Robert Half (RHI) Down 10.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Robert Half (RHI). Shares have lost about 10.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Robert Half due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Robert Half Q1 Earnings & Revenues Miss, Rise Y/Y

Robert Half’s first-quarter 2019 earnings and revenues lagged the Zacks Consensus Estimate.Earnings per share of 93 cents missed the Zacks Consensus Estimate by 3 cents but increased 19.2% year over year. The reported figure was within the company guided EPS range of 92-98 cents.

Total revenues of $1.47 billion lagged the consensus mark by $29.9 million. However, the top line increased 5.2% year over year on a reported basis and 8.5% on an adjusted basis. Revenues were within the company’s guided range $1.460-$1.525 billion.Robert Half witnessed solid revenue growth across its U.S. as well as non-U.S. staffing and Protiviti operations in the reported quarter.

Solid Segmental Performance

Based on the nature of services, Robert Half has three reportable operating segments namely, Temporary and Consultant Staffing, Permanent Placement Staffing and Risk Consulting and Internal Audit Services. While revenues from Temporary and Consultant Staffing and Permanent Placement Staffing come under the global staffing division, the same from Risk Consulting and Internal Audit Services are reported under the Protiviti division.

Global Staffing Division: Staffing revenues of $1.22 billion increased 2.4% year over year on a reported basis and 6.9% on an adjusted basis. U.S. staffing revenues of $931 million increased 4% on a reported basis and 5.7% on an adjusted basis. Non-U.S. staffing revenues decreased 2.5% on a reported basis but improved 10.5% on an adjusted basis to $285 million.Currency movements had an unfavorable impact of 1.9% on staffing revenues.First-quarter 2019 had 62.2 billing days compared with 63 days in first-quarter 2018. At present, Robert Half operates 325 staffing locations worldwide, with 86 locations situated in 17 countries outside the United States.

Protiviti: Protiviti revenues were $252 million, which increased 21.5% year over year on a reported basis and 17.3% on an adjusted basis, with strength across both the U.S. and non-U.S. regions. Protiviti revenues from the United States grew 14.9% on a reported basis and 16.8% on an adjusted basis to $192 million. The same from international regions surged 48.8% on a reported basis and 18.9% on an adjusted basis to $60 million.Currency movement lowered segmental revenue growth by 1.7% on a year-over-year basis. Currently, Protiviti along with its independently-owned Member Firms has a network of 85 locations in 27 countries.

Operating Results

Gross profit in first-quarter 2019 was $607.59 million, up 6.2% year over year. Gross margin increased to 41.4% from 41% in the year-ago quarter.Staffing gross margin expanded 110 basis points (bps) year over year to 44.7%. Protiviti gross margin decreased to 25.3% from 26.4% in the year-ago quarter.Operating income was $146.23 million, up 8.8% year over year. Operating margin rose to 10% from 9.6% in the year-ago quarter.At the staffing division, operating income increased 7% year over year to $128 million. Operating margin was 10.5%. Protiviti reported operating income of $18 million, which grew 22% from the year-ago quarter. Protiviti recorded an operating margin of 7.4%.Selling, general and administrative expenses increased 5.3% year over year to $461.36 million.

Balance Sheet

Robert Half ended first-quarter 2019 with cash and cash equivalents of $269.65 million compared with $276.58 million at the end of the previous quarter. Cash flow from operations was $127 million and capital expenditures were $12.7 million in the reported quarter.In the reported quarter, Robert Half bought back 800,000 shares for $52 million. The company has 5.9 million shares available for repurchase under its existing repurchase plan as approved by the board of directors.In February 2019, the company increased its quarterly cash dividend from 28 cents per share to 31 cents, leading to a total dividend payment of $38 million to shareholders in March.

Second-Quarter 2019 Guidance

Robert Half expects second-quarter 2019 revenues in the range of $1.485-$1.550 billion. Earnings are anticipated between 95 cents and $1.01 per share. The mid-points of these projections indicate year-over-year top-line growth of 5.5% (on a same-day as-adjusted basis, including Protiviti) and bottom-line growth of 10%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Robert Half has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Robert Half has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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