Staffing specialist Robert Half International delivered a solid set of third-quarter earnings, with management making positive noises about future growth prospects. Indeed, they clearly believe that more growth is coming, because the hiring company is itself hiring in order to capitalize on hot areas in the recruitment market. Time to look more closely at the results.
Robert Half International results: The raw numbersThird-quarter net service revenue grew 7.2% compared to the same period last year, although the revenue figure of $1.313 billion fell slightly below the midpoint of management's previous guidance range of $1.295 billion to $1.345 billion.
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Meanwhile, earnings per share came in at $0.73 in the quarter, nearly 16% compared to the same period last year, and in line with the guidance range of $0.70 to $0.75.
What happened with Robert Half International this quarter The staffing company is known for being operationally geared to the economy at large. When the economy is firing and job candidates are in demand, staffing companies will see margins expand dramatically; the reverse is true in a slowdown. The following chart demonstrates the dynamic clearly:
However, in the previous quarter, management outlined plans to increase hiring on "a pretty broad basis" in order to chase growth, and suggested that in the near term, margin growth would be held back: "On a year-over-year basis you're not going to see a lot of operating leverage at the SG&A line."
As such, selling, general and administrative expenses increased 6.5% in the quarter. It wasn't enough to hold back overall operating margin expansion to 12.1% from 11.3% in the same quarter last year. However, I note that temporary and consultant staffing -- which generates around 70% of operating income -- margin grew only slightly, to 10.3% from 10.2% in the same period last year.
What management had to sayListening in on the earnings call, it's clear that management remains positive in its outlook, with CEO Harold Messmer outlining "healthy demand for our services across the board." Moreover, Messmer indicated the company would continue hiring in the fourth quarter in expectation of growth. Interestingly, he outlined that in the first quarter, "headcount additions would be more targeted to technology and permanent placement."
The technology sector is an area where management sees good growth prospects -- all of which is good news for a tech-focused staffing company like On Assignment.
On a more negative note, CFO Keith Waddell noted that growth decelerated during the course of the quarter. "We exited with September growing at 7% as compared to 8% for the full quarter." A quick look at revenue growth rates across its businesses confirms that three out of four of its staffing activities saw a sequential deceleration in revenue growth rate:
Data source: Robert Half International presentations. Revenue growth rate on a non-GAAP rate, same billing days, and constant currency basis.
Looking forwardAll told, it was a solid enough earnings report, but investors will want to see future growth in order to justify the extra head count being taken on board -- investors need to keep an eye on margins in the next couple of quarters.
Ultimately, the company's fortunes will always be tied to the cyclicality of the economy and employment markets, so any sign of a slowdown in its core U.S. and Europe markets will not be well received. However, according to the earnings report and management commentary, conditions remain favorable for growth.
The article Robert Half International Continues to Invest for Growth originally appeared on Fool.com.
Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Robert Half International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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