Robert Half Inc

We last wrote about Robert Half (up 23.5%) in our December report, where we mentioned that hindsight suggests our purchasing during price descents in May, August and October were mistakes. This remains the case - but less so. Our expectation that the recruitment / outplacement market will slowly recover, appears, going by Robert Half’s recent results, to be bearing fruit. And management remain cautiously optimistic. We did not trade the stock. The Fund’s position is now 2.7%.

We last wrote about Robert Half (up 23.5%) in our December report, where we mentioned that hindsight suggests our purchasing during price descents in May, August and October were mistakes. This remains the case - but less so. Our expectation that the recruitment / outplacement market will slowly recover, appears, going by Robert Half’s recent results, to be bearing fruit. And management remain cautiously optimistic. We did not trade the stock. The Fund’s position is now 2.7%.

Robert Half Inc. is a professional staffing company specializing in temporary placements in finance, accounting, technology, and administrative support. Despite cyclical pressures in the staffing industry, Robert Half is well-financed with a debt-free balance sheet and substantial cash reserves. The company generates significant free cash flow even in depressed conditions. Management's strategy to retain experienced recruiters during downturns provides a competitive advantage, as new recruiters take time to reach productivity. This positioning, along with proprietary data on employee performance, supports the company's resilience against potential AI-driven disruptions in the labor market.

Robert Half is a professional staffing company specializing in temporary placements in finance, accounting, technology, and administrative roles. Despite facing cyclical pressures and concerns about AI reducing demand for certain roles, the company has maintained a strategic advantage by retaining experienced recruiters. This positions them well for a potential cyclical upturn. Their shares trade at a low single-digit multiple of normalized cash flow, and they have generated positive annual free cash flow for over three consecutive decades, consistently returning cash to shareholders through dividends and share repurchases.

Robert Half provides staffing and consulting services through the Robert Half and Protiviti brands, specializing in finance and accounting placements. Despite facing pressure from the staffing industry and concerns about AI's impact on finance jobs, Robert Half's performance is bolstered by strong trends in its Protiviti consulting segment, which has gained market share against Big Four competitors. The company remains profitable, cash generative, and has zero debt, offering a 7% dividend yield supported by cash flow. We believe Robert Half will be an industry survivor, even as it navigates current challenges.

Robert Half, the recruitment and outplacement specialist, was down 21.8%. Its fourth quarter results were disappointing (but it was expected). On a brighter note, at the time of reporting management did note a pick up in business confidence late last year and into the early part of this year. Client discussions had turned decidedly more positive. However, there is no doubt that with the increased uncertainty and the decline in business sentiment since, that information is now obsolete. This business is in an earnings trough, and it is fair to say that we misjudged its cyclicality. And now with this hit to confidence, the bottom of the cycle is continuing for far longer than management (and us) expected.

Robert Half missed on EPS, revenue, and operating margin due to poor permanent placement results. While management pointed to some improvements in the business outlook, they still issued soft guidance for Q1 2025. This indicates potential challenges ahead for the company, which may affect its performance in the near term.