Robert Half’s first-quarter results reflected continuing pressure in the European economic environment as weakened hiring trends negatively impacted both temporary and permanent staffing in the region. Net service revenues grew just shy of 1% to $1.02 billion, as revenue deceleration in both U.S. staffing segments did little to offset European softness.
Even excluding the impact of fewer billing days in the quarter, the U.S. staffing segments combined would have achieved revenue growth of only 6.3%, markedly less than the 19.7% reported in first-quarter 2012 on a sameday basis. In contrast, Protiviti had a great quarter, managing to grow revenues nearly 13.5% year over year to $116.9 million. However, the segment’s small size relative to the rest of organization constrained the overall magnitude of its success on consolidated results.
Operating margins improved 80 basis points to 8.7% as the company kept tight control over costs throughout the organization in response to sluggish hiring trends, which led to gross margin improvements across segments. In addition, management reported increased demand for skilled technology workers, which tend to generate longer, higher-margin projects in temporary staffing. Most notably, Protiviti’s operating margin expanded to 3.2% from negative 2.3% as the segment’s efforts at controlling costs and cross-sourcing talent through Robert Half’s temporary staffing segments finally gained traction.
While revenue deceleration in the U.S. may appear surprising given the relative strength of the U.S. economy, employment levels have yet to reach full recovery mode. In our view, narrow-moat Robert Half has one of the best networks in the staffing industry, which helps it weather short-term blips in hiring demand. We will revise our near-term estimates to reflect management’s current guidance; however, our long-term thesis remains intact and we plan to leave our fair value estimate unchanged.
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