Randstad (RAND: NA), the second largest staffing firm in the world, reported organic revenue growth per working day of +4.2% to €4.5 billion during the third quarter ending 30 September 2014, up from €4.4 billion last year.

Earlier this week, analysts’ predictions that Randstad’s revenue growth had slowed during Q3 to +3.6% proved fairly accurate. Reported revenue growth for the third quarter was actually +3.5%, exacerbated by fewer working days, negative currency effects, and the impact from disposals. Compared to Q2 2014, organic revenue trends improved in North America, the Netherlands and Belgium but eased elsewhere.

Gross profit for the quarter rose by +6% on an organic basis to €835.4 million, up from €795.8 million a year ago. Randstad achieved operating profit of €167.9 million during Q3 2014, an increase of +25% compared with €134.2 million in Q3 2013. Compared with the same quarter last year, operating expenses increased by +2.6% on an organic basis.

Jacques van den Broek, CEO of Randstad, commented: “Revenue growth was stable this quarter but the underlying trends were different. In the US and the Netherlands, markets are growing, Germany and France see growth slowing down. In several markets, our people are now keeping up with the market or beating it.”

“Our growth rate in permanent placements in also quite encouraging. The attention to commercial activities is paying off. I’m inspired also by some great initiatives, such as our drive to find work for thousands of unemployed young people. All this, coupled with our continued focus on efficiency, will allow us to improve our performance further,” Mr van den Broek added.

North America, Randstad’s largest region, reported organic revenue growth of +5% to €964.8 million, up from €925.4 million last year. The company’s combined US businesses grew by +6%, while Canadian operations remained stable.

European results prove mixed

Revenue from France, Randstad’s largest country of operation in Europe, decreased by -4% on an organic basis to €727.5 million, down from €762.1 million a year ago. The decline was driven by a significant deterioration in the construction and aeronautics sectors, which was only partially offset by increased demand in the automotive and industrial sectors.

In the company’s home market, the Netherlands, revenue rose organically by +4% to €721.6 million, up from €696.4 million last year. Growth was led by an above-market performance by the company’s Tempo Team brand and a resurgent Randstad (the company operates under two separate brands in this market). In September, Randstad announced that it was undertaking a restructure, which will provide annual savings from Q1 2015 of between €20 million and €23 million, for which a provision will be taken in Q3 and Q4 2014 of around €22 million in total. 

Germany reported organic revenue growth of +2% during Q3 2014, rising to €517.9 million from €510 million a year ago. The German market outlook has become significantly weaker recently, and the wage cost increases and other regulatory changes have impacted demand for temporary labour.

In Belgium & Luxembourg revenue increased organically by +6% to €353.8 million, up from €338.3 million last year. Revenue from the administrative segment held up well, although the industrial segment reported a slowdown.

The UK reported a decrease of -3% in revenue, on an organic basis, to €203.7 million, which followed an increase in organic revenue growth of +3% in Q2 2014. Reported revenue during the third quarter increased by +4%, compared with last year. Gross profit, however, increased by +8% emphasising the focus on profitable growth and permanent placements. The construction/engineering sector reported growth while the finance segment remained under pressure.

Revenue across Iberia increased by +9%, organically, to €290.8 million, against €267 million a year ago. Spain’s revenue increased by +9%, with growth hampered by lower volumes from the harbour and agriculture sectors, while growth continued in automotive and manufacturing. Growth of +9% in Portugal stemmed from the automotive and manufacturing segments.

The other European countries reported strong organic revenue growth of +16% to €357.9 million, up from €308.7 million a year ago. In Italy, revenue grew by +12%, driven by the industrial segment. Revenue growth of +14% was reported in Switzerland, while Poland grew by +19%. Revenue across the Nordics rose by +7%, with Turkey reporting growth of +19%. The strongest year-on-year increase in revenue was reported in the Czech Republic with +59%.

Growth continues across Rest of World       

Revenue from the Rest of the World region increased by +11% on an organic basis to €378.3 million, up from €359.2 million last year. Results improved in Asia and Australia, while Latin America proved more challenging. Revenue from Japan increased by +6%, led by good performances in logistics and retail. Australia reported revenue growth of +15%, while China reported growth of +54%. Randstad’s Argentinean business grew by +13% but market conditions remain challenging due to inflation.

Broken down by business segment, Randstad’s Staffing business reported organic revenue growth of +2% to €2.7 billion, up from €2.6 billion last year. In North America, Staffing revenue grew by +7% while in Europe overall revenue was stable.

The company’s Inhouse Services business reported revenue growth of +10% on an organic basis to €958.5 million, up from €876.4 million last year. Revenue from North America increased by +11%, while growth in Europe was led by Iberia (+32%), France (+12%), Germany (+4%), and the Netherlands (+5%). In the UK revenue fell by -12%.

Last quarter, Randstad advised that the company has transferred business from its Staffing business to its Inhouse Services business to ensure clients are offered the right delivery model. This accounts for some of the growth in the Inhouse Services business and the decline in the Staffing business.

Randstad Professionals reported organic revenue growth of +4% to €877.3 million, up from €837.9 million in Q3 2013. In North America revenue remained flat, while revenue from Dutch operations increased by +16%. Revenue from the UK declined by -1%, while France reported growth of +1%. In Australia, revenue grew by +21%, as demand for permanent placements picked up.

Looking forward, the company stated: “Revenue growth stabilised in Q3, however trends were different. The performance of our US and Dutch operations improved, while France and Germany slowed. We do not expect this pattern to change materially going forward.”

Jan van de Kraats, Chief Financial Officer for Randstad, advised that the company is looking for small- to medium-sized acquisitions to boost growth in targeted markets: “There are various markets in Europe where we would like to be stronger and we are looking in Japan. They won’t be major steps because we don’t want to burden the balance sheet. But they could be medium-sized. You have to think of a maximum of a couple of hundred million [euros].”

The exit rate for the month of September (+3.4%) suggested a downward trend in the company’s revenue with declines in the UK market worsening and growth decelerating in Germany, Belgium, Iberia and the Rest of Europe. However, an easier comparison base in the final quarter may help to mitigate this trend.

“We expect operating expenses in Q4 2014 to increase moderately compared to Q3 (based on the current exchange rates, foreign exchange will have a sequential €8 million negative impact on our Q4 cost base). We will continue to add staff in markets where we believe growth will continued (the US and China). As the same time, the restructuring measures taken in the Netherlands will become effective as of Q1 2015,”

In trading today, the company’s share price increased by +1% to €34.74, a decrease of -18.8% compared with a year ago. Based on its current share price, the company has a market value of €6.4 billion.