It’s not often that the market rewards a company for a pretax quarterly loss of $150.6 million. However, expectations for H&R Block (ticker: HRB)’s fiscal third-quarter earnings report were so low that shares are higher by more than 16 percent on Wednesday.
H&R Block reported its third consecutive quarter of earnings losses on Tuesday, revealing earnings-per-share loss of 49 cents. Revenue for the quarter came in at $452 million, down $23 million from the previous year. While those numbers may seem disappointing at first glance, they both comfortably topped Wall Street analysts’ consensus expectations for the quarter. According to Estimize, Wall Street was expecting EPS loss of 71 cents per share on revenue of $385 million.
For H&R Block and its tax preparation rivals Liberty Tax (TAX) and Intuit (INTU), the investment thesis is all about tax season. It’s typical for H&R to report losses in three out of the four quarters of the year prior to delivering huge profits during tax season.
In addition to H&R Block’s third-quarter beat, the market sees several other reasons for optimism in the future. Perhaps the most bullish part of Tuesday’s report was the company’s surprising market share gain. According to the report, the IRS reported an overall 10 percent decline in e-filing this year through Feb. 24. H&R Block’s modest 7 percent decline suggests the company has gained some critical ground relative to the competition.
“The growth in market share is attributable to solid execution of an aggressive plan designed to change the trajectory of prior year client losses,” H&R Block CEO Bill Cobb says.
Looking ahead, Cobb sees President Donald Trump’s tax reform initiatives as a major growth opportunity for the company. “People are going to be confused. I think they’re going to turn to us for help,” Cobb says.
Wednesday’s big move provided some much-needed relief to H&R Block investors. In the past year, the stock has declined…
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