Robert Half RHI Q1 2010 Earnings

Robert Half International (RHI) reported Q1 2010 earnings. Robert Half International reportedly missed earnings of .05 vs. analyst estimates of .06.

Revenue was also light of estimates. Q1 2010 revenue $737.2M vs. analyst consensus of $750.76M. Robert Half International although it sustained through the down draft of the financial crisis continues to face slack demand in all components of the company.

When valuations have risen as fast as they have, and demand has been lukewarm from the cyclical bottom, these temporary, and staffing firms continue to produce fairly weak margins.

I continue to see this sector as overvalued relative to the S&P's earnings.

Robert Half Q4 2009 Earnings

As expected Robert Half (RHI) continues its commitment towards expense management.

Robert Half beat estimates by .04 and revenue of $737.4 million vs. $703.6 million.

However revenue is still down 25+% year over year. It sees Q1 2010 earnings at .03 - .08 vs. .06. While it sees revenue at 725 mil - 775 mil vs. 715.6 mil.

Overall Robert Half continues to manage its expenses far better than its much larger competitors such as Manpower (MAN) which continues to hemorrhage in debt. I will be interested in when Robert Half will be looking to expand its operations.

One point to note is that Robert Half's margins look a bit muted. This continues to be an area to focus on. If the economy continues to expand, Robert Half will look fairly attractive due to its favorable cost and debt management.

Citigroup upgrades Manpower Staffing and Robert Half Staffing Jan 06 2010

SP500 P/E Ratio

"Citigroup analyst Ashwin Shirvaikar issued a bullish note on the staffing sector early Wednesday, raising ratings on Robert Half International Inc. and Manpower Inc. to buy from hold. He cited "improving signs in the temporary employment sector over the past several months" as well as "optimism on the long-term secular trends in the staffing market" for the moves."

Interesting call by Citigroup Research this morning. I agree that layoffs are steady declining with the latest data. However I am still cautious that valuations have gotten ahead of itself. I'm more concerned with the valuations as pointed out in prior posts of Manpower.

• - Manpower continues to trade at a very rich premium at 1.78 P/B. A price to book near one means value. Clearly the market and speculation from analyst believe that Manpower will return to its glory days such as the Citigroup's analyst boosting its price target to 69. As seen in the price chart MAN is trading above it normalized trading range. MAN has traded well above the growth period during expansion, besides the recent credit induced bubble in 2007. The analyst clearly believes that the economy will produce jobs at such a torrid pace that valuations will be fair. I think we have to remember that permanent jobs provide higher margins. Temporary positions do not provide the valuations that would prop up multiplies of close to 90+x earnings.
  
• - Manpower is trading at a clip of 90+x current p/e, 83x this year's earnings, and 52x next year's earnings. Compared to the SP500 and Nasdaq p/e ratio, Manpower (MAN) is significantly overvalued.
  
• - Revenue continues to be in a significant decline from its high of 2007. While debt levels have continued to rise. For this one reason alone I am a bit more positive on Robert Half (RHI) due to its very minimal debt. Any future shocks in the economy will hurt Manpower's cash flow, and cause another possible downgrade in its credit rating.
  
• - Challenges remain with health reform, higher taxes, quantitative easing of liquidity later this year will continue to crimp hiring by small businesses which produce well over 80% of the jobs in the US.
  
• - Manpower's largest market France has stated that they are looking to reduce their debt levels to the EU standard. The stimulus package that they have provided has provided a slight uptick in their GDP. However challenges remain with the continued contraction in the European markets, especially Eastern Europe.

And last but not least Manpower did warn during their 3Q conference call
that they have warned for their 4Q. Irrational exuberance continues in this
market while actual demand from consumers, and tight and inefficient credit
markets persist.

Manpower Robert Half Valuation

• For the past week there has been bullish sentiment again in the human resource, temp space.

Robert Half International (RHI) received upgrades and revisions to their expectations.

While Manpower (MAN) received an upgrade from Banc of America ML.

I'm a bit more cautious on the space especially with the run up for this past year. Although there has been an improvement in jobs lost; there continues to be an underlying problem in the global economy.

This growth has been fueled by government stimulus and not so much private sector demand. And the growth has been muted by recovery standards. The US for example revised their GDP growth for the 3Q down to 2.2%.

While employment survey after survey still speak to weak to flat growth for Q1 of 2010.

