Robert Half Beats on Q1 Earnings; Sales In Line - Analyst Blog

Leading staffing firm Robert Half International Inc. RHI reported first quarter 2014 earnings of 45 cents, ahead of the prior-year quarter adjusted earnings of 40 cents per share by 12.5%. Earnings also beat the Zacks Consensus Estimate by a penny.

Robert Half witnessed strong year-over-year earnings growth driven by solid demand for services provided by skilled professionals in the U.S. The company's international operations also improved, particularly driven by permanent placement services. In fact, the company's earnings have now grown in double-digits for 16 straight quarters on a year-over-year basis, driven by growing demand for skilled workforce and consulting services.

Robert Half's total revenue was in line with the Zacks Consensus Estimate and grew 5.9% year over year to $1.08 billion in the first quarter, driven by solid performance in the company's permanent placement and technology staffing divisions. Protiviti operations also delivered strong revenues in the quarter.

Margin Details

Total gross profit was $438.5 million in the reported quarter, up 6.9% year over year. Gross margin expanded 30 basis points (bps) to 40.4% in the first quarter driven by higher sales.

Total adjusted operating income increased 14.1% to $102.1 million in the quarter. Operating margin increased 70 bps to 9.4% in the first quarter of 2014 on the back of higher gross margins and solid Protiviti results.

Segment Details

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 the Risk Consulting and Internal Audit Services are provided under the Protiviti division.

Global staffing division: Global staffing revenues increased 4.8% in the quarter, driven by 3.8% growth in the temporary and consultant staffing division and 11.6% growth in permanent placement staffing. However, currency fluctuations negatively impacted revenues by 0.2%. Global staffing revenues, on a constant currency basis, increased 4.5% year over year, driven by 5.9% growth in the U.S. and a 0.6% improvement in international staffing revenues in the quarter.

Overall staffing gross margin expanded 40 bps to 42.3%, led by solid margin of 36.1% in the temporary and consulting staffing operations and 9.7% margin in permanent placement operations.

Operating margin of the staffing division was 10%, led by 9% margin in temporary and consulting staffing operations and strong margin of 18.7% in permanent placement operations.

Protiviti: Global revenues for Protiviti surged 15% year over year in the first quarter, driven by 19% growth in U.S. revenues. However, international revenues were flat in the quarter.

Gross margin was 27.4% of Protiviti revenues, up 170 bps from the year-ago quarter due to better staff utilization.

Operating margin was 5.5% of Protiviti revenues, up 230 bps from the year-ago quarter due to higher sales and gross margins in Protiviti.

Financial Update

Robert Half had cash and cash equivalents of $267.7 million at the end of the first quarter versus $275.8 million at the end of the fourth quarter. Capital expenditure was $12.4 million in the first quarter as against $21 million in the fourth quarter.

During the quarter, Robert Half's board increased the company's dividend by 2 cents per share to 18 cents per share. The dividend was paid to shareholders on Mar 14, 2014 at a cost of $24 million. The company also repurchased 0.8 million shares for a total of $33 million during the quarter. There are approximately 7.3 million shares remaining under the board's currently approved stock repurchase plan.

Second Quarter Guidance

The company issued earnings and sales guidance for the second quarter of 2014. Robert Half expects revenues in the range of $1.11 billion-$1.16 billion in the second quarter, up from $1.06 billion in the year-ago quarter. The company expects earnings in the range of 48 cents -53 cents per share, up from 46 cents earned in the prior-year quarter.

Robert Half carries a Zacks Rank #4 (Sell). Better-ranked stocks worth considering in the business services sector include ManpowerGroup Inc. MAN and On Assignment Inc ASGN, both of which sport a Zacks Rank #1 (Strong Buy). Another stock worth considering in the consumer staples sector is Supervalu Inc SVU, carrying a Zacks Rank #2 (Buy).