H&R Block shares plunge on outlook for lower profits from investments in growth

Shareholders of H&R Block Inc. suffered sharp growth pains Wednesday morning when the company's stock price plunged nearly 18 percent.

Markets reacted to CEO Jeff Jones' plans to invest in growth that may take a few years to play out but will hurt earnings right away.

Shares of the Kansas City-based tax preparation company fell $5.31, or 17.94 percent, closing at $24.29 Wednesday. Shares traded as low as $23.33 during the day.

Jones announced the plans Tuesday after H&R Block reported a 50 percent jump in its profits from the tax season that ended in April. He told analysts during a conference call that the company was strong and able to make the investments he said would lead to growth.

Block also forecast lower profit margins because of the investments it is about to make in technology, improving the quality and consistency at Block offices and other areas.

"Why make such a drastic investment today when you're not going to be able to show results for a couple of years when you could have done a more gradual shift?" one analyst asked during the session.

Jones said it was a question the management team at Block had thought about a lot.

First, he said, the company has shown it can accomplish what it sets out to do. Second, Block's promise hasn't been as relevant to consumers as it needed to be.

"We've been a business that thinks about one season at a time," Jones said. "You see us now taking a multi-year view of how we position the business for long-term growth."