• Valuation alone I would avoid the space till there is more clarity that there will not be a double dip recession. With commercial mortgage and ARMS, debt, and continued restrained spending by the consumer, and depressed wage growth there will be significant challenges abound to job creation.

• Higher taxes in 2010 will be a certainty in the US. And that will depress consumer demand. The risk that this will further depress job creation with demand as slack as it is.

• Valuations have run up to the point where these human resource stocks must meet or blow out its numbers. Take for example Manpower (MAN). I have pointed out MAN due to its lofty valuations in comparison with its competitors.

1. Trading at close to 90x p/e, and on a normalized base close to 60x earnings. And this considering that they have had earnings that have declined with the growth implosion of 2007. I normally track the technology sector where growth is more attractive. Manpower is trading at multiple that are present for a technology company. Unfortunate the last growth that MAN has seen was back in 2007.

Staffing Valuations Manpower MAN Kelly Services KELYA Robert Half RHI

So I was looking at the valuations of staffing firms after the recent run up, and with the 3rd quarter results having been reported.

Please do your own research on the following equities.

Points taken that seems surprising amid the still weak conditions for hiring.

• Among the competition only three had positive earnings, this includes:

1. ComForce (CFS)


2. Manpower (MAN)


3. Robert Half International (RHI)

• Manpower (MAN) and Robert Half International (RHI) are trading at a significant premium to its enterprise value.

• RHI has looked more favorable during its recent quarter. As the data above states they have managed their long term debt levels, and actually have a positive return on assets & equity.

• MAN has continued to look like a balloon that is about to pop. On all metrics its stock has looked expensive. Trading on 86x earnings, market cap that exceed its enterprise value, heavy debt levels compared to its assets and equity, negative return on assets and equity. Margins also look weak compared to the rest of the sector.

As stated in prior posts the staffing sector continues to look fairly rich. RHI looks mildly attractive due to its cost control. While MAN still looks exceedingly rich in its valuations. It is trading as if it is a tech stock without the growth nor the cost control of its peers.

Feel free to chime in to create a discussion.

Robert Half International Q3 09

Robert Half International reported .02 better than First Call consensus of .04 estimate. Revenue fell year o/ year 37.4% to 725.9 million which was light of the $729.3 million consensus.

"While the global business environment during the third quarter remained challenging, year-over-year revenue declines in our staffing operations continued to moderate and, on a sequential basis, we saw some improvement in revenues in September."

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My take on RHI is that they did a remarkable job of cost cutting, and continues to operate with what they got. They don't have any plans to add space, thus they have controlled their debt at remarkable levels. 

The take from the conference call is that they see business for the most part stabilizing. Although, it is too early to tell if this will be more then a mild up tick.

Margins have been affected mildly, while they are able to grow near their top line revenue.

Perm employment has also been better then expected, although this is a highly variable space.

I wouldn't invest in RHI till there is more stabilizing, although I do find that their business is mildly attractive due to the very low debt, and very good cost controls.

Sept 2009 Unemployment Numbers

Pretty bleak numbers came out this past Friday.

263,000 jobs lost vs. estimate of 175,000

Job losses up to 7.2 million

While the unemployment rate edged up to 9.8%

785,000 had stated that they were not working through a household study, rather then employer study.

U-6 rises from 16.8% to 17%. A clear tale that businesses continue to generate weak business growth for their products and services. The U-6 includes part-timers who want  full-time work but can't find one.

Weekly hours ticked down from 33.1 to 33.0. This continues to be a weak number especially when employers tend to add hours to current employees rather then hire temporary workers at the first sign of an improving economy. Staffing firms such as Robert Half, Manpower have said they see some regions stabilize. However, most regions continue to be weak in growth. I will touch on the point that certain stocks in this sector continue to be richly and overly priced.

52% of Unemployment Benefits Expired

With the recent US government data from the source below over half of those that qualify for unemployment has there benefits expired. There continues to be significant weakness in the labour markets. Although, there has been a slight rebound in jobs lost jobs are not created at the level that leads to growth. Presently there are two million college educated graduates unable to attain jobs, let alone the countless numbers with experience and skills who continue to face grave job market conditions. Once this stimulus works itself through the system and does not create the types of sustainable job growth look for this economy to continue to trend down. 

Source: http://ows.doleta.gov/unemploy/claimssum.asp

Weekly Jobless Claims Down, Continuing Claims Rise

The Labor Department has come out with its weekly jobless claims, and we are current faced with a very weak market for job growth. Numbers were down 12,000 revised to 545,000. The consensus was 575,000, while the prior figure last week was 550,000 on an unrevised basis and went up to 557,000.

