of our diversification is to participate in different parts of the market. In the tax business, you know that business over many, many decades has not been sensitive to recession because of the obligation we have as American filers. In fact, when economic times get tough, the stakes rise, that's when our expertise and value really kick in. So obviously we have to execute and continue to build on

the momentum we have. But that business looks different than, for example, in our financial products portfolio, where you know, if savings rates are lower and maybe credit is starting to rise again and every dollar matters and government subsidies are gone, then what we have to do with spruces make sure people know that product is a almost completely fee free product that offers incredible value to help you space,

end and save and plan. And so we try to lean into how our value proposition is helping consumers because we know that every dollar really matters, you know, Cheff, there's always a debate when a company has a lot of cash on hand whether to uh issue a dividend, increase that dividend, or to buy back shares. How to what the best avenue is to return that cash to shareholders. You guys doing a little bit of both, increasing the dividends seven also a new share repurchase authorization one point

to five billion. How do you think about how to return that share that capital to shareholders? Is it is it best to do a little bit of each like like you're doing, or you know, what's the calculus that goes into deciding how to do that? Well, Mike, I guess i'd also say the first part is investing in

our business, which we are absolutely doing now. We're able to still, Jennifer, generate significant free cash flow to invest in dividends and share repurchase because of our expense may management discipline where we're essentially self funding our growth to create new products like spruce and to invest in wave and other things. So once we make those decisions to invest in the business, then we're essentially returning the remaining free cash flow to investors. We're committed to our dividend.

We've been growing the dividend, and if you think about on a given year, I think, you know, roughly couple hundred million dollars to continue to invest in our dividend and the rest two to three hundred millions in share by back. So because of the profitability of this business, I think we're in a unique position to be able to really do all three at an effective way. You know, Jeff, it's an interesting story in terms of what you guys are doing. We have about a minute left here. As

you guys have been broadening out, expanding services. I mean, part of it is so that you can kind of you know, not be see so much of kind of positive results. Are so much business momentum kind during tax season, right, So are you seeing signs of it that there's more business throughout the year? Um, yes, But we're not even close to being down the road of that journey yet. So you know, again, the lions share of our business

today still happens in tax season. As we serve more small businesses, those dates extend, bookkeeping in payroll becomes year round, and clearly the goal for Spruce is to be a year around financial products business. We're just in the early innings, but that's absolutely the strategy. Alright, gotta be really quick thirty seconds. We'd like to do this when we've got a leader of a company so well known, what keeps you up at night, continuing to meet expectations and all

the growth we've been delivering us. That's what we're up to right now. Yeah, and the expectations are pretty high. I mean, as we said, the stock is up here in two um. Jeff, Always appreciate time with you, and interesting to hear how the story at H and R Block really continues to evolve. Thank you so much, Really appreciate it as well. Bye bye, well Jeff Jones. He is president, chief executive officer of H and R Block,

joining us via zoom from Kansas City, Missouri. As we mentioned, the stock really on a tear today following those earning stock mike up more than fifteen percent in today's trade and again up so far in Yeah. Picked a good day to report some good earnings. Exactly. Everyone's ready to buy exactly, really some outperformance. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Okay, you know it's a big economic day,

you know it's a big market day. But before we get into some of the heavier stories of the day, we thought we'd take a little bit of a sports time out some of the challenges that are out there, legal challenges of players in the Saudi Finance Breakaway pro Golf Tour. And then you've got Serena trying to have it all, and like we know, it's not easy. It's not easy. And I can't imagine trying to play a Grand Slam tennis event with a young kid at home.

