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Robert Half (RHI) Down 11.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Robert Half (RHI). Shares have lost about 11.9% 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 Q2 Earnings Match Estimates

Robert Half's second-quarter 2019 earnings came in line with the Zacks Consensus Estimate but revenues missed the same.

Earnings came in at 98 cents per share, up 10% year over year. The reported figure was within the company guided EPS range of 92 cents to $1.03. Revenues of $1.52 billion lagged the consensus mark by 0.1% but increased 4.1% year over year on a reported basis and 5.6% on an adjusted basis. Revenues were within the company’s guided range of $1.485-$1.550 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 $1.24 billion increased 1.7% year over year on a reported basis and 4% on an adjusted basis. U.S. staffing revenues of $965 million increased 3.8% on a reported basis and 4.1% on an adjusted basis. Non-U.S. staffing revenues decreased 5.1% on a reported basis but improved 3.3% on an adjusted basis to $278 million. Currency movements had an unfavorable impact of 1.3% on staffing revenues.

Second-quarter 2019 had 63.4 billing days compared with 63.5 days in second-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 $273 million, which increased 16.6% year over year on a reported basis and 13.8% on an adjusted basis, with strength across both the U.S. and non-U.S. regions. Protiviti revenues from the United States grew 14.7% on a reported basis and 15.1% on an adjusted basis. The same from international regions surged 23.2% on a reported basis and 9.4% on an adjusted basis. Currency movement lowered segmental revenue growth by 1.2% on a year-over-year basis. Currently, Protiviti along with its independently-owned Member Firms has a network of 86 locations in 27 countries.

Operating Results

Gross profit in second-quarter 2019 was $637.5 million, up 5% year over year. Gross margin increased to 42% from 41.7% in the year-ago quarter. Operating income was $159.4 million, up 6.6% year over year. Operating margin rose to 10.5% from 10.3% in the year-ago quarter. Selling, general and administrative expenses increased 4.5% year over year to $478.1 million.

Balance Sheet

Robert Half ended second quarter with cash and cash equivalents of $269.4 million compared with $269.7 million at the end of the previous quarter. Cash flow from operations was $121 million and capital expenditures were $16 million in the reported quarter.

In the quarter, Robert Half bought back around one million shares for $60 million. The company has 4.9 million shares available for repurchase under its existing repurchase plan as approved by the board of directors. In the quarter, it paid out $36 million in dividends.

Third-Quarter 2019 Guidance

Management guided revenue range of $1.525 billion to $1.590 billion. Earnings are anticipated between 98 cents and $1.04 per share. The midpoints of these projections indicate year-over-year top-line growth of 5% (on a same-day as adjusted basis, including Protiviti) and EPS growth of 10%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Robert Half has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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.

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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