The four week average fell by 8,750 to 563,000.  Continuing claims for the unemployed continues to rise, the figures rose by 129,000 to 6.23 million.  The figures from the prior week would have rose even more if Labour Day wasn't present.

1 out of 10 are out of work on a official figure basis, while 1 out of 10 are either working part-time or under employed. Weekly jobless figures have to be down to 400,000 to see a healthy economy develop.

Temp Hiring Falters Again

"Job losses in August were widespread, but Joe LaVorgna, chief U.S. chief economist at Deutsche Bank noticed concerning trends in temporary employment, as well as factory hours.

LaVorgna noted that while job cuts were spread through different segments of the economy, Temp hiring, a typical leading indicator of permanent hiring, dropped by 7,000 marking the 19th consecutive monthly decline.

For some time now the recovery has been expected to be led by business, as the U.S. consumer struggles with job security, diminished personal wealth and tight credit. Though the rate of job cuts is abating, the unemployment rate is expected to remain elevated through the first half of 2010. This is worrisome for Main Street, Wall Street and Washington as each have a keen interest in seeing Americans going back to work, off government benefits, and fully able to pay bills and consuming again."

Source: Forbes

Ira Schnell at Kaufman Bros. "Morning Note"

After showing some cracks in the foundation over the last few days, I got the sense yesterday that people were content to look for further evidence of a breakdown before they need to start kicking out their longs and/or laying the shorts out again….Almost like everyone was waiting around looking for someone else to make the first move…Certainly cant blame institutional or retail investors for acting this way, because over the last few months, if you sold after initial cracks in the foundation formed, you got very burned.

Combine that with the fact Labor Day is fast approaching, and maybe we get a pause here before the next move (unless Friday’s non farm payroll # is way off consensus, in either direction)…And after virtually 6 months of equities going straight up, I don’t think you can discount the fact that even if they are going to unwind this thing, you might get one last sucker rally right back through 1010 to 1020, before they finally hit this thing through 970 to 980….I talked yesterday about the key role plain vanilla long only funds will ultimately play in dictating price action if selling momentum increases as we roll into 4Q09 (will they buy on the way down or turn sellers?)…Wanted to throw out one more piece of the puzzle…Short sellers have been taken out on stretchers for months now….I know most have been burned to the point that they would rather short only on weakness than try to top tick this market and run the risk of getting steamrolled (again).

So my point here is if the snowball starts to roll down the hill with regard to sell momentum, and the shorts get in motion, what are there expectations for that trade?.....It seems to me that when you get smoked repeatedly with the same strategy, and that strategy finally starts to work, it is human nature to close out the trade too early and lock in your profit, because you just want to right (I am certainly guilty of that on a personal level)…

And not sure that is all that atypical…So what am I saying here?...I think if this market does come off, short covering should come into play maybe a bit earlier than it would normally, thus stemming the down move (at least initially)….Combine that with a 6 month uptrend which has been firmly entrenched, and I think you could certainly make the case the above scenario might take place…

Although it appears that most of the heavy bleeding in the unemployment picture in the US is behind us, the #’s just don’t paint any kind of picture the biggest problem plaguing this economy has abated…The ADP # yesterday still demonstrates that people are losing their jobs at a pretty healthy clip…And the other huge missing piece of the puzzle (the actual hiring of people) still seems like it is very far away….In fact, I saw something the other day that illustrates this point pretty well…The Robert Half Financial Hiring Index says that 84% of CFOs surveyed have no plans on hiring for the rest of 2009….4% expect to add staff, and 10% see more cutbacks (actually up from 8% from the last survey)….Look out for initial claims out @ 8:30 (consensus is 565k, and consensus for continuous claims is 6.125mil), followed by the ISM non manufacturing out @ 10:00 (consensus is 48).

Source: Kaufman Bros.

Adecco post lost second quarter

"Aug. 11 -- Adecco SA, the world’s largest supplier of temporary workers, reported a surprise second- quarter loss.

Adecco’s net loss was 147 million euros ($208 million), as it took 246 million euros in charges for impaired goodwill and job cuts, the Glattbrugg, Switzerland-based company said in a statement today. Analysts surveyed by Bloomberg had predicted net income of 32.8 million euros. Sales fell 31 percent to 3.6 billion euros in the quarter."

