Robert Half's Q3 Guidance Tests the Strength of Its Staffing Rebound

Robert Half Inc. RHI enters the third quarter with guidance that puts its staffing rebound in focus. Management expects revenues of $1.31 billion to $1.41 billion and adjusted earnings of 43 cents to 53 cents per share.

Our Zacks Consensus Estimate for revenue for the third quarter is $1.36 billion, up marginally year over year. For EPS, the consensus estimate is pinned at 47 cents, increasing 9.3% year over year.

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At the midpoint, adjusted Talent Solutions revenues are expected to grow about 3% year over year, while Protiviti revenues are projected to decline about 6%. The quarter will test whether improving hiring activity can offset continued consulting softness.

Robert Half's Q3 Guidance Puts Talent in Focus

Talent Solutions generated $865.4 million in second-quarter revenues, down 1% year over year on a reported basis. Management's third-quarter midpoint assumes a return to year-over-year growth for the business.

The company expects adjusted Talent Solutions revenue growth of 1% to 5% in the third quarter. Midpoint total revenues of $1.36 billion would be flat year over year on an adjusted basis, putting Talent Solutions at the center of the expected improvement.

RHI's Talent Solutions Recovery Is Broadening

Permanent Placement Talent Solutions revenues increased 2.9% to $118 million in the second quarter. Talent Solutions also delivered its third consecutive quarter of sequential revenue growth on an adjusted basis, while Technology was the strongest contract practice with adjusted growth of 2.3%.

ManpowerGroup Inc. MAN reported improving demand and trends across parts of its portfolio in the second quarter. Kelly Services, Inc. KELYA, a specialty talent solutions provider, said its second-quarter year-over-year revenue decline improved from the first quarter, adding context to the staffing recovery.

Robert Half's Protiviti Weakness Remains a Drag

Protiviti revenues declined 4.9% to $471 million in the second quarter. Management expects about a 6% decline at the midpoint of third-quarter guidance as shifts in the U.S. financial services regulatory environment pressure activity.

The engagement mix is changing, with fewer large regulatory remediation projects and more work tied to efficiency, productivity and advanced technologies. Protiviti recorded $7 million of severance costs in the second quarter, with restructuring actions expected to generate $45 million in annualized savings.

RHI's Margin Mix Makes Execution Critical

Talent Solutions gross margin improved to 47.4% from 47.1% a year earlier, while Contract Talent Solutions held its gross margin at 39.1%. Contract bill rates increased 2.3% year over year, helping preserve spreads despite lower volumes.

Protiviti's adjusted gross margin fell to 18.5% from 22.3%. Third-quarter guidance calls for adjusted gross margin of 23% to 25% and adjusted operating margin of 6% to 8% at Protiviti, making execution important as the segment absorbs a different project mix.

Robert Half's July Trends Offer an Early Read

Adjusted Contract Talent Solutions revenues were down 1% in the first two weeks of July, compared with a 2% decline in June. Permanent Placement revenues increased 4% during the first three weeks of July, matching June's growth rate.

Management cautioned that these are very brief periods. Even so, they provide an early benchmark for whether improving client activity can persist long enough to support the third-quarter Talent Solutions growth outlook.

RHI's Signals Keep the Outlook Balanced

The third quarter is a test of operating mix. Talent Solutions needs to sustain its recovery while Protiviti works through regulatory-driven pressure and rebuilds margins.

RHI currently carries a Zacks Rank #4 (Sell), a Value Score of B, Growth Score of C, Momentum Score of F and VGM Score of C.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Value Score is a relative positive, but the weak Momentum Score and middle-range Growth and VGM Scores temper the picture. The Zacks Style Scores complement rather than override the Zacks Rank, which points to an unfavorable near-term earnings-estimate revision trend.

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