Stocks slumped Wednesday after the Federal Reserve announced a quarter-point hike in the benchmark federal funds rate. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both had moderate losses.
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The interest rate increase, although widely expected, seemed to hit rate-sensitive stocks, with the Vanguard REIT ETF (NYSEMKT: VNQ) falling 2%. The consumer discretionary sector sounded a rare positive note; the Consumer Discretionary Select SPDR ETF (NYSEMKT: XLY) eked out a 0.2% gain.
As for individual stocks, newly public Pivotal Software (NYSE: PVTL) wowed investors with its quarterly results, and H&R Block (NYSE: HRB) delivered a disappointing outlook.
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Pivotal Software impresses in its first earnings report
Pivotal Software, a provider of developer tools for building cloud-based software, announced expectation-beating results in its first quarterly report since going public, and the stock soared 33%. Total revenue grew 28% to $155.7 million, compared with the analyst consensus estimate of $140.4 million. Non-GAAP net loss per share was $0.10, half the loss in the period a year ago, while Wall Street was expecting a per-share loss of $0.13.
Subscription revenue grew 69% to $90.1 million as the company, which sells to large enterprise customers, added 20 net new subscription customers for a total of 339. The dollar-based net expansion rate, which compares subscription revenue from a common set of customers to the comparable period a year earlier, grew 156%. The expansion rate has been over 150% for the last seven quarters.
Looking forward, Pivotal guided to second-quarter revenue of $157 million-$159 million and full-year revenue of $642 million-$649 million, with both ranges exceeding what analysts had been expecting.
Pivotal was spun off in April from Dell Technologies, which continues to hold 70% of the outstanding shares. The company sells a development platform that allows customers to build applications that can run on private clouds as well as on public cloud infrastructure from Amazon, Microsoft, Alphabet, and others. Pivotal's rapid subscription growth, fueled both by acquisition of new customers and by existing customers expanding their usage of its products, had investors cheering today.
H&R Block prepares investors for a tough year
Tax preparer H&R Block reported fiscal fourth-quarter results that topped expectations, but gave an outlook for fiscal 2019 that disappointed investors, and shares dropped 17.9%. Revenue in the company's biggest quarter increased 2.8% to $2.39 billion and earnings per share from continuing operations jumped 45% to $5.45. Analysts were expecting H&R Block to earn $5.27 on revenue of $2.34 billion. The company also announced a 4% hike to its quarterly dividend to $0.25.
For the full fiscal year, H&R Block grew revenue 4.1% to $3.16 billion and increased EPS by 52% to $2.98, with $0.85 of the $1.02 increase being attributable to a lower tax rate. Total U.S. return volume increased 2.5%, with assisted return volume falling 0.6% and do-it-yourself return volume growing 7.8%.
What got investors concerned was H&R Block's forecast for fiscal 2019 revenue to fall to a range of $3.05 billion to $3.1 billion and for EBITDA margin to tumble from last year's 29.8% to a range of 24% to 26%. Revenue is expected to decline because of pricing changes that Block intends to make, and because tax returns are expected to become less complex due to the new tax law. The company said it will be making technology investments that will lower margins next year.
With H&R Block reticent to divulge details about pricing changes or technology platform investments in the conference call due to competitive reasons, investors today were unwilling to bet on uncertain improvements in long-term results that the company expects to come from short-term pain in the next year.
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