I I totally get where she's coming from. And being pregnant. Yeah, I don't know. It's hard enough to get there, you know otherwise, and let alone with little kids and being pregnant. So I feel her pain there a little bit, all right, So let's get to Scarlet Food, who is a Bloomberg Quick Take correspondent. She is also one of the hosts of the Bloomberg Business of Sports radio show and podcast, and you can check out the Bloomberger Business Sports Podcast

every Monday, Wednesday and Thursday at Bloomberg dot com. Or wherever you get your podcast. She's in our Studio's so nice to have you here, guys. Hi. So let's chart. Let's start with this pg A battle against a civil war engulf. I mean, every day on the terminal, there's a story on it. So tell us the latest in

the controversy. The latest is that there was a judge that sided with the PGA Tour basically because the Saudi backed Live Golf tournament UM has been making in roads into PGA and of course Greg Norman founded this and they poached a lot of PGA players, meaning they've recruited a lot PJ players, and they paid them a lot of money with bonuses, and just for participating in the live golf tournament they make money, more money and many

instances than they would on the PGA Tour. The PGA response to this was you're dead to us now, like you can't you can't play on our PGA Tour if you're going to join live golf. So three players sued the p G a basically under making the argument that's acting like a monopoly, right that you know you're suppressing our wages, aren't they. I mean it's a good case. I think they're not employees of either organization, right, Their contractors their freelancers in many ways, Like are their NBA

players who then go play with other leagues? Didn't they used to? There's collective bargaining agreements though, and their employees of the NBA slightly different, Right, these are freelancers. But in this case, you're talking about Live Golf paying the players more than they would have made on p G A. So the PGAs being sued for suppressing wages when they went to go to the league that plays that pays

them more money. Why can't they all play both? Uh? Well, that this is a battle for the soul of golf. I mean, the PGA rests on legacy, see on tradition, and Live is coming in as an upstart and you know, trying to do things differently. The play is different, and of course the funding is different because it's funded by the Saudi Arabian government. Well, at the end of the day, Squirrel, it doesn't it all get back to TV revenue to

some degree? I mean I love watching golf on TV because it's only really do well, it's only score you can actually not forcing you know, you could doze off for a little bit and we all right, I have to try that, but I prefer a good golf nap. But then you hear the crowd revs up and wakes you up and you watch the replay. But is there any path to live getting on TV and to radioactive? Do you think? Politically? Um? I mean it is until

it isn't right. At some point, enough players will go over and people will talk it up and the fact that or not the fact the argument that Saudi Arabia is greenwashing itself. Right, Um, we'll kind of just fall into the background and it'll it'll become whatever the players make it to be. If enough players go over, then it becomes its own thing. Well, and part of the problem is like not part of the problem. I think of Jamal ka Jogi, right, the journalist, and you saw

the business community. Everybody pushed back, and then we've seen the business community kind of go back to Saudi Arabia like it's interesting, right, I think that part of it. I don't know. People talk about it and everyone gets asked about it, right, All the players who ever lived get asked about it, and you know they've all gotten very not comfortable. But there's a whole route where they're like,

I'm going to talk about that. I'm not going to talk about it, And after a while they stopped getting asked about it and people just kind of move on. So it's going to be fatigued with this this line of questioning. After while, we knew we needed more time with you, but we've only got about a minute left here and we buried the lead. Serena Williams retiring, Yeah, this is such a huge deal. Basically, I like how you put it. Um, she is basically saying she can't

have it all right now. She wants to have a second kid, and she can't do that while she plays tennis professionally, so she's going to hang up her tennis sneakers and UM, hearing that right, Because she's been such an like for women, for fashional sports, like just incredible. She's the highest earning female athlete, I mean, forget tennis player, female athlete, and she is a force to be reckoned with the twenty three time Grand Slam champion, and she

basically says, I don't think it's fair. If I were a guy, I wouldn't be saying this, writing this, because I'd be out there playing and winning while my wife was doing the physical labor of expanding our family, and she actually drew a comparison to Tom Brady. I was reading the story, I was I did not know that she was married to the co founder Reddit, Alex Ohanien. You know, come on, Alex, time for you to step up. And he has been stepping up. He's been a big

advocate for paid paternity leave. But this doesn't change the fact that she had a really difficult pregnancy and she suffered from postpartum depression and it was really horrible for her, you know, the whole thing of getting back on her feet to her pregnancy. So she doesn't want to go through that again. Take your biology books, because as all long as I know, men still can't have women. I mean, I mean, I mean what men can't have me? But you're right, in many cases men can't have women either.

