Barrett Business Services Earnings Review

Barrett Business Services (BBSI) announced 2nd quarter earnings Tuesday after the bell. Diluted earnings came in at $.29/share for the quarter, down from the previous year's 2nd quarter earnings of $.42/share. However, they did beat analysts' (all 2 of them) average estimate of $.22/share. Net revenue for the quarter were $72.2m, up $8.3m or 13% from the previous year's quarter and gross revenues were $269.5m, up 0.7% over the similiar period in 2007.

The outlook for the 3rd quarter:

"The Company also disclosed today limited financial guidance with respect to its operating results for the third quarter ending September 30, 2008. The Company expects gross revenues for the third quarter of 2008 to range from $277 million to $282 million, as compared to $296.8 million for the third quarter of 2007, and anticipates diluted earnings per share for the third quarter of 2008 to range from $.34 to $.36 per share, as compared to $.54 per share for the same period a year ago."

Analysts had estimated 3rd quarter estimates at $.26/share, so the company's guidance for the 3rd quarter is a positive despite the decline from the previous year's period. Analysts FY 2008 earnings estimates of $.74/share appear well within reach. If the company meets analysts earnings expectations for FY2008, the forward PE is 15.6.

Historically, the 3rd quarter has been their best. If we assume $.35/share for the 3rd quarter and $.22/share for the 4th quarter, which on a percentage basis is roughly the same 37.5% drop as the 3rd quarter earnings projections from the previous years same period, then the company earns $.87/share for 2008 which projects to a PE of 13.3. According to my calculations, the price/book as of yesterday's close is 1.16 and the quick ratio is 1.87, giving the company, in my opinion, a cushion for any upcoming challenges.

Obviously, it is never encouraging to see negative earnings growth. Significant share appreciation may be difficult to come by for BBSI until negative macrotrends ease. However, the company's current valuation and balance sheet make it an attractive stock for long term value investors.

The conference call is Wednesday at 12pm ET and should make for an interesting listen.

Disclosure: None

Comments

[DaveinHacke...:]

I wasn't expecting earnings like that, but that was a positive surprise. Listening to the conference call now: looks like the company signed about twice as many new clients as it lost (or got rid of) in Q2. They also spent $4 million buying back stock. I'm still down big on this one, but I'm content to continue holding it. Solid, well-run company.

2008 Jul 30 12:20 PM

[Scott's Inv...:]

Hi, Thanks for the update on the cc. I will try to listen to a replay later this week. Any guidance for 2009 or Q4? At this point, I'm less concerned about the rest of 2008 but would like to hear if the company has any projections for 2009. And my comment that 'significant share appreciation may be hard to come by' was shot down quickly! Roth Capital upgraded the stock to a 'buy' this morning, which I did not mention in my article and may have also contributed to today's spike.

2008 Jul 30 01:10 PM

[Steve Alexa...:]

Sounds like hindsight, but BBSI was really a no brainer. Net cash was almost half of market cap, and no debt. The company was in a good position to ride out any troubles in California, plus they had spent the past 2 years diversifying into other western markets. Long term, PEO is an attractive growth market. I haven't heard the CC, but the CEO is quite entertaining. He sounds like grandpa telling it like it is.

Steve
magicdiligence.com

2008 Jul 30 02:04 PM

[DaveinHacke...:]

Scott,

I don't recall any guidance beyond Q3, which was, as you know, raised.

Steve,

The CEO is usually quite entertaining, and fond of salty language. He's recovering from having his spleen taken out, so he was a little more laid back than usual on today's call.

BTW, if you like cash-rich Magic Formula stocks, check out HSII, or in another industry, KSW.

2008 Jul 30 05:58 PM