Source: Bloomberg

The numbers continue to be quite weak for the recruiting industry with no near term growth. Some pockets of strength and stablization, but that does not mean that growth is coming back. Especially, when many of these jobs are turning to in house recruiting.

Say for example the financial uptick in hiring. Although there is an uptick this does not mean that there is a continued longer term trend in hiring, just selective and longer term outlook for hiring.

Structural Unemployment Worsens.

The number of people who've been out of work longer than six months soared by a record 584,000 to 5 million, accounting for more than a third of all unemployment for the first time on record.

This is an interesting situation. The unemployment rate ticked down, but that is discounting a large number of job seekers removed from the overall data. This removed about .2% to the overall unemployment rate. So although there was slight improvement in job losses, there continues to be elavated state of job losses.

Another problem is the number of hours worked. The average reported on Thursday is 33.1, a tick up of 400,000+ jobs. However the United States is still running at very low historical hourly work rates. This will lead to reduced spending, and cause retailers to hire as few workers as needed. This continued slow pace of added jobs will limit the amount of hiring that the private sector will employ.

Jobs data propel staffing stocks, risks remain

"Tig Gilliam, who heads North American operations for global staffing giant Adecco SA, said the industrial part of the temporary labor market normally rebounds strongly at the end of recessions, but he has not yet seen evidence of that.

Jobs associated with the physical supply chain will recover as inventories get run down and need to be restocked, Gilliam said, but he added:

"The only place we're seeing the reaction you'd expect there is in automotive, and what scares me is that's artificial. (The) cash-for-clunkers program accelerated demand in that segment."

Source: Reuters

Manpower debt rating under review

"NEW YORK (AP) -- Moody's Investors Service on Monday placed the Baa2 long-term debt rating of Manpower Inc. under review for possible downgrade, saying the staffing company's credit could be weakened by declining profitability and revenue.

Moody's rating outlook on Manpower has been negative since March 9.

Moody's said it expects "sharp year-over-year declines in revenue and profitability during the remainder of 2009, leading to substantial erosion" in Manpower's leverage and credit strength.

In addition, Moody's said it expects labor market conditions will remain difficult in key markets in Western Europe in 2010.

"Accordingly, a rapid rebound in demand for temporary and permanent recruitment services is unlikely in the near term," the ratings agency said.

Manpower did not immediately return a call seeking comment."

I am not surprised at this. Manpower has been trying to expand globally, and has a very large headcount to content with. I've been voicing my opinion that they do need to reduce headcount amid the large decline in their revenue. On a price to sales valuation they seem cheap, however as the revenue continues to decline this will begin to change.

• They still have valuation of over 65x earnings. vs. 26.27x for its peer group.
• Price to Projected Earnings are at 38.32 vs. 65.99 for the peer group. Manpower is trading at a heavy preminum compared to its peers.
• Earnings growth is -86.50% vs. peers at -53.30%. Again, man has been getting slammed hard on its decline in revenue.
• Sales growth is -20.33 vs. -0.81 for its peers. With both earnings and sales at such a steep decline it makes one wonder why this is trading at such a premium to its peers.
  And a very high PEG ratio.
  
  This debt matter doesn't help their cause as they will need to micro manage their cash flow to par down this debt. Although, it is not a near term cause for concern, it doesn't help their valuation to be carrying such high levels of debt (13.2% long term debt), amid their declining revenue.
  
  I would avoid MAN at this time, and take a look at RHI if you are worried about Manpower's debt level. RHI has under two million dollars in debt and holds over three hundred sixty million in cash. Until Manpower takes a very proactive approach to slashing headcount, and force retirement on a global scale, Manpower continues to look overvalued to its peers.

According to some price projections low 40's should be a preminum to it's high 20's to low 30's book value.

Randstad Earnings

"AMSTERDAM (AP) -- Randstad NV, the world's second-largest temporary staffing services company, said Tuesday second quarter profit fell 89 percent as many companies are looking to cut expenses and reduce staff during the downturn.

Net profit was euro10 million ($14.2 million), down from euro94.1 million a year ago. Sales fell 33 percent to euro2.99 billion.

The year-ago figures were reported as if Randstad had owned Vedior NV -- which it acquired for euro3.5 billion in May 2008 -- for the whole second quarter in both years.

The Vedior buy made Randstad the second largest staffing company behind Adecco SA of Switzerland and ahead of Manpower Inc. of the U.S.

