Why H&R Block's Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of tax-prep expert H&R Block (NYS: HRB) got slammed in today's trading, falling as much as 14% in intraday trading.

So what: There were really two separate announcements that came out of H&R Block today, and they give us a chance to play a little round of "one of these things is not like the other." That is, one of the announcements was clearly bad news for shareholders, while the other could actually be good news.

First, the bad news. Updating its guidance for fiscal 2012 (which concludes this month), H&R Block's management now sees total revenue coming in at $2.9 billion and earnings per share finishing between $1.09 and $1.15. That's a blow to investors if they were counting on the estimates from Wall Street, which had the company earning $1.39 per share for the year on total revenue of $3 billion.

Now what: H&R Block also announced a bit of an internal shakeup today. The move will cut about 350 jobs from the company and close 200 "underperforming" stores. While this certainly could be seen as short-term bad news -- it'll cost the company a $30 million pre-tax charge in the fiscal fourth quarter -- it is expected to bring annual savings of between $85 million and $100 million by the end of fiscal 2013. While it's hard to root for job cuts, as a shareholder, seeing the company get more cost-effective is generally a good thing.

So it's a mixed bag today for H&R Block investors. Clearly, the updated guidance is disappointing, but the shakeup could be a long-term positive. For the time being, though, the market appears to be largely ignoring the latter and focusing very much on the former.

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