Robert Half Earnings: We Curb Short-Term Forecasts and Decrease Fair Value Estimate by 4%

Narrow-moat-rated Robert Half RHI reported weak 2023 second-quarter results, as hiring demand continues to soften. Management released third-quarter EPS and revenue guidance of $0.83 and $1.53 billion at their respective midpoints, signaling performance to regress to 2021 quarantine levels. We curtail revenue and margin projections for the second half of the year and decrease our fair value estimate by 4% to $94 from $98. However, we maintain our long-term thesis on Robert Half’s strong competitive positioning. We think the stock remains undervalued and currently trades at a 15% discount in 4-star territory.

During the second quarter, consolidated revenue decreased 12% year on year to $1.64 billion, marking the fourth quarter of sequential sales decline. Clients continue to elongate the recruiting process, asking to view more candidates and to conduct additional due diligence before making the official offer. Small and mid-sized businesses, which make up over 70% of its customer base, are particularly cautious. They usually contain 50 to a few hundred employees; therefore, onboarding new employees is a higher-stake decision. Many are adopting a “wait and see” attitude before reengaging in hiring. Consequently, we now forecast total revenue for 2023 to decline significantly by 9% to $6.62 billion from $7.24 billion in 2022.

We attribute Robert Half’s sluggish performance to transitory weak hiring demand as recessionary risks remain a widespread concern. Eventually, we expect a strong rebound, especially for Protiviti. Protiviti’s projects typically require its consultants to work alongside the clients’ internal teams. However, cost-conscious clients are now electing to handle a bigger proportion of the tasks in-house rather than outsourcing. As a result, we see a 1% decrease in Protiviti’s revenue, ending its 22-quarter streak of consecutive year-on-year growth. However, when the macroeconomic environment improves, we expect sales will rise, too.