Shares of the leading staffing firm Robert Half International Inc.RHI declined 11.07% yesterday when it reported weaker-than-expected second quarter of 2016 results. Earnings and revenues lagged the Zacks Consensus Estimate, possibly due to uncertain macro-economic environment and market volatility.
Second-quarter 2016 earnings of 71 cents per share lagged the Zacks Consensus Estimate of 73 cents by 2.7%, but exceeded the prior-year quarter adjusted earnings of 67 cents by 6%. Earnings were toward the lower end of the guided range of 70 cents to 76 cents per share.
Robert Half witnessed year-over-year earnings growth driven by solid demand for services provided by skilled professionals. The company's international operations also improved, particularly driven by higher demand for staffing and consulting services. However, earnings growth was sluggish. In fact, the company's earnings did not grow in double-digits, a trend witnessed since the past 24 consecutive quarters on a year-over-year basis.
Robert Half's total revenue grew 5.7% year over year to $1.344 billion, driven by broad-based revenue gains and higher demand for its professional staffing and consulting services owing to improved labor markets, low unemployment in numerous professional occupations and improved economic backdrop in many of its non-U.S. markets. Revenue growth was also fueled by strong results from Protiviti.
Revenues were within the guided range of $1.325-$1.385 billion but missed the Zacks Consensus Estimate of $1.358 billion by 1.5%. On a constant currency basis, revenues grew 4.9%.
Though revenues have increased on a year-over-year basis, the rate of growth has declined sequentially, possibly due to significant currency headwinds.
Gross margin declined 30 basis points (bps) to 41.4% in the second quarter. Operating margin decreased 60 bps to 11.1% in the quarter due to lower gross margin and lower margin at Protiviti.
ROBT HALF INTL Price, Consensus and EPS Surprise
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 increased 5.1% year over year, driven by 4.5% growth in U.S. revenues. International revenues increased 7.2% from the prior-year quarter. Currency had a negative impact of 0.3% during the quarter. On a constant currency basis, global staffing increased 4.3%.
Protiviti : Protiviti revenues increased 9.2%, driven by 7.6% growth in U.S. revenues and 17.3% growth in international revenues. Currency had a negative impact of 0.2% during the quarter. On a constant currency basis, Protiviti revenues increased 8.3%.
Robert Half had cash and cash equivalents of $238.7 million at the end of second quarter, compared with $214.1 million at the end of first quarter. Capital expenditure was $25 million in the second quarter compared with $19 million in the first quarter.
During the quarter, the company repurchased 1.0 million shares for $38 million. There are approximately 8.7 million shares available for repurchase under the board approved stock repurchase plan. The company also paid quarterly cash dividend of 22 cents per share on Jun 15, for a total cash outlay of $29 million.
Third Quarter 2016 Guidance
The company issued earnings and sales guidance for the third quarter of 2016. Robert Half expects revenues in the range of $1.335-$1.395 billion for the third quarter, compared with the prior-year quarter revenues of $1.31 billion on a reported basis. The company expects earnings in the range of 68 cents -74 cents per share, compared with the year-ago earnings of 73 cents. The Zacks Consensus Estimate for the third quarter stands higher at 82 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 profits.
Robert Half carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the staffing industry include BG Staffing, Inc. BGSF and TrueBlue Inc. TBI . A better-ranked stock in the broader consumer staples sector is Omega Protein Corp. OME . While BG Staffing and Omega Protein carry a Zacks Rank #1 (Strong Buy), TrueBlue holds a Zacks Rank #2 (Buy).
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