H & R Block Inc (NYSE: HRB) stock crashes on Margins pressure

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H & R Block Inc (NYSE: HRB) stock fell 18.95% in on June 13th, 2018 (as of 10:41 AM GMT-4; Source: Google finance) after the company said it expects margins to shrink as it reduces its store footprint and makes other strategic investments to jump-start client growth.  However, the company has reported better than expected results for the fourth quarter of 2018. Further, HRB is looking to rethink its pricing strategy and is also planning to modernize key technology platforms, make strategic investments and “optimize” its store footprint by reducing about 400 smaller offices.

HRB in the fourth quarter of FY 18 has reported the adjusted earnings per share of $5.45, beating the analysts’ estimates for the adjusted earnings per share of $5.27, according to Thomson Reuters data. The company had reported the adjusted revenue growth of 2.6 percent to $2.39 billion in the fourth quarter of FY 18, beating the analysts’ estimates for revenue of $2.33 billion. The revenue grew due to increased U.S. Assisted tax preparation fees resulting from favorable net average charge and mix, partially offset by a decline in return volumes and also due to increased U.S. DIY tax preparation fees resulting from increased return volumes and net average charge, which was due to favorable product mix. In the fourth quarter 2018, net income from continuing operations grew 48.9 percent to $627 million, primarily due to changes to the company’s effective tax rate, as well as the improvement in pretax income.  EBITDA from continuing operations rose 4.1 percent, to $941 million, reflecting an EBITDA margin of 29.8 percent.

Meanwhile, HRB has announced 4 percent increase in its quarterly dividend, to $0.25 per share, payable on July 2, 2018 to shareholders of record as of June 22, 2018.

Additionally, during FY 18, Sand Canyon Corporation made payments of $4.5 million pursuant to a settlement agreement entered into in FY16.  The full amount of the payments had been previously accrued by the company.

For FY 19, HRB expects the total revenue to range between $3.05bn and $3.1bn, which is a hair below the $3.14bn that analysts surveyed by Thomson Reuters were expecting. One point that seemed to resonate with analysts was the company’s prediction for its Ebitda margin, slated to come in between 24 and 26 per cent in FY 19, a drop from the 29.8 per cent rate recorded in FY 18.

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