UPDATE 3-H&R Block does fewer tax returns as economy weighs

• Tax returns prepared fall 3.1 percent
• Online tax preparation soars as customers cut costs
• Shares slightly lower (Adds analyst and Breeden comments, share price, byline)
  

By Jonathan Stempel

NEW YORK, April 24 (Reuters) - H&R Block Inc (HRB.N), the largest U.S. tax preparer, said it prepared 3.1 percent fewer tax returns as customers sought cheaper alternatives in a recessionary economy.

The company prepared 21 million returns between Jan. 1 and April 15, down from 21.7 million a year earlier. Tax preparation fees edged up 0.5 percent to $2.82 billion.

The data are critical because Kansas City, Missouri-based H&R Block generates the bulk of its annual profit and revenue in its fiscal fourth quarter, which ends on April 30. The quarter encompasses most of the main U.S. tax filing season. H&R Block did not immediately return a call seeking comment.

Scott Schneeberger, an Oppenheimer & Co analyst, wrote that results were consistent with expectations and that "an improving economy coupled with further cost-reduction efforts should support solid year-over-year improvement." He rates the company "outperform."

H&R Block prepared 15.1 million returns in retail offices, down 5.7 percent from a year earlier. Partially offsetting this was a 21.5 percent increase, to 5.1 million, in the number of returns prepared online and with software, which can cost less. Online returns jumped 45.5 percent.

The average fee per return prepared in retail offices rose 6.7 percent to $187.17.

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