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H&R Block (HRB) Down 42.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for H&R Block (HRB). Shares have lost about 42.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is H&R Block due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

H&R Block Q3 Loss Widens Year Over Year

H&R Block incurred third-quarter fiscal 2020 adjusted loss per share from continuing operations of 59 cents, higher than the Zacks Consensus Estimate of loss of 54 cents.

Loss increased year over year due to rise in pre-tax loss (11.6% year over year to $177 million) and lower shares outstanding, partially offset by increased tax benefit. The company usually incurs loss in the first three quarters of fiscal year due to the seasonality of its tax business.

Revenues

Revenues of $519.2 million surpassed the consensus estimate by 6.2% and increased 10.9% year over year. The improvement was driven by contribution from acquired franchises and Wave, and improved tax return volumes in both Assisted and DIY.

Expenses

Total operating expenses were $671.8 million, up 10.8% year over year.  The increase was due to technology and Wave Financial related investments, increased compensation associated with higher Assisted tax return volumes and timing of marketing expense recognition.

Financial Position

H&R Block exited the quarter with cash and cash equivalents balance of $192.3 million compared with $245.3 million at the end of the prior quarter. Long-term debt and line of credit borrowings were $1.9 billion. The company used $774.5 million of cash in operating activities and capex was $23.7 million. The company paid out dividends of $50.8 million in the quarter. H&R Block repurchased and retired 2.8 million shares at an aggregate price of $65.8 million.

Outlook

The company reaffirmed its fiscal 2020 revenue growth and margin outlook. It continues to expect total revenue growth of 1.5% to 3.5%. EBITDA margin is expected between 24% and 26%. The company’s effective tax rate expectation is 19-21%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -11.44% due to these changes.

VGM Scores

Currently, H&R Block has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, H&R Block has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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