But I don't have any comment on at us. Oh my god, Friday can't come too soon. We love you, Scarlet Food. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stenovic on Bloomberg Radio. It's a most read, it's a must read. It's the Bloomberg Big take today. It's about how Europe's rivers are running dry, disrupting eighty billion in trade routes. It really is a sign of the unfortunate times. For this really important story,

we have Bloomberg News Oil Products reporter Jack Whittles. He is joining us on the phone from London. Jack, good to have you here with Mike Regan and myself. So just lay it out the story, which you can find on the Bloomberg terminal and Bloomberg dot com slash big tape. A lot of information tell us what's going on. Right, So it is really hot in Europe. It's been a very hot summer and as a result, a lot of

the river level was extremely low. Probably the most important of them is a rhyme that's about eight hundred miles long. It starts in the switch out, so it goes all the way down through Europe to the North Sea, and that is used to ship a lot of really important commodity through the continent, so talking energy, coal, gas oil, diesel, gasoline, but also stuff like gravels, some men, iron, ore, you

know everything. And so when these when the water level on the Rhine gets really low, the barges that are used to transport all this stuff. They can't take on enough, they can't take on their full loads of these commodities because the more you load, the lower you get in the water. And then when the river is really shallow, they'll,

you know, they'll hit the bottom. So it's the low water is really choking off the supply of energy and commodities in Europe, just as you know, just as there's a war in Ukraine and we've got problems with Russian gas supply. So it's it's a little bit of a perfect norm at the moment, you know, Jack, this strikes me as a very difficult problem to solve, you know, save doing a rain dance or something. I don't know

how you fix this. So I'm wondering is there any sort of hope that this problem couldn't be solved or is it more a matter of you know, shipping stuff via truck and rail instead? How are how are people dealing with this? Right? So if there aren't many very easy short term solutions for companies, you know you can't You're right, you can. You can use rail, you can

use road. So you know, Switzerland, for instance, gets imports some oil products by the rhyme but it kind of it doesn't also get through roads and rails, um and pipeline, I believe, so companies can do that, but it's it's much more expensive, so that's not always great. The economics are not always going to look very good on that. And the other thing companies can do is they can invest in ships that are specifically designed to you to

go in shallow waters. Idea the chemicals company, they they've invested in a couple of ships to do that. But it's not easy. And with climate change, I personally think it's probably just going to get worse and worse, to be honest. Well, and that's where I want to go, because this wouldn't be happening. Is it fair for me to make this jump if it wasn't for climate change? Right?

If the rhine is fed by a combination of rain and melting glass ears, and the more the you know, the lower and lower the glass ears get, and then

the less they can feed the rhine. I'm I'm not a cinc climate scientist, so I'm not going to try and say this specific event was pinned down to climate change, but in general, that's the way it's going and and it's I can only see it getting worse really, Right, those alpine glaciers, right, they feed into all of this, and we know, kind of to some extent, maybe some of that's you know, going away. They're getting smaller. Yeah,

they're getting smaller and smaller. Jack, I'm wondering where we should look for this crisis to sort of have the most potential damage. You know, is it a matter of you know, BMW Mercedes not being able to produce cars at some point because they can't get supplies, or is it there's something more acute, you know, like electricity going off in Germany. Where where will this really start to cause the most problems? Well, as an energy reporter, I am convinced it is in the in the energy world

lass of what you were saying. So you know, Switzerland, for instance, it's already said it's gonna it's already said it's releasing oil from its strategic reserves. Austria and Hungary where during that sort of general neck of the woods that also they've also said in recent months that they're

doing the same. You've had some refinery outages in those areas as well, and so you know, the diesel market in Europe is already very tight, and we are going to lose well in theory, you is going to lose supply from Russia in February as well that you sanctioned. So on on oil it's tight, and then on any and you know, then on power as well. Uniper has warned it may have to cut output to the cold fired power plants in Germany because the company is struggling

to get the supplies along the line. So getting that coal in to Germany to make the power and just the gas gets cut off from Russia. That's another sort of more immediate crisis. I would say, well, and I do think about it, right, with everything going on, I mean that such a kind of tight energy situation because of the Russian war in Ukraine. I mean, this is just another thing that exacerbates the situation for Europe overall.

