Temporary staffing agency Kforce (NASDAQ:KFRC) reported yesterday that in the fourth quarter of 2004, it grew revenues 51% over the year-ago quarter, while profits increased exponentially, up from last year's Q4 earnings of $0.09 to $0.45 in Q4 2004. However, without a favorable one-time benefit related to the firm's taxes, the earnings growth would actually have lagged revenue growth somewhat -- up only 44% to $0.13.
For the year, revenue growth was a bit slower -- up 34% over 2003. But profits nearly quintupled to more than $25 million. Per-share profits increased considerably less but still came in 331% stronger than last year, at $0.69 per diluted share. The reason for the lagging per-share improvement was the usual suspect: stock dilution. Over the past year, Kforce's share count has increased by more than 15% -- but the company's report did not clarify how much of that was a consequence of the firm's acquisition of privately held VistaRMS (a deal closed Feb. 1), and how much came about through dilution of outside shareholders through stock options. And with the price paid for VistaRMS still a secret, it's tough to even guess.
Returning to the earnings numbers, it appears that Kforce grew considerably faster in Q4 than it did for the year as a whole, suggesting that job growth in the U.S., at least in the temporary worker segment, may be better than recent employment reports would indicate. Indeed, Kforce's president pointed out that the company's search revenue had increased sequentially in every quarter of 2004.
Kforce noted that its fastest growth in job placements in Q4 came in the fields of finance and accounting, which, combined, yielded revenue growth of better than 95% year on year. Tech revenues also gained impressively, up more than 50%.
All of this job growth in the economy has translated into much better margins for Kforce. (Its net margin, for instance, stood at a mere 1% last year. This year, that increased to 3.8 %.) With growing revenues and an increasing number of cents from each revenue dollar dropping to the bottom line, it's no wonder that Kforce grew its profits so much faster than revenues.
Investors can only hope, though, that the company will rein in its rampant stock dilution and permit shareholders to share fully in those profits.
Read about the Force, Luke, in:
Fool contributor Rich Smith does not own shares of Kforce.
