We reaffirm our Neutral recommendation on Robert Half International, Inc. ( RHI ) following the appraisal of fourth quarter 2012 results. The company's financial performances were a mixed bag with positive earnings and top-line growth offset by currency translation headwinds.
Why the Reiteration?
Robert Half has witnessed strong revenue growth in each of its business segments, which drove the company's strong fourth quarter 2012 results. Earnings of 42 cents increased 40% from the year-earlier quarter. Earnings also beat the Zacks Consensus Estimate of 41 cents by 2.4%. Moreover, the company's earnings have now grown more than 20% year over year for 11 straight quarters.
Gross margin expanded 50 basis points to 40.3% in the quarter while operating margin increased 200 basis points to 9.4% on the back of higher gross margins, lower operating expenses and solid results of the company's wholly-owned subsidiary, Protiviti.
Overall, we are encouraged by the company's strong demand for specialized staffing and consulting services, particularly in the U.S. Further, the improving global economic condition has heightened the demand for the company's temporary and permanent staffing services and risk consulting and internal audit services.
Protiviti is one of the key drivers of revenue and operating growth and helps companies solve problems in finance, technology, operations, governance, risk and internal audit. The strong Protiviti performance has added to year-over-year growth rates of U.S. staffing revenues and to global operating income in 2012.
Further, Protiviti's purchase of privately-held SusQtech Inc. in late December helped to meet the growing demand for skilled workforce as well as provide its key clients with software consulting services.
However, currency headwinds and a tough job scenario, particularly in Europe, resulted in soft demand for recruitment services, which keeps us on the sidelines. The depleting margins faced by companies have resulted in cost saving and headcount reduction measures, which have adversely affected placement firms like Robert Half.
Other Stock to Consider
Robert Half currently carries a Zacks Rank #2 (Buy). Stocks that are performing well and are worth considering in the business services sector include Manpower, Inc. ( MAN ), Startek Inc ( SRT ) and AMN Healthcare Services ( AHS ). While Manpower and Startek carry a Zacks Rank #1 (Strong Buy), AMN Healthcare holds a Zacks Rank #2 (Buy).