H&R Block Inc., the largest U.S. tax preparer, on Thursday posted a fourth-quarter loss on the depressed value of a mortgage unit slammed by deterioration in the U.S. subprime market.

The loss overshadowed what was an otherwise strong quarter for its mainstay tax business as well as growing banking and financial advisory units.

Block said net income from continuing operations rose 9 percent to $591.2 million, or $1.81 a share, in the quarter ended April 30, from $541.7 million, or $1.63, a year earlier. On this basis, the Kansas City, Mo.-based company fell short of the average analyst estimate by 7 cents.

Including a $678 million loss attributed to Option One Mortgage Corp., its UK tax business and other units up for sale, Block posted a net loss of $85.6 million, or 26 cents a share. The company said it is proceeding with previously announced plans to sell Option One to Cerberus Capital Management during the October quarter.

H&R Block hopes to receive at least $1.3 billion for the Irvine, California-based subprime unit but analysts have said the final price could be well below $1 billion.

Revenue rose 8 percent to $2.4 billion, falling shy of the $2.47 billion consensus according to Reuters Estimates.

Tax services revenue rose 8 percent to $1.9 billion, as clients served through U.S. branch offices, tax software and the Internet rose 4.4 percent to a record $20.3 million.

Operations in Canada and Australia also boosted results, with 22.9 million clients served.

Consumer financial services revenue rose 57 percent to $120.2 million, part of Block's efforts to expand beyond tax preparation to banking and financial advice.

And while revenue climbed 8 percent, Block's own income taxes rose 13 percent. Operating expenses climbed 6 percent to $1.3 billion.

Block said it expects earnings from continuing operations of $1.25 to $1.45 per share in fiscal 2008, which is below the current average forecast of $1.47.

H&R Block generates most of its annual revenue during the April quarter, which includes the main U.S. income tax filing season.

(Reporting by Joe Giannone in New York and John Tilak in Bangalore)

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