H&R Block Inc. on Tuesday predicted annual profits will grow between 10 percent and 20 percent over the next three years as the company expands the range of services to its traditional tax customers and improves margins in other business segments.

Meeting in New York with industry analysts, company executives also said the company is seeing heavy interest in the potential sale of its mortgage lending arm and should be better prepared for this year's tax season than they were last year, when technology problems and heavy competition chased an estimated 250,000 customers elsewhere.

"When the wave hits, the wave hits and we are on the verge of that wave hitting," said Mark Ernst, the company's chairman and chief executive, later adding: "We are in a good position to continue to grow the business."

For the key January-April tax season, H&R Block, the nation's largest tax preparer, is predicting a high single-digit increase in revenue and earnings over last year.

Analysts surveyed by Thomson Financial expect fourth-quarter earnings, which include most of the tax season, to increase 9 percent on a 2 percent increase in revenue.

Most of the gain is being driven by price increases, but company officials said they also expect a low single-digit increase in retail clients this year, attracted by 700 new offices and a number of new products aimed at early season tax filers.

In November, the company began offering loans to customers expecting a tax refund without having to wait for a W-2. Ernst said the loans have proven very popular, with 1.25 million customers already applying for one, and help attract and retain customers who aren't known for their corporate loyalty.

H&R Block is offering the loans through the company's new bank, a process Ernst said both keeps profits within the company and charges customers a lower interest rate than if the loan checks were processed by third parties.

The company also has streamlined its TaxCut brand of software and is experimenting this year with a product that mixes tax preparation software with live tax assistance, which Ernst said is aimed at "hybrid" customers who want a more hands-on approach to their taxes but still want some backup and support.

"We believe targeting service against this group is going to be the next big growth sector in the market," he said.

Bill Trubeck, the company's chief financial officer, said H&R Block is looking to possibly acquire another retail tax preparer but didn't provide details.

Ernst also said the company has received significant interest since announcing in November that it may sell its Option One subsidiary. The mortgage lending arm, which targets people with less-than-ideal credit, has struggled as higher interest rates and a wave of defaults have depressed the industry.

He said the company is evaluating several proposals and should make a decision early this year.

Ernst also continued to see good things for the company's RSM McGladrey subsidiary, which provides accounting services to midlevel businesses, and said its consumer financial services business, which includes its banking and investment advising operations, should break even this fiscal year.

H&R Block shares, which have traded in a 52-week range of $19.80 to $25.75, were up 8 cents to $23.35 in afternoon trading on the New York Stock Exchange.

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Copyright 2007 by The Associated Press. All Rights Reserved.