EUR 850.00 For Business Accounts Only

Morningstar | Robert Half’s 1Q Results In Line With Our Expectations; Maintaining Our $71 FVE

Narrow-moat-rated Robert Half had a solid first quarter, as the company continues to benefit from a tight global labor market. We maintain our $71 fair value estimate, as results were in line with our expectations. Robert Half reported $1.47 billion of revenue for the quarter, with top-line growth up 5.2% year over year from last year's first quarter. The stock suffered a negative reaction to the firm’s first quarter, likely over a slowing international market. The sluggish macro environment in Europe is likely adding to fears of continued low- to mid-single-digit revenue growth in the international market. We disagree with market’s negative assessment, as we do not see headcount growth slowing in the near term and expect headcount growth to stay in line with top-line growth.

Despite slowing results in Europe, Robert Half's bill-pay spreads and temp-to-hire conversion fees marched higher in the quarter, underpinned by talent shortages across numerous end markets. Bill rates (what Robert Half bills its clients) were up 5.7% in the quarter compared with an increase of 5.2% in the fourth quarter. The increasing bill-pay spread illustrates Robert Half’s ability to charge higher bill rates in the midst of a tight labor environment. This is further evidenced by the company’s consistent record of beating out competitors by quickly tapping into its large network of candidates with desired skills across multiple professional disciplines. Robert's Half's proprietary matching technology is a valuable intangible asset, helping the company differentiate services when matching candidates with client orders. Bill rates have risen to similar levels seen during the run-up to the last recession, suggesting that we are approaching a cycle peak.

Robert Half reported strong growth in multiple segments globally, led by permanent placement staffing growing 8.4% year over year, RH Technology rising 7.4%, and Protiviti rising 21.5%. Strong demand for technology solutions has propelled Protiviti's revenue growth in recent quarters. The segment focuses on technology consulting, cybersecurity, and cloud computing combining its go-to-market strategy with the staffing segment. Temporary assignments in the staffing business often highlight a longer-term challenge on the client’s end, which in turn presents new project opportunities for Robert Half’s project-based consultants to take on. Protiviti's gross margins decreased 110 basis points to 25.3% from 26.4% due to base pay increases and sooner-than-expected promotions than in the past during the first quarter. We're expecting gross margins to trend higher in the back half of the year, as the third and fourth quarters are typically Protiviti's most active during the calendar year.