Wednesday, January 26, 2011

Robert Half Weak Outlook?


Robert Half gave a mixed bag of results. I always believe in telling it like it is and, frankly, I think the stock will be down tomorrow. However, I don't things are as bad as the market might take them and any decline could create a decent buying opportunity. I've previously written about Robert Half here and focused on its correlation with strong employment gains in a recovery. The metrics cited in that post continue to improve.

However, in this post I want to talk about the specifics of these results.

Reported
  • Q4 Revs of $851.6m vs. $831 estimates
  • Q4 EPS of 17c vs. 16c estimates
Guidance
  • Q1 2010 Revs of $850-900m vs. $836.2m estimates
  • Q1 EPS of 13-18c vs. 18c estimates

Robert Half Q4 2009 Results

They beat handsomely on revs and income but I suspect the market isn't going to like the mid point of  Q1 guidance being below analyst estimates. Whichever way I look at it, I can't conclude otherwise. Margins look to be lower than analysts had forecast and, many of the questions on the conference call focused on the reasons for this.

Answering analysts questions on the subject of margins for Q1, the board mentioned the following
  1. State unemployment tax rates are expected to increase at the same rate in 2011 as in 2010, so a 50-75bp reduction in sequential temp gross margins for Robert Half
  2. Protiviti seasonality will result in a sequential 10% decline in revenues. This is at the midpoint of what they traditionally lose in this quarter.
Now given that, temporary and consultant staffing comprises 83.5% of operating income the forecast reduction in gross margin is significant. The Protiviti seasonality issue should be well known.


Conservative Guidance?

Robert Half estimates that State unemployment taxes will grow at the same rate as in 2010 (75bp hike) and ultimately your view on this guidance will depend upon your outlook for growth. Faster growth rates engender greater tax revenues and less need for tax hikes and they also bolster debt servicing abilities.

 I don't consider it apposite to 'second guess' Robert Half on this but merely point out the upside should the US continue on its accelerating growth path. They had this issue last year and it took them a while to recover, so perhaps they are being unduly conservative.

Moreover, looking at Robert Half guidance history for EPS (cents)...

 
Q4 2009Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011
Market Estimate567131618
Co Guidance1 to 63 to 83 to 89 to 1412 to 1813 to 18
Actual9581417
Actual/Co  %1604010010083


....suggests that they tend to be conservative. In the last row, any number above 50% indicates that the actual result was above the midpoint of guidance. Nonetheless, the Q1 2011 guidance looks light.

It is a similar story with Revenues (m)


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Q4 2009Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011
Co Guidance675 to 725725 to 775730 to 780770 to 820800 to 850850 to 900
Actual737737769.1817.3851.6
Actual/Co %124247895103


Robert Half Q1 earnings may well hit the high end of their guidance, particularly as employment gains look highly probable for the US economy, but I think the time to pick up the stock will be around then. I expect analysts to downgrade forecasts after this outlook.



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