And I think of it interestingly enough, on a day when we've had an inflation print and we've seen energy prices coming off. But for Europe, it's just another thing that adds to some of those inflationary pressures and just access. Yeah, I mean it's it's it's too big subfice, right, It's war and climate change and there's just no easy. There's no easy solutions to these sorts of problems in Europe.

At the moment, it's it's looking pretty bad, you know, Jack, is this sort of fueling the whole debate about alternative energy in Europe and especially Germany? Are are people reconsidering uh nuclear more aggressively because of this and everything else

going on in the world. I strongly imagine so. Um. You know, I was talking to one one of my energy contacts recently and he was saying he was still criticizing Germany's decision actually to shut off it's it's nuclear capacity, you know, saying what a crazy time to do that.

And so I think this this will certainly spurred the argument in general about renewable was doing it faster because nobody knew wants to be reliant on fossil foods, because you're at the mercy of other countries and the mercy of this sort of infrastructure that doesn't always hold up well under climate change. Of course, you also have to wonder if you can't get the water to cool the reactors.

There a whole another issue that just embedded in that too, Jack Whittles, do you feel like in five years, ten years, your job as an oil products reporter, it'll be a different title because we were moved in recently, had a

fossil fuels and just got about forty seconds left. Yeah yeah, well, m I do wonder if I'll be a hydrogen report then stuff feel like that's maybe another big important commodity coming down the line, especially in Europe, like do you know oil demand is ultimately on its way out the demanded in other parts of the world, say well, as a hydrogen report after a year like this, Jack is probably ready to cover entertainment or or something exactly. Jack Wittles,

thank you so much. Really appreciate your time. I know it's little bit later there in London, oil products reporter at Bloomberg News joining us on the phone from London. As we mentioned, this is among our most read stories, but more importantly, it's a Bloomberg big take, and that's a story that our editorial team has marked as a must read by all. And be sure to check it out on the Bloomberg terminal and you can also find it at Bloomberg dot com slash Big Tape Road Journal.

Now the you let me drive, no, no, no, I want to drive it? Good question. Drive is the Drive to the Clothes on Bloomberg Radio. All Right, folks, just about ten and a half minutes left in today's trading session. Let's not forget too. We've got a big earnings report coming out after the closing bell, just a few minutes after the close. We're talking about Disney, so we'll be looking certainly at their streaming services and a lot more and all their moving parts. What it says about the consumer.

Will break it down with our TV colleagues. In the meantime, let's break down as we moved closer to that closing bell. Allen Lance is back with us. He's director of research at Lance Global dot com, President of Allen BI Lance and Associates. He joins us once again on the phone from Toledo, Ohio. Alan, you're here with myself and Mike Reagan. Tim is off today. Um uppeat day? Where because I did about you know, still a hot inflation print, but not as hot as somebody, you know, as as most expected.

And we've seen certainly a risk on trade today. How do you see it? I think it's when we're seeing Carol or extremes, you know, and now I think there might be an overreaction going into you know, a solid CPI report and interest rates, you know, um over reaction

by equities. Yeah yeah, yeah, just like in in April and when we talked and commodities were moving up and everybody was talking you know, inflation like the nineteen seventies and and and you know that you could see that that was going to be a peak in commodities and and energy and was up as a sector, et cetera. I think, you know, now it's it's the other end of the spectrum. We're all of a sudden, now one CPI report and now you know, inflation is is calm

and taking care of etcetera. So for some reason investors, you know it memes stocks are back and and uh, you know, it's just it's just a total exaggeration, just like in April that you know, we had inflation like the seventies. Now it's uh, you know, no inflation, and and uh an upward market. And I would be wary, you know, you know, I think there's still pockets to make money and and and there's been some good sectors

