Staffing company Robert Half International Inc.'s (RHI 2.13%) second-quarter results deserve closer inspection, having provoked a double-digit decline in the share price after they were reported Tuesday. And employment company earnings are always interesting for the color they give on the state of the economy, so let's take a detailed look at what Robert Half International reported.


Robert Half International's second quarter: The raw numbers

Starting with the headline figures:

  • Second-quarter net service revenue was $1.344 billion, compared with management's guidance for $1.235 billion to $1.385 billion.
  • Diluted income per share was $0.71, compared with guidance for $0.70 to $0.76.

With revenue slightly above the midpoint of guidance and earnings within management's projected range, the results look decent enough. However, the guidance and commentary on the earnings call may have spooked investors.

  • Guidance for third-quarter revenue of $1.335 billion to $1.395 billion implies a growth rate of 1.7% to 6.7%, compared with the 5.7% recorded in the second quarter.
  • Guidance is for income per share of $0.68 to $0.74, compared with $0.71 in the same quarter last year.

What happened in the second quarter

CFO Keith Waddell's commentary on trends in the quarter described a decelerating environment. For example, temporary and consulting staffing revenue grew 3.7% in June, compared with a rate of 4.5% for the quarter. Similarly, global permanent placement revenue declined 1.6% in June, compared with growth of 2.1% in the quarter. In other words, the company ended the quarter on notably weaker growth rates than it had through the quarter.

Moreover, a breakout of growth by region and activity reveals a very interesting dynamic. In typical economic recoveries, permanent placement starts to grow much stronger than temporary placement, as companies start to feel comfortable recruiting staff on a permanent basis again. However, U.S. and international permanent placement had weaker quarters than their temporary counterparts.


What management said

The issues of slowing growth, in particular within permanent staffing, were addressed on the earnings call (transcribed by Seeking Alpha). For example, Waddell discussed client behavior, saying they had gotten more cautious. "I think clients got incrementally more selective. They got incrementally less sense of urgency in doing their hiring. And therefore, Perm didn't get the sequential lift that it traditionally enjoys in the second quarter," he said.

In addition, Waddell spoke of a "clearly" slowing sales cycle on the permanent staffing side of the business. Clients are deemed to be getting "more selective," and wanting to see more candidates before making a decision. Meanwhile, permanent margins are likely to come under pressure because of conversion to a new CRM and project-management system.

Looking ahead

All told, investors will be hoping that the current situation in staffing is the result of some relatively short-term caution in response to a slowing in the global economy, the logic being that if growth expectations stabilize or even increase going forward, then some pent-up hiring will occur, particularly on the permanent side. Alternatively, it could be the beginning of a general slowdown. Time will tell.