"The U.S. staffing ... as well as our main European markets clearly show some stabilization" when compared with the first quarter of 2009, Chief Executive Ben Noteboom said in a statement.

But demand for high-cost professional workers was weak and "on balance it is too early to declare a beginning of recovery," he said."

Source: http://finance.yahoo.com/news/Randstad-profit-down-89-apf-2922398890.html?x=0&.v=2

Cost cutting continues to be profound. And as I said it is too early in prior earnings announcements by Randstad's competitors such as Manpower, and Adecco, and Robert Half International that a possible double bottom may be present in this economy. We may enter a period of stablization then another down cycle as this stimulus wears off. There has already been calls for another round of stimulus. This not only increases the risk of inflation, and further strain in governmental budgets.

So I continue to be bearish in employment till credit markets become more open to small businesses which generate most of the tax revenue for the economy. Thus creates additional spending and adds to the workforce. At this time there is a limited need for companies such as Randstad, Manpower and Adecco, and Robert Half International especially for higher end workforce.

It Isn't Always a Job Behind an Online Job Posting

"If you're launching an online job hunt for the first time in a while; take caution. What may look like an ad for employment may lead to something entirely different, like a hard sell for career services or job-training manuals. Or worse, it might be a plan by identity thieves to get you to share sensitive personal information via "phishing" expeditions. Some of the job postings -- sometimes for positions long filled -- also could be from recruiting agencies looking to collect résumés.

The problem of job postings that aren't what they seem is adding to the frustrations of the more than two million recently laid-off workers who are competing for an increasingly limited number of jobs. The good news is that there are several tip-offs that indicate an ad is likely to lead you down the wrong path. And as long as you don't give out any private data, getting duped into responding to a fruitless job ad will likely only cost you time and energy."

Source: http://online.wsj.com/article/SB123483686491196353.html

Robert Half International Earnings Q2 2009

So from AP Robert Half announced earnings.

"second-quarter profit dropped 93 percent as unemployment jumped amid the recession"

"For the period ended June 30, the company posted net income after paying preferred dividends of $4.8 million, or 3 cents per share, compared with $72.3 million, or 47 cents per share, in the year-ago period.

Revenue fell 39 percent to $749.9 million from $1.22 billion.

Analysts polled by Thomson Reuters expected, on average, earnings of 3 cents per share on slightly higher revenue of $755.4 million."

"Robert Half's revenue comes mainly from fees it charges for staffing consulting and services."

"Messmer (chairman and CEO), though, said he was encouraged that "sequential declines (in employment numbers) were significantly less than those reported in the previous quarters.""

Quote to take from their Q & A session:

"Keith Waddell

I guess we would say, outside the US, in the UK and Canada, the pace of the declines has improved. Continental Europe and Asia, the pace of the declines is either the same or worse. When you put them all together, the sequential decline outside the US for this past quarter was about the same as it was the prior quarter, although the components were different.

So, clearly Continental Europe and Asia were later to the game. But that being said; they've clearly caught the same cold that the US had, and are later in the results they are reporting and their impact of the downturn. So, the stabilization trends, may frankly when we talk about eight weeks of stable, that is consolidated and US has actually improved a little bit to offset the decline outside the US."



Yet there is still a decline in revenue. This has not been any different from technology companies reporting a decline in their revenue. What is a catalyst for growth? The stimulus? Rebound in the capital markets?

The main problem is that consumer demand continues to decline. Those with jobs are reluctant to spend. Those without are saving their walnuts for another season or possibly year. There has been a fundamental shift in the consumer which is a large component of the United States economy, which other economies around the world also become affected. Just as companies are trying to save money and invest in R&D most companies still do not see an upturn in the near future. A jobless recovery happened after the dot.com implosion, how is this any different.

Revenues will continue to be light especially in the human resources sector. Besides consumer spending small business are indirectly affected by this downturn. Without the capital and the resources to grow their business so does the need for services from a large recruitment agency. Why pay X amount of dollars when X recruitment agency is able to undercut them with the same service offerings. This becomes a low margin business with human capital turning from an asset to a liability. Companies with scale such as Manpower needs to continue to contain cost through reduction in headcount, and invest more in technology.

Trends such as contracting seem to be growing through off base online vendors. Recruitment agencies have no control over this increase in independent contracting.

Tomorrow is MAN's earnings, lets wait and see if this becomes gloom and doom or is there a silver lining in the horizon.