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We reaffirm our Neutral recommendation on Robert Half International, Inc. ( RHI - Analyst Report ) following the appraisal of third quarter 2012 results. The company’s financial performances were a mixed bag with positive earnings and topline growth offset by currency translation headwinds and a tough global employment condition, particularly in Europe.
Why the Reiteration?
Robert Half has witnessed strong revenue growth in each of its business segments on the back of strong third quarter 2012 results. Earnings of 41 cents increased 32% from the year-earlier quarter. Earnings also beat the Zacks Consensus Estimate of 39 cents by 5%. Moreover, the leading global staffing and risk consulting services provider delivered positive earnings surprises in 2 of the last 4 quarters with an average beat of 3.7%. The long-term expected earnings growth rate for this stock is 17.8%.
Gross margin expanded 40 basis points to 40.2% in the quarter while operating margin increased 180 basis points to 9.1% on the back of higher gross margins, lower operating expenses and solid results of the company’s wholly-owned subsidiary, Protiviti.
Overall, we are encouraged by the company’s strong demand for specialized staffing and consulting services, particularly in the U.S. Further, the improving global economic condition has heightened the demand for the company's temporary and permanent staffing services and risk consulting and internal audit services.
Protiviti contributes majorly in driving revenue and operating growth and helps companies solve problems in finance, technology, operations, governance, risk and internal audit. The strong Protiviti performance has added to the year-over-year growth rates of U.S. staffing revenues and to the global operating income in 2012. Recently, Protiviti’s purchase of privately-held SusQtech Inc. helped to meet the growing demand for skilled workforce as well as provide its key clients with software consulting services.
However, currency headwinds and tough job scenario, particularly in Europe, resulted in soft demand for recruitment services, which keeps us on the sidelines. The company has witnessed a slowdown of permanent placement for five quarters in a row. The depleting margins faced by companies have resulted in cost saving and headcount reduction measures, which have adversely affected placement firms like Robert Half.
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