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Why H&R Block Stock Jumped 10% Today

What's happening

Shares of H&R Block (NYSE: HRB) are up about 10% as of 11 a.m. EDT Wednesday as the market digests the tax preparer's better-than-expected earnings haul following a busy tax season.

So what

The company reported net income of $783.4 million in its fiscal fourth quarter, an 11.8% increase over the year-ago period. For the full year, the company earned $408.9 million, an increase of 9.3% from its 2016 fiscal year.

H&R Block grew earnings by shrinking its expenses in 2016. Image source: Getty Images.

Thanks to H&R Block's aggressive share repurchases, earnings on a per-share basis grew at a much faster rate than net income. The company earned $3.77 per share in the fiscal fourth quarter, nearly 20% more than it earned a year ago. The company has about $1.2 billion of repurchase capacity under its existing repurchase authorization of $3.5 billion.

Virtually all of the improvement in earnings came as a direct result of cost cuts and margin expansion. Revenue for the quarter grew only about 1% compared to the year-ago period.

Now what

On the conference call, the company noted that its do-it-yourself online tax preparation business grew at 6.8%, taking market share in a category that is dominated by Intuit's (NASDAQ: INTU) TurboTax unit. Intuit previously reported flat market share in the DIY tax preparation category during the 2017 tax season.

The decline in H&R Block's legacy assisted business remains a secular headwind: The unit has seen a dip of 2.5% this year after a 6% decline a year earlier. But for now, shareholders are happy to see that the company could grow its earnings by eliminating the fat in its expense base. With the busiest quarter behind it, H&R Block's business will now go into hibernation until the next tax season.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuit. The Motley Fool has a disclosure policy.