to invest in. And I'm glad we did this summer, but I wouldn't be chasing you know some of these and if you're overexposed, uh, like a lot a lot of investors were going into the year, Um, you know, I would be reducing risk. Um. So we're not as negative as we were going into two. But the higher prices and values rise here, the more concerned we'd be, you know, Alan obviously, Uh, such an important story this year, not only for the inflation and economic side of the equation,

but market leadership in fact has been the oil price rally. Uh. Now coming back to earth. I was reading your latest newsletter. You say, you know, if anyone would have stated ten years prior that in we would start to make energy our most emphasized sector, we would have responded not very likely. I think you're probably not alone in those sentiments. But how are you thinking about oil, gasoline, energy stocks now

going forward? That it does seem uh knock on wood, that these aggressive price gains and gasoline and oil at least for the moments, seem to have come back to earth. Yeah, I think that could be an opportunity. So just like we're talking earlier, like the you know, might be an opportunity to reduce risk, uh, you know, or take some profits and and and some of these you know stocks that have done so well. Um, you know, energy gets

hit you know further here. I think over the long term there's some select you know opportunities there and and we we'd be buyers just like we were the past two years in the weakness. So so that's a nice thing about this market. It is given you, you know, a discipline investor a chance to you know, take advantage of these swings. It's just a matter of the swings are so much more extreme than you know we ever anticipated. And some of that, you know, it's the Russia, Ukraine,

you know, situation, et cetera. Everything's getting accelerated and the supply you know, a side shortage and and items like that. So so and that's why you know ninevent type inflation you know that was you know built into the cards in April. You know, didn't make sense either because we

knew some of those we were temporary. Um. But you know, I I think you know, eventually reality will set in back in the market and you'll see that and tion is not you know gone forever, and uh, interest rates are still going to go up and and you know the market will will react and and energy will will again move up. So so any weakness into into energy quality energy with the income uh and with their current valuations,

I think it would be a smart move. I also noticed you, uh you liking Goldman stocks stock these days? What what's the story there? What's got you attracted to Goldman? That's funny. You know we we we bought it in in November two thousand nine, you know, in the midst of the global financial crisis, and we just said, you know, anytime you can get Goldman underbook, uh, you know, it's a smart move. And and you know this summer it

was trading underbook again. And and I think you know for investors that sometimes you get out of the market and you know, get back in, you get worried, and then it's it's difficult. So so you've got to use these discipline strategies. So when when you get this high quality, good good income producers that uh uh you know are cheap, you know, take advantage and buy them. And I think

that that's what we're seeing. I think the financials are an area that you know, we'll we'll do well and and uh, you know, some areas like H and R block you know that we've owned you know for years we'd be more inclined to take profits into the spike stocks almost double this year in a bad market. And let's that's I think you say that. We just talked with Jeff Jones, the CEO of H and R Block, and that's one of the things we talked about, the

stock doubling. Would you just take profit because man, what a run? Why not? Or is it something more fundamental or do you believe fundamentally in the H and R Black story. Oh, you know, I think it's a you know, it's an interesting story, but just yeah, evaluation wise, Carol, you know, we're just gonna be discipline. I'd rather have my money in Goldman, you know, or below book than

an agent or block at the stage. And the things that were attracted to us when we first bought it at half the price was you know, the income stream and and that it was unrecognized on on Wall Street. Well, now you know, the cats out of the bag and the company is doing well and they did, you know, getting into other services that you know, provided high margins, so so everything fell into place. So you know, partial profit profit taking at least, you know, makes it makes

a lot of sense. And for investors that are uh, you know, more concerned about risk. You know, we're taking full profits just from the standpoint that uh uh you know, there's definitely a lot more risk and execution now than it was, you know, when the stock was half the price. Well always, as we say, we really love checking in with you, so thank you so much, Allen Lance. He is director of Research at LANTS Global dot com, President of Allen BI Lance and Associates. Thanks for listening to

Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News