Barrett Beats on Q4 Earnings - Analyst Blog
February 06 2014 - 10:50AM
Zacks
Barrett Business Services
Inc. (BBSI) reported fourth-quarter 2013 earnings per
share (excluding worker’s compensation reserve) of $1.16, which
exceeded the Zacks Consensus Estimate of $1.12 per share. Earnings
also improved from 80 cents in the year-ago quarter.
Quarter Details
Barrett reported gross revenues of $779.3 million in the
fourth-quarter of 2013, up 30.6% from the year-ago quarter.
Quarterly revenues were marginally ahead of the Zacks Consensus
Estimate of $779.0 million. The year-over-year increase was
primarily attributable to continuous increase in the company's
co-employed client count as well as improvement in same-store
sales.
Professional employer service fees grew 31.9% year over year to
$742.2 million, primarily driven by new client additions. Revenues
from Staffing Services were $37.1 million, up 9.6% from the
year-ago quarter, primarily attributable to an increase in new
businesses. Staffing business from existing customers remained flat
on a year over year basis.
Barrett’s gross margin decreased 61 basis points on a year over
year basis to 3.1% primarily due to a decrease in Direct payroll
cost as a percentage of revenue (25 basis points year over
year)..
The company’s operating expenses increased 26.9% from the year-ago
quarter to $17.5 million, primarily due to higher incentive pay and
increases in payroll expenses within selling, general and
administrative expenses (SG&A). As a percentage of revenue
operating expenses contracted 6 basis points to 2.3%.
Higher-than-expected operating expenses led to a decline in
operating margin. Operating margin came in at 0.9%, down from 1.4%
in the year-ago quarter. Barrett reported net income (excluding
workers’ compensation reserve) of $8.7 million or $1.16 per share
compared with $5.8 million or 80 cents in the year-ago quarter.
Barrett exited the quarter with cash, cash equivalents and
marketable securities of approximately $113.3 million compared with
$42.1 million in the previous quarter. Long-term debt balance was
$5.1 million compared with $5.2 million in the previous
quarter.
Guidance
For the first-quarter of 2014, Barrett expects gross revenue to
increase 24.0% on a year over year basis and range between $735.0
million and $755.0 million. The Zacks Consensus Estimate is pegged
at $761.0 million. Management expects first-quarter 2014 loss to
range between 45 cents to 50 cents. The Zacks Consensus Estimate
stands at a loss of 47 cents per share.
Our Take
Barrett reported better-than-expected fourth-quarter results. The
company’s top and bottom line also increased year over year.
Revenues were positively impacted by solid client growth. Despite
the continuing macro uncertainty, Barrett seems positive about the
coming quarter and expects strong business pipeline and a healthy
client base. However, higher effective payroll taxes are expected
to negatively impact Barrett’s bottom line in the first quarter.
Nontheless, we prefer to wait and see whether the company’s
continued investments in operational infrastructure improvements
rationalize margins in the near term. Moreover, growing competition
from Paychex, Inc. (PAYX) and Insperity,
Inc. (NSP) remain headwinds going forward.
Currently, Barrett has a Zacks Rank #4 (Sell). Western
Digital Corporation (WDC) is a better-ranked technology
stock carrying a Zacks Rank #2 (Buy).
BARRETT BUS SVS (BBSI): Free Stock Analysis Report
INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
WESTERN DIGITAL (WDC): Free Stock Analysis Report
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