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Robert Half (RHI) Misses Q4 Earnings & Revenue Estimates

Zacks Equity Research

Leading staffing firm Robert Half International Inc. RHI reported weaker-than-expected fourth-quarter 2016 earnings, possibly due to currency headwinds.

The company’s fourth-quarter 2016 earnings of 61 cents per share missed the Zacks Consensus Estimate of 64 cents by 4.7%, and were within the guided range of 60–66 cents. Earnings declined 14.1% from the prior-year quarter adjusted earnings per share of 71 cents. This marked the second consecutive quarter of earnings decline in the last 26 quarters.

Earnings growth has been declining due to the company’s clients taking longer to make hiring decisions. Also, a tightening U.S. job market continues to put pressure on the labor supply, particularly at higher skill levels.

Robert Half's total revenue of $1.265 billion declined 3.1% year over year and also lagged the Zacks Consensus Estimate of $1.284 billion by 1.5%. However, it was close to the lower end of the guided range of $1.250–$1.310 billion. Currency had a negative impact of 0.6% during the quarter. On a constant currency basis, revenues were down 1% due to a decline in U.S. staffing revenues.

Nevertheless, international staffing operations performed well during the quarter. Protiviti also reported year-over-year revenue gains. Moreover, the company has been experiencing higher demand for services provided by skilled professionals. Further, employers are building flexible staffing options into their human resources plans with increasing frequency, which is resulting in temporary staffing growth.

In fact, Robert Half has been exhibiting a bullish run on the index since the past six months. Specifically, in the noted period, shares of this global staffing firm have increased 34.3% in comparison to the Zacks categorized Staffing Firms industry, which showcased growth of 22.6%. Notably, the industry is part of the top 22% of the Zacks Classified industries (57 out of the 265). The broader Business Services sector is placed at the bottom 44% of the Zacks Classified sectors (9 out of 16).

Gross margin contracted 40 basis points (bps) to 41.0% in the fourth quarter. Operating margin decreased 120 bps to 9.9% in the quarter due to lower gross 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 4.1% year over year. While international revenues inched up 0.5%, U.S. revenues declined 5.3% from the prior-year quarter. Currency also had a negative impact of 0.6% during the quarter. On a constant currency basis, global staffing declined 2.1%.

Protiviti: Protiviti revenues increased 3.2%, driven by 3.7% growth in U.S. revenues and 0.7% improvement in international revenues. Currency had a negative impact of 0.5% during the quarter. On a constant currency basis, Protiviti revenues rose 5.3%.

Robert Half International Inc. Price, Consensus and EPS Surprise

 

Robert Half International Inc. Price, Consensus and EPS Surprise | Robert Half International Inc. Quote

Full Year 2016 Results

In 2016, earnings were $2.67 per share, which missed both the Zacks Consensus Estimate and the year-ago earnings of $2.69 by 0.7%.

Total revenue of $5.25 billion increased 3% year over year but lagged the Zacks Consensus Estimate of $5.27 billion by 0.4%.

Financial Update

Robert Half had cash and cash equivalents of $260.2 million at the end of the fourth quarter, compared with $292.5 million at the end of the third quarter. Capital expenditure was $20 million in the fourth quarter, same as it was in the third quarter.

During the reported quarter, Robert Half repurchased 1.1 million shares for $51 million. There are approximately 6.4 million shares available for repurchase under the board approved stock repurchase plan. The company also paid a quarterly cash dividend of 22 cents per share during the quarter, for a total cash outlay of $28 million.

Q1 Guidance

Robert Half issued its earnings and sales guidance for the first quarter of 2017. The company expects revenues in the range of $1.250–$1.310 billion for the first quarter. It expects earnings in the range of 55–61 cents per share. The Zacks Consensus Estimate for the first quarter stands higher at 63 cents.

Protiviti also has an impressive growth outlook due to a robust regulatory environment and increased need for stronger internal controls and data security measures. However, lower margins, especially at Protiviti, are expected to take a toll on Robert Half’s profits.

Zacks Rank & Key Picks

Robert Half carries a Zacks Rank #2 (Buy).

Other well-positioned staffing stocks in the industry include Cross Country Healthcare, Inc. CCRN and Tarena International, Inc. TEDU. Another well-positioned stock from the broader consumer staples sector includes Pinnacle Foods, Inc. PF. While Cross Country sports a Zacks Rank #1 (Strong Buy), Tarena and Pinnacle Foods hold the same Zacks Rank as that of Robert Half. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cross Country has an average positive earnings surprise of 29.46% in the trailing four quarters with a long-term earnings growth rate of 17.50%. Tarena has a long-term earnings growth rate of 33.00%, while Pinnacle has a long-term earnings growth rate of 6.50%.

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