Robert Half International (RHI) is one of the largest specialized staffing firms in the US providing temporary, project, and full-time professionals in a variety of fields. On Tuesday afternoon, the company reported disappointing results for their fiscal first quarter and the stock has sold of more than 12% in response. Revenue fell by 11% from the period a year ago, and margins were compressed by almost 9% as a result. Net income of $8.5 million or 5 cents per share falling short of analyst’s estimates by a penny per share. Clearly, the market was expecting more, especially after the strongest employment report in three years last month which came on the back of a few months of positive momentum in temporary hiring.
Looking ahead, the outlook for hiring is not as bright as Robert Half International had hoped to report. Despite management’s comments that the demand for professional staffing is improving with the economy, they slashed expectations for second quarter earnings to 3 to 8 cents per share. Revenue is expected to be in the range of $730 million to $780 million, consensus analyst’s estimates called for EPS of $.10 on revenue of $765.9 million. This downward revision to guidance speaks to the still very challenging labor market environment. Companies were quick to deeply cut their payroll as the recession hit, but they will likely be hesitant to rehire personnel unless they are absolutely sure they need them.
In the past, RHI has been known for providing specialized personnel particularly in accounting and financial services jobs, and because of the specialized nature of these placements Robert Half was able to charge more and produce better margins than their peers. Compared to last year, revenue was down across the board, but the worst hit areas were Accountemps (by far their largest division), Robert Half Technology and Robert Half Management Resources. However, some of this can be explained by a stronger dollar, as CEO Harold Messmer claimed, “First-quarter revenues for our staffing operations were up 2 percent on a constant-currency basis from the results we reported for the fourth quarter.”
At Ockham, we have had an Overvalued rating on RHI since shortly after the start of the year, but after today’s heavy declines their is a small chance we will upgrade RHI to Fairly Valued in an upcoming report. Last quarter’s performance was weaker than expected, and the outlook was also troubling. However, we believe that staffing firms will in fact see improvement in the next few quarters, assuming a continued economic rebound. Many companies are fearful of hiring full time workers because there are still many unknowns; especially with healthcare and financial regulatory reforms coming out of Washington. We think that Robert Half is far from Undervalued, but after the selloff it starts to border on our neutral stance given current fundamentals.