Barrett Business Services Beats on Q2 Earnings and Revenues

Zacks

Barrett Business Services Inc. (BBSI) reported second-quarter 2014 earnings per share of 98 cents, which beat the Zacks Consensus Estimate of 93 cents. On a year-over-year basis, earnings increased 22.2%.

 

Quarter Details

Barrett reported gross revenue of $798.4 million in the second quarter of 2014, up 18.3% from the year-ago quarter, which beat the Zacks Consensus Estimate of $787.0 million.

Professional employer service fees grew 18.8% year over year to $759.8 million, primarily driven by new client additions. Revenues from Staffing Services were $38.6 million, up 9.2% from the year-ago quarter, primarily attributable to an increase in new businesses.

Barrett’s gross profit came in at $29.9 million, up 25.8% year over year. The company’s operating expenses increased 23.8% from the year-ago quarter to $18.6 million, primarily due to higher incentive pay and increases in payroll expenses within selling, general and administrative expenses (SG&A).

The company’s operating income increased 29.3% from the year-ago quarter to $11.3 million. Barrett reported net profit of $7.2 million or 98 cents compared with $5.9 million or 80 cents in the year-ago quarter.

Barrett exited the quarter with cash, cash equivalents and marketable securities of approximately $79.9 million compared with $97.3 million in the previous quarter. Long-term debt balance (including current portion) was $5.2 million, flat on a sequential basis.

Guidance

For the third quarter of 2014, Barrett expects gross revenue to increase 14% year over year and range between $870.0 million and $890.0 million, up from $764.1 million reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at $879.0 million.

Management expects third-quarter 2014 earnings per share to range between $1.30 and $1.35, up from $1.21 reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at $1.32.

Our Take

Barrett reported better-than-expected second-quarter results. Revenues were positively impacted by solid client growth. Despite the continuing macro uncertainty, Barrett expects strong business pipeline and a healthy client base in the future. The company also provided encouraging guidance. 

Nonetheless, we prefer to wait and see whether the company’s continued investments in operational infrastructure improvements rationalize margins in the near term. Moreover, growing competition from Paychex, Inc. (PAYX) and Insperity, Inc. (NSP) remains a headwind, going forward.

Currently, Barrett has a Zacks Rank #3 (Hold). NVIDIA Corp. (NVDA) is a better-ranked technology stock sporting a Zacks Rank #1 (Strong Buy).

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