With some of Wall Street, most of Main Street, and all of 1600 Pennsylvania Avenue confounded by Friday's weaker-than-expected non-farm payrolls report, one company in particular has reason to lament the closely watched gauge of the nation's employment. Robert HalfInternational (NYSE:RHI), the world's largest professional staffing firm, was keenly interested in further empirical evidence of a firming labor market. What it got, though, was another batch of contradictory data that only a contrarian could love.
Economists were forecasting the creation of 125,000 new jobs in February, a far cry from the 21,000 that were actually added to the payrolls. While analysts will toss around terms like enhanced productivity and outsourcing to account for the widening disconnect between robust economic growth and sluggish job growth, astute investors realize that employment is a lagging economic indicator. It stands to reason that prudent CEOs err on the side of caution, often choosing to delay hiring until well after an economic recovery has already been established.
It is the more subtle signs, such as a pronounced increase in posted temporary assignments, that are often a harbinger of better times ahead. Temporary positions are cost-effective, non-committal, and more flexible, and a surge in the number of these advertised openings typically is the last step before full-scale recruitment activity escalates. The silver lining to the bleak employment picture lies in a closer examination of the numbers. The Department of Labor reports over 215,000 new temporary positions created since last April. This is where Robert Half enters the picture.
The Menlo Park, Calif.-based company has developed a niche by becoming a premier provider of mid-senior-level finance and accounting professionals. With 325 offices around the globe, Robert Half places over 180,000 temporary workers annually. Management has differentiated itself from market leaders Manpower (NYSE:MAN) and Adecco (NYSE:ADO) by providing high-end services to mid-size companies.
Working with a more skilled applicant pool is inherently a higher-margin segment, and Robert Half has made a concerted effort to target those prospects, which in turn fuel revenue-per-placement growth. To a lesser extent, permanent-placement services are available, as are staffing services for information systems, paralegal, and administrative professionals. Additionally, sales have been augmented by Protiviti, a highly profitable business consulting practice purchased from Arthur Andersen in 2002. All told, net income last year rose to $6.4 million on revenues of $1.97 billion.
As macroeconomic trends gradually force a transition away from manufacturing and towards a more service-based domestic economy, expect demand for skilled labor to be at a premium. Moreover, during the past three decades temporary workers grew from a mere 0.5% of the workforce to nearly 3%. Robert Half stands to capitalize from both of these trends. With over $300 million of free cash flow on the books, an ambitious stock buyback program, and a proposed dividend in the works, the stock looks even more attractive.
With six months of slow but steady job growth behind us, a number of encouraging economic signs, and a recent survey by the Institute of Supply Management that found employers at their most bullish since 1987, many have their fingers crossed that the term "jobless recovery" will soon be a distant memory.... especially those polishing their resumes.
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Motley Fool contributor Nathan Slaughter, who suffers from recurring nightmares of college economics classes, owns none of the companies mentioned here.
