Robert Half (RHI) Down 11.1% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Robert Half International Inc. RHI. Shares have lost about 11.1% in that time frame, underperforming the market.

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

Robert Half’s Q2 Earnings Miss Estimates, Revenues Down Y/Y

Robert Half International reported dismal second-quarter 2017 results, wherein earnings missed the Zacks Consensus Estimate and revenues were in line with the same. Despite increase in staffing operations in international regions, both sales and earnings depicted a year-over-year decline primarily due to sluggish hiring activity in the U.S. and soft results from the Protiviti segment.

The company’s revenues missed the Zacks Consensus Estimate in four out of the trailing five quarters, which includes the recently reported quarter. Earnings missed the same thrice.

Robert Half’s second-quarter earnings of $0.64 per share missed the Zacks Consensus Estimate of $0.65, but came within its guided range of $0.61–$0.67. However, the same were down 9.8% from the prior-year quarter, due to soft sales and lower margins.

Robert Half's total revenue of $1.31 billion came in line with the Zacks Consensus Estimate and was within its guidance range of $1.275–$1.335 billion. The top line slipped 2.7% year over year which can be attributed to lower revenues witnessed at the staffing businesses as well as Protiviti. Revenues were also down 0.9% on a constant currency basis.

The company recorded gross profit of $538 million in the quarter, which dipped 3.4% year over year. The gross margin slipped 20 basis points (bps) mainly due to the absence of prior-year workers compensation credits of $1.4 million. Further, Robert Half reported operating income of $131 million down 12% year over year, with contraction of 110 bps in operating margin.

Segment Details

Based on the nature of services, the company has three reportable operating segments, namely, Temporary and Consultant Staffing, Permanent Placement Staffing and Risk Consulting and Internal Audit Services.

Revenues from Temporary and Consultant Staffing and Permanent Placement Staffing come under the global staffing division, while Risk Consulting and Internal Audit Services are reported under the Protiviti division.

Global Staffing Division:  Global Staffing revenues declined 3% year over year. While international revenues increased 2.1%, U.S. revenues fell 4.3% from the prior-year quarter. Currency had a positive impact of 0.7% during the quarter. On a constant currency basis, global staffing declined 1.3%.

Protiviti: Protiviti revenues declined 0.6%, mainly due to a 6% decrease in international revenues. However, U.S. revenues improved 0.6%. Gross margin for the segment fell 140 bps to 26.7%. Currency had a positive impact of 0.7% during the quarter. On a constant currency basis, Protiviti revenues rose 1.1%. The company has been witnessing declining operating margins since the beginning of 2016.  

Financial Update

As of Jun 30, Robert Half had cash and cash equivalents of $298 million compared with $238 million in the prior-year period. Additionally, cash flow from operations was $253 million and capital expenditures were $11 million in the reported quarter.

In the second quarter, Robert Half bought back one million shares for $47 million. There are approximately 4.2 million shares available for buyback under the stock repurchase program.

Also, it paid a quarterly cash dividend of $0.24 per share for a total cash outlay of $31 million. The management had hiked its quarterly dividend from $0.22 per share to $0.24 in Feb 2017.

Guidance for Q3

Robert Half issued its earnings and sales guidance for the third quarter of 2017. The company expects revenues in the range of $1.305-$1.365 billion for the said quarter. In addition, it projects earnings in the range of $0.66-$0.72 per share.

The management stated that it would continue to invest in technology innovations to better serve customers. The company also expects the hiring activity in the U.S. to improve in the forthcoming periods, backed by GDP growth.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter.

Robert Half International Inc. Price and Consensus

 

Robert Half International Inc. Price and Consensus | Robert Half International Inc. Quote

VGM Scores

At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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