After posting back-to-back negative top and bottom-line surprises, Robert Half International Inc.RHI came out with solid fourth-quarter 2017 results, wherein both top and bottom lines improved year over year and came ahead of the Zacks Consensus Estimate.
While investors didn’t react much to the earnings, this Zacks Rank #1 (Strong Buy) stock has surpassed the industry in the past three months. Shares of Robert Half rallied 11.3% in the said time frame, in comparison with the industry ‘s growth of 10.8%.
Let’s Delve Deep
Robert Half’s adjusted earnings of 65 cents per share beat the Zacks Consensus Estimate of 63 cents, and grew 6.6% year over year. The bottom line excludes an estimated one-time cash charge of about 27 cents per share on provision for income taxes associated with the recently implemented Tax Cuts and Jobs Act (“TJCA”).
Well, this management had already projected such charges in a range of 27-31 cents a share, when it released updates of the recent tax reforms on its business operations in December 2017.Including the one-time charges, earnings slumped 37.7% to 38 cents per share.
Robert Half’s total revenues of $1,346.3 million advanced 6.4% year over year, and cruised ahead of the Zacks Consensus Estimate of $1,311.8 million. Moreover, the top line came toward the higher end of management’s guided range $1,287-$1,347 million.
Notably revenues were backed by broad-based growth, with both staffing and Protiviti witnessing improved sales, while permanent placement division was the outperformer. Also, the company delivered higher sales across U.S. and non-U.S regions. On a constant currency basis, revenues jumped nearly 5% year over year.
The company recorded gross profit of $553.1 million in the quarter, which grew 6.5% year over year. Further, the gross margin expanded by 10 basis points (bps) to 41.1%, mainly due to lower staffing margins. Further, Robert Half reported operating income of $128.8 million, compared with the year-ago period figure of $124.7 million. However, the operating margin contracted 30 bps to 9.6%.
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 Risk Consulting and Internal Audit Services are reported under the Protiviti division.
Global Staffing Division: Global Staffing revenues rose5% on a constant currency basis to approximately $1,132 million. Constant currency international revenues surged 15% to $269 million, whereas U.S. revenues climbed 2% from the prior-year quarter to $863 million. Currency had a positive impact of about 1.6% on reported staffing revenue growth. Fourth-quarter 2017 had 61.3 billing days, compared with 61.4 billing days in fourth-quarter 2016.
Gross margin at the segment fell 30 bps to 43.2%. Management stated that it currently has 323 staffing locations, with 83 locations situated outside the United States.
Protiviti: Protiviti revenues were $214 million, which improved about 6% (on a constant currency basis), with strength across both the U.S. and non U.S. regions. U.S. revenues at the segment grew 2% to $173 million, whereas revenues from international regions surged 23% to $41 million (on a constant currency basis). Currency boosted overall revenue growth at the segment by roughly 1%.
Further, gross margin for the segment expanded 70 bps to 30%. Management stated that this segment (along with its independently-owned Member Firms) has a network of 76 locations across 26 countries.
Robert Half ended the year with cash and cash equivalents of $294.8 million compared with $260.2 million in the prior-year period. Additionally, cash flow from operations was $65 million and capital expenditures were nearly $12 million in the fourth quarter.
In the fourth quarter, Robert Half bought back 1.1 million shares for $59 million. There are approximately 2.3 million shares available for buyback under the stock repurchase program.
Also, it paid a quarterly cash dividend of 24 cents per share for a total cash outlay of $30 million.
The Road Ahead: Q1 Forecasts
Management remains impressed with the broad-based growth witnessed in the fourth quarter. Also, given the lower unemployment levels, the labor market remains tightened. This in turn leads to lack of talented personnel in some fields, which increases the demand for Robert Half’s services. Notably, management gave an insight into the overall trends so far.
Temporary and consulting staffing revenues grew 3.3% in the first two weeks of January, somewhat affected by the recent East Coast storms. For the first three weeks of January, revenues from permanent placement division advanced 11.9% year over year. Additionally, the company remains focused on investing in technology innovations to better serve customers.
That said, Robert Half issued its earnings and sales guidance for first-quarter 2018. The company expects revenues in the range of $1,335-$1,395 million for the said quarter. In addition, it projects earnings in the range of 70-76 cents per share. Encouragingly, the mid-point of these projections reflects year-over-year top-line (constant currency) and bottom-line growth of 4.2% and 18%, respectively.
The Zacks Consensus Estimate for earnings for the first quarter is currently pegged at 69 cents, which is likely to witness upward revisions.
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