Temp Rally Looking Temporary

The young recovery still hasn't rippled into the job market, a profit warning from recruitment firm Robert Half (RHI Quote) suggests.

Placement company Robert Half International warned that its first-quarter sales and earnings would come in below expectations, as a result of weaker-than-expected hiring demand.

"Hiring demand among businesses was weaker than anticipated in the first quarter, despite indications of economic recovery in the U.S.," