Robert Half(US:RHI) Seeking Alphaยท2024-07-29 22:28Core Viewpoint - The recommendation for Robert Half Inc. (RHI) remains a sell due to ongoing poor revenue growth outlook and high fixed cost structure, leading to continued pressure on margins and stock price [1][10]. Financial Performance - RHI reported a 10% year-over-year decline in revenue for 2Q24, primarily driven by a 14% decline in contract staffing and a 12% decline in Protiviti [2]. - EBIT margins fell by 270 basis points year-over-year to 6.2%, reflecting negative operating leverage [2]. - Earnings per share (EPS) for 2Q24 was $0.66, below the consensus expectation of $0.71 [2]. Market Outlook - The outlook for RHI remains bleak as macroeconomic uncertainties continue to affect client confidence and budgets, with staffing revenue experiencing a mid-teens year-over-year decline [3]. - Management's guidance for 3Q24 suggests total revenue will be between $1.39 billion and $1.49 billion, indicating a 9% decline at the midpoint [3]. - The company has seen revenue decline for seven consecutive quarters, with expectations for an eighth quarter in 3Q24 [6]. Cost Structure and Margins - RHI operates with a high fixed cost structure, necessitating significant labor costs to drive growth, which has led to substantial margin declines [4]. - Decremental margins are expected to continue in 3Q24, with management sacrificing margins for potential recovery [5]. Valuation Concerns - RHI is currently trading at approximately 13 times forward EBITDA, which is 2.5 times above its historical average, suggesting an excessive valuation given the current uncertainties [8]. - The stock is trading at a premium compared to peers, indicating potential for multiple contractions if earnings remain weak [8]. Hiring Trends - Despite job openings being above pre-COVID levels, the conversion of these openings into actual hires remains sluggish, indicating deferred demand [7][8]. - Management has noted that clients are cautious in hiring, leading to elongated decision cycles [3].