The market didn't take kindly to staffing specialist Robert Half International's (NYSE:RHI) first-quarter results released on Thursday. In a familiar refrain this earnings season, the company saw its revenue generation hit by the strength of the U.S. dollar. However, that wasn't enough to derail earnings from coming in at the top end of guidance. Moreover, the second-quarter guidance looks OK relative to analyst estimates. So what was the market concerned about when it sold the stock off? Let's take a deeper look at the results to find the answer.

RHI Chart

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Results vs. guidance
First, a look at the results:

  • First-quarter revenue of $1.21 billion compared against guidance of $1.195 billion to $1.245 billion.
  • First-quarter non-GAAP EPS of $0.58 compared against guidance of $0.53 to $0.58.

And the guidance:

  • Second-quarter revenue guidance of $1.245 billion to $1.295 billion compared against analyst estimates of $1.28 billion.
  • Second-quarter non-GAAP EPS of $0.63 to $0.68 compared against analyst estimates of $0.66.

Earnings came in at the top end of guidance, while the outlook for the second quarter is pretty much in line with analyst estimates. In addition, if you adjust for currency, the earnings were ahead of expectations. On the earnings call, CFO Keith Waddell answered a question from Deutsche Bank analyst Paul Ginocchio concerning the effect of currency on revenue. Here is part of Waddell's reply:

So, we expected currency to be about $30 million year over year, about $10 million sequential, and it came in $10 million more than that. So the single biggest reason the revenue's below the midpoint is currency impacts. At the bottom line, the currency only affected us a $0.01 total.

Revenue came in lower than expected because of adverse currency movements (that is, a strengthening U.S. dollar), but earnings were at the top end of guidance. If you add that $0.01 in earnings back in, then EPS would have been $0.59, ahead of guidance.

Waddell allayed another worry on the earnings call -- specifically, the fear that falling energy prices would hurt recruitment in that industry and, in turn, Robert Half. Waddell explained that the company doesn't have a "significant exposure" to energy.

So what was it that bothered investors and caused the sell-off?

Two reasons the market got scared
Investors may have been concerned by the linearity of monthly trends outlined on the earnings call. I've summarized it in the following table, with the wordings taken right from the call. You'll see that the overall market strengthened in January and then weakened in February.

U.S Temporary and Consulting accelerated slowed somewhat held steady
U.S. Permanent Placement accelerated de-accelerated held steady
International Temporary and Consulting accelerated de-accelerated de-accelerated again

International Permanent Placement

accelerated lost a little momentum held steady

Source: Robert Half International presentations.

Second, a look at quarterly trends reveals that the growth rate slowed for three of four activities in the first quarter. It's somewhat surprising that the U.S. Permanent growth rate has slowed even while
U.S. Temporary & Consulting growth increased in the first quarter. In a usual recovery, temporary hiring takes place first (as companies are reluctant to invest in permanent hires) and leads to a pickup in permanent hiring.

Source: Robert Half International presentations.

U.S. Temporary & Consulting remains in growth mode. Temporary consulting is the company's largest profit generator, contributing 72.4% of operating income in the first quarter.

The takeaway
It was a good set of results from Robert Half, but clearly the market wanted more. It's never a good idea to get too obsessed with a few days of sentiment-led trading, but my suspicion is that the concerns expressed in the trading action are probably a combination of profit-taking and macroeconomic worries. Currency also hurt Robert Half's revenue, but it didn't have a significant effect on the bottom line. Provided you think that the economy will improve in the coming quarters, then the post-results sell-off isn't justified.