For Robert Half, The Best Is Yet To Come

| About: Robert Half (RHI)

Summary

Staffing industry is closely tied with economic prosperity of the host countries.

Robert Half has taken proactive measures to ensure it delivers on set objectives.

All indications are that Robert Half will reclaim its position as a global staffing powerhouse.

Investment Thesis

Robert Half has a big portfolio that straddles the US staffing and consultancy sector. Despite missing expectations in the January results, the company has invested enough into its divisions to bravely face the next fiscal year.

Robert Half International Inc. (NYSE: RHI) is a California-based risk consultancy and human resource firm, with more than 400 offices in North America, South America, Asia, Australia and Europe. RHI executes its operations through eight units: Robert Half Finance and Accounting, Office Team, Accountemps, Robert Half Technology, Protiviti, The Creative Group, Robert Half Management Resources and Robert Half Legal. These units are classed into three departments: temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services.

In the earnings call of 26 th January 2017, RHI reported a 3% drop in global revenues to $1.265 billion. Non-staffing revenues grew 5% to $219 million from the year-ago quarter. Being a multinational, RHI global revenues are subject to currency fluctuations and regulations in countries hosting their more than 320 staffing locations. In Q4, exchange rates took out $6 million from year-on-year staffing revenues. Hence, data is typically broken down into US and non-US operations.

Protiviti, the risk and business consulting arm of RHI, posted global revenues of $201 million, with $170 million from the US and $30 million from outside the US. For both territories, this marked a 5% year-on-year growth. Exchange rates in the 25 countries hosting 75 Protiviti offices decreased revenues by $1 million. Gross margin for Protiviti was $57 million, down from $62 million in Q4 the year prior. SG&A costs for Protiviti were 18.3% of Protiviti revenues up from 18.0% in the year-ago quarter.

For the year ending Dec 31 st 2016, net income for RHI was $343 million or $2.67 per share. RHI has a market cap of $5.96 billion, with a 52-year low and high of 34.34 and 50.98 respectively.

What's in Store for RHI in the Staffing Industry?

The release of the fiscal results in January 2017 elicited mixed reactions from industry experts and analysts. Perhaps the conflicting position taken by watchers stem from the company's chequered earnings history over the last 3 quarters. In Q2, RHI posted actual earnings of 0.71, and missed the estimate of 0.73. In Q4, the earnings were 0.61, below the estimate of 0.64.

Despite these slips, RHI continues to be a darling of many an investor. By the end of 2016, several institutional investors and hedge funds had consolidated their shareholding in the firm by buying more shares. Collectively, hedge funds and institutional investors hold 85.60% of RHI stock.

In the US alone, there are over 20,000 staffing and recruiting companies connecting more than 16 million employees with jobs every year. The staffing industry acts as a gatekeeper for companies looking for either temporary or permanent workforce. Since hiring is a perennial exercise, the staffing industry has always outperformed the overall economy and employment rate, despite having only 2% of the nonfarm workforce.

The trends in the staffing industry point to high potential for any firm that is in touch with the times. In 2015, more than 70% of staffing firms recorded growth, with 91% projecting 10% growth in 2016. In 2016, RHI recorded high demand in the professional staffing and consulting divisions. Temporary workforce was at an all-time high due to inclusion of flexible staffing options by employers.

Another key issue in the industry is incorporation of technology in the hiring process to deliver high quality hires to clients. On this front, RHI does seem to be ahead of the pack. In 2016, the firm adopted a front office CRM system to centralize operations of the global staffing teams. Also, Protiviti migrated to a new resource management system. To streamline the hiring process, RHI adopted algorithms to match candidates to jobs, which would make it easier for employers to match perform a quick search for suitable candidates and their respective credentials from the RHI database.

After careful evaluation of RHI, I firmly believe that it has the competitive advantage to brave 2017 especially in uncertainty caused by politics. The company's financials also seem to be in tandem with my optimism on RHI stock. The ROA trailing 12 months is 20.0, against an industry average of 3.4, and the ROE trailing 12 months is 34.2 against an industry average of 8.8.

I will be keeping an eye on this stock especially in the current quarter, seeing that it took a stumble after the latest release. Furthermore, this is a rollercoaster year for the jobs market in the US, and the staffing industry will be in the limelight for quite some time.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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