Robert Half International Inc.RHI 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.
We observed that 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.
Shares of Robert Half have underperformed the industry over the past six months. In the said time frame, shares of the company have increased 3.2% compared with the industry's gain of 6.9%. Robert Half's shares were up 1.3% after the market closed on Jul 25.
Let's Delve Deep
Robert Half's second-quarter earnings of 64 cents per share missed the Zacks Consensus Estimate of 65 cents, but came within its guided range of 61-67 cents. 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 guided 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.
Robert Half International Inc. 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 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 in this segment since the beginning of 2016.
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 24 cents per share for a total cash outlay of $31 million. The management had hiked its quarterly dividend from 22 cents per share to 24 cents 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 66-72 cents per share. The Zacks Consensus Estimate for the third quarter is pegged at 72 cents which is at the higher end of the estimated range.
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.
Zacks Rank & Stocks to Consider
Robert Half currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry are ManpowerGroup MAN , Gartner, Inc. IT and Healthcare Services Group, Inc. HCSG , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
ManpowerGroup has an average positive earnings surprise of 4.5% for the past four quarters, with a long-term earnings growth rate of 12%.
Gartner has an average positive earnings surprise of 4.6% % for the past four quarters, with a long-term earnings growth rate of 17.3%.
Healthcare Services Group has an average positive earnings surprise of 1.7% % for the past four quarters, with a long-term earnings growth rate of 14.5%.
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