Robert Half International Inc. (RHI) – Behind the Numbers

Today I would like to take a look at Robert Half International Inc. (NYSE:RHI) and provide some insight into the company’s numbers.

Robert Half provides staffing and risk consulting services in five continents throughout the world. Adding in the company’s 1.8% current dividend yield, the performance has roughly matched that of the S&P 500 for the previous 52 weeks.

Credit: Robert Half International Inc. (NYSE:RHI)

In its most recent 10-Q statement for the first quarter ending in March, there is one statistic that stands out: permanent placement staffing in the United States grew by 14.9% year-over-year. This has been its strongest area of growth over this time period.

Gross margin dollars for risk consulting and internal auditing permanent placement (revenue less reimbursable expenses) increased in the quarter ending on March 31, 2013 to $30 million compared to $24 million in the year ago period.  This displays the company’s efficiency in attaining the improved permanent placement revenue in the first quarter.  Further showing this is the fact that general and administrative expenses were flat when comparing these two periods.

Additionally, the company’s operating income was 8.7% of revenue for the quarter ending in March, compared to 7.9% of revenue in the year ago period.  The company also, as of March 31, has authorized a buyback of 10.6 million additional shares, in addition to the employee stock purchase options.

Robert Half International Inc. (NYSE:RHI) has a price to earnings ratio of 16.38, which is better than that of Paychex, Inc. (NASDAQ:PAYX).  Paychex has a price to earnings ratio of 22.06.

Robert Half has a 17.2% return on assets and an astonishing 26.04% return on equity. These are high levels for the ratios. Manpowergroup Inc (NYSE:MAN) has a 4.23% return on assets and a 7.15% return on equity.  This is another indication that the shares of Robert Half International Inc. (NYSE:RHI) represent a good value.

In the first quarter of 2013, gross margins increased compared to the same period a year ago for all three of its reportable segments.  While revenue did not grow in the same manner, this proves that the company is managing its costs well and making the most of current sales levels.  This gives me confidence that if the company hits its revenue growth targets, margins will be good as management is able to control costs.


Robert Half’s advantage

The direct placement managers of Robert Half International Inc. (NYSE:RHI) have extensive experience working in the financial services sector. This allows the managers not just to be salespeople, but also to identify what it is that employers are looking for in a candidate.

With the recruiting managers knowing first hand what kind of employee the employer is looking for, it makes things a lot easier. For example, when a candidate needs to have specific experience, say, in Quickbooks accounting software, the recruiting manager can say “yes I know what you are looking for,” in addition to already having worked in that capacity.


Credibility and efficiency

This expertise allows the employees of Robert Half International Inc. (NYSE:RHI) to easily gain a client’s confidence, as it is clear to the CEO or the CFO that the recruiting manager knows what type of employee they are looking to hire. It also allows the recruiting manager to be efficient in finding a potential match as he or she can weed out the resumes and candidates that are not a good fit for the company.

The competition

Looking through Yahoo! Finance to find listed competitors traded on the NYSE or the NASDAQ, I found two companies.

Paychex, Inc. (NASDAQ:PAYX) is a strong company in its own regard.  Accountants and companies rely on this company for payroll outsourcing services. Paychex will prepare payroll reports, payroll tax returns, retirement plan services, and more for a company and has competitive fees as it tries to stave off competition from smaller competitors who often times have a local focus.

Paychex, however, is not a direct competitor to Robert Half International in the direct placement segment or in its core business. The recruits that Robert Half seeks are employees looking for contract positions or long-term permanent jobs. These are not independent contractors, so the two firms certainly are not competing for the same type of customers. Additionally, a company that wants to hire Paychex is most likely not looking for an employee, as it has decided to outsource the activity. Saving on employee benefit costs and length of time needed for the service are key factors that enable a company to make this kind of decision.

While outsourcing is competition for having in-house employees, many of the recruits for Robert Half International Inc. (NYSE:RHI) are qualified in areas that Paychex does not outsource.  For degreed and certified professionals, payroll is a more mundane and simple level of work that can be performed and Robert Half finds candidates that can do those higher level tasks.

Manpowergroup Inc (NYSE:MAN) is trading towards the high end of its 52-week range.  Again, I do not feel that this company is strong competition for Robert Half.  Manpower has more of a general focus in different types of employees, while Robert Half focuses on the field of finance.

In browsing listings for jobs over the years, particularly in my area of focus, there are not a lot of Manpower listings while there are many from Robert Half. This further solidifies the strong niche focus that Robert Half has.

Manpower also focuses on temporary staffing. The growth of Robert Half in the last quarter has come from direct placement.  This is a different type of recruiting situation, which proves to me that the competition Robert Half really has is less widespread than it appears.

Robert Half receives most of its competition from Randstad’s finance department, as it bought out the former strong finance recruiting firm of Accountants International.  Other companies such as Adecco provide competition, although the other companies’ employees do not have that intricate knowledge of the field they are placing the jobs for, which puts them at a disadvantage in negotiating.

Conclusion

In conclusion, I feel that Robert Half International Inc. (NYSE:RHI) is in a good position to be able to continue its strong direct placement growth in the United States. Furthermore, I believe this stock is definitely worth taking a look at because it does not have much competition for what it does and because I believe it has a significant competitive advantage.

Anthony Parsons has no position in any stocks mentioned. The Motley Fool recommends Paychex and Robert Half International. Anthony is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Robert Half International – Behind the Numbers originally appeared on Fool.com and is written by Anthony Parsons.

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