Barrett Business Services' Q1 Loss Wider than Expected - Analyst Blog

Barrett Business Services Inc. BBSI reported first-quarter 2014 loss per share of 50 cents, which was wider than the Zacks Consensus Estimate loss of 49 cents. Loss also widened from the year-ago loss of 36 cents, primarily due to higher effective payroll taxes and higher share count.

Quarter Details

Barrett reported gross revenues of $727.4 million in the first-quarter of 2014, up 23.0% from the year-ago quarter. Quarterly revenues missed the Zacks Consensus Estimate of $746.0 million. The year-over-year growth was primarily attributable to continuous increase in the company's co-employed client count as well as improvement in same-store sales.

Professional employer service fees grew 23.6% year over year to $693.9 million, primarily driven by new client additions. Revenues from Staffing Services were $33.5 million, up 12.5% from the year-ago quarter, primarily attributable to an increase in new businesses.

Barrett's gross margin decreased 13 basis points on a year over year basis to 1.3% due to higher costs. The company's operating expenses increased 21.9% from the year-ago quarter to $14.9 million, primarily due to higher incentive pay and increases in payroll expenses within selling, general and administrative expenses (SG&A). As a percentage of revenue, operating expenses remained relatively flat year over year and came in at 2.1%.

Higher-than-expected operating expenses impacted the overall operating results. Operating loss came in at $5.6 million, wider than a loss of $3.9 million in the year-ago quarter. Barrett reported net loss of $3.6 million or 50 cents compared with $2.5 million or 36 cents in the year-ago quarter.

Barrett exited the quarter with cash, cash equivalents and marketable securities of approximately $97.3 million compared with $113.3 million in the previous quarter. Long-term debt balance (including current portion) was $5.2 million compared with $5.3 million in the previous quarter.

Guidance

For the second-quarter of 2014, Barrett expects gross revenue to increase 15.0% on a year over year basis and range between $780.0 million and $800.0 million, up from $675.0 million reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at $837.0 million. Management expects second-quarter 2014 earnings per share to range between 93 cents to 98 cents, up from 80 cents reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at $1.01 per share.

Our Take

Barrett reported dismal first-quarter results and provided a tepid second quarter guidance. Loss per share widened from the year-ago quarter but revenues increased on a year over year basis. Revenues were positively impacted by solid client growth. Despite the continuing macro uncertainty, Barrett expects strong business pipeline and a healthy client base in the future. However, higher effective payroll taxes negatively impacted Barrett's bottom line in the current quarter.  

Nonetheless, we prefer to wait and see whether the company's continued investments in operational infrastructure improvements rationalize margins in the near term. Moreover, growing competition from Paychex, Inc. PAYX and Insperity, Inc. NSP remains a headwind going forward.

Currently, Barrett has a Zacks Rank #3 (Hold). Western Digital Corporation WDC is a better-ranked technology stock carrying a Zacks Rank #1 (Strong Buy).