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Robert Half Down 5% Post Earnings: What's Hurting the Stock?

Robert Half International Inc.’s RHI performance has been dismal of late owing to sluggish hiring activity in the U.S. and soft results from the Protiviti segment. The stock has declined 5.3% since the company released its second-quarter results on Jul 25. In fact, shares of the company have also underperformed the industry over the past six months. In the said time frame, shares of Robert Half have fallen 5% compared to the industry’s growth of 1.9%.

Let’s delve deeper and try to find out what’s taking this Zacks Rank #4 (Sell) company downhill.

Q2 Earnings Fail to Impress

Robert Half reported dismal second-quarter 2017 results, wherein earnings of 64 cents per share missed the Zacks Consensus Estimate by a penny. Reported earnings 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 for the second quarter came in line with the Zacks Consensus Estimate, but slipped 2.7% year over year. The decline can be attributed to murky performance witnessed at its staffing businesses as well as in the Protiviti segment. We note that the company’s revenues missed the Zacks Consensus Estimate in four out of the trailing five quarters, which includes the recently reported one.

Weak Hiring Trend and Shrinking Margin at Protiviti

Despite a stable U.S. economic environment and a stronger job market, the hiring cycle remains stagnant as employers are taking more time to make hiring decisions. This has been affecting the company’s profits. U.S. revenues fell 4.3% from the prior-year quarter in the global staffing division.

The company has also been witnessing shrinking margins at Protiviti since the beginning of the year 2016. This is due to lower gross margins and a lesser number of higher margin clients. Second-quarter gross margin for Protiviti declined 140 basis points to 26.7%. Lower margins have been severely impacting the company’s profits.

Other Headwinds

The company is expected to incur higher employee related costs in the near term owing to reforms in The Affordable Care Act. Robert Half has redesigned its employee benefits related health plans, which may significantly increase the expenses of the company’s temporary staffing operations. Additionally, the company still witnesses sluggishness in the European market, owing to economic disruptions in the region.

Bottom Line

Considering rising demand for professional staffing services internationally, Robert Half has been investing heavily in software initiatives and technology infrastructure to improve their offerings. However, these efforts are yet to have a significant positive impact on the company’s performance. Further, the Zacks Consensus Estimate for the third quarter has declined by 3 cents to 69 cents in the past seven days, depicting a 2.4% fall from the year-ago earnings. Such factors indicate that the stock is not favorable currently.

Still Interested in the Space? Check These Stocks

Investors may consider better-ranked stocks from the same sector. Some of these are ManpowerGroup MAN and Healthcare Services Group, Inc. HCSG, both flaunting a Zacks Rank #1 (Strong Buy), and Gartner, Inc. IT, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ManpowerGroup has an average positive earnings surprise of 4.5% for the past four quarters and a long-term earnings growth rate of 12%.

Gartner has an average positive earnings surprise of 4.6% % for the past four quarters and 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. Its long-term earnings growth rate is 14.5%.

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Robert Half International Inc. (RHI): Free Stock Analysis Report
 
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