We reaffirm our Neutral recommendation on Robert Half International, Inc. ( RHI ) despite solid second quarter 2013 as we remain concerned about the continued weakness in international markets.
Why the Reiteration?
Robert Half's earnings and revenues beat the Zacks Consensus Estimate in the second quarter. Earnings of 46 cents per share increased 21.1% from the prior-year quarter driven by solid demand for skilled professionals in the U.S. with improving economy.
Especially the permanent placement, information technology staffing and in Protiviti operations of the company are benefiting from improving demand. Margins also improved on the back of lower operating expenses.
Robert Half has sound fundamentals. The company has been witnessing strong demand for specialized staffing and consulting services, particularly in the U.S. Further, the improving global economic condition has increased demand for the company's temporary and permanent staffing services and risk consulting and internal audit services.
However, Robert Half has significant international presence and more than half of its revenues come from its operations abroad. A strong dollar is negatively impacting export sales.
In addition, weak staffing demand outside the U.S., especially in Europe, due to an uncertain economic condition resulted in soft revenues in the second quarter. Revenues increased only 3.4% year over year and 1% on a constant currency basis.
Further, we believe that currency headwinds and a tough job scenario, particularly in Europe, are denting the demand for recruitment services. In addition, cost savings and headcount reduction measures taken by other companies adversely affect placement firms like Robert Half.
Other Stock to Consider
Robert Half holds a Zacks Rank #3 (Hold). Other stocks that are performing well and are worth considering in the business services sector include Manpower, Inc. ( MAN ), Korn/Ferry International ( KFY ) and Trueblue Inc. ( TBI ), all with a Zacks Rank #1 (Strong Buy).