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Robert Half Sounds a Bullish Note

Lee Samaha, The Motley Fool

Robert Half International's (NYSE: RHI) second-quarter earnings were solid enough, but management's commentary suggested it could be a tale of two continents in future quarters. Despite fears of a slowdown in the U.S. economy, CEO Harold Messmer gave a relatively bullish outlook.

However, it's a different story in Europe, where a combination of difficult comparisons with last year and a slowing economic environment appears to threaten earnings growth prospects. Let's take a closer look at an interesting quarter for the company.

Robert Half International's second-quarter earnings: The raw numbers

The headline numbers from the quarter looked a little light compared to management's expectations on the previous earnings call:

  • Revenue increased 4.1% to $1.516 billion and came in toward the middle of the guidance range of $1.485 billion to $1.550 billion.
  • Pre-tax income increased 6.7% to $160 million.
  • Net income per share of $0.98 came in at the middle of the guidance range of $0.95 to $1.01.

It was a satisfactory performance from a headline perspective, and as usual, management laid out the linear trends in the quarter. As you can see below, temporary and consulting staffing trends (together responsible for 84% of operating income in the quarter) strengthened through the quarter -- more on the regional mix in a moment.

On a less positive note, the performance of permanent placement in July is a concern, and Barclays analyst Ryan Leonard asked about it during the earnings call.

A man being awarded a job.

Image source: Getty Images.

In response, Messmer argued that the period contained the 4th of July, which creates a lot of noise around the numbers, and added, "We certainly aren't particularly concerned about it and we continue to be very bullish on perm. In fact, continue to add per heads disproportionately in perm, which also somewhat impacts our SG&A."

Revenue Growth

July to Date

June

Q2 2019

Temporary and consulting staffing

4.3%*

5.3%

3.7%

Permanent placement

(4.6%)**

7.6%

6.2%

Data source: Robert Half International presentations. *First two weeks. **First three weeks.

Robert Half guidance

Turning to the outlook for the third quarter:

  • Revenue is forecast to be in the range of $1.525 billion to $1.590 billion, implying growth of 5% at the midpoint on a same-day as-adjusted basis.
  • Income per share is forecast to be in the range of $0.98 to $1.04, implying growth of 6% at the midpoint.

The growth outlook looks pretty similar to what was achieved in the second quarter (up 6% on a same-day constant currency basis), but it doesn't express the difference in management's expectations for the U.S. and Europe.

Messmer disclosed that U.S. trends "progressively got better year-on-year each month." When pushed for more details as to what drove clients to be more positive as the quarter progressed, CFO Keith Waddell talked of a "friendlier" Federal Reserve and suggested that trade tensions "don't seem to be as intense as they were six months ago."

On another bullish note, bill rates improved by 5.4% in the quarter. Although it's a slowdown in the rate of growth of 5.7% in the previous quarter, it's still indicative of a tightening labor market, and Waddell's expectation is that bill rate growth will stay in the 5% range in the coming quarters -- a good sign.

It's a different story in Europe, where Messmer talked of a slowing economic environment. Guidance for the third quarter implies a combination of firming in the U.S. and "additional softening" in Europe and the U.K. In addition, as you can see in the chart below, the international temporary and consulting operations will come up against a difficult comparison in the third quarter.

Robert Half revenue trends.

Data source: Robert Half presentations.

Looking forward

Robert Half's stock has been sold off due to the negative sentiment on the U.S. economy in 2019, so management's relatively positive commentary will be warmly received by investors. It looks as if it's coming at exactly the right time, too, because the company's international growth looks set to slow in the coming quarters. No matter; the news that businesses are taking a more positive outlook on hiring in the U.S. is the key takeaway from the earnings presentation.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Robert Half International. The Motley Fool has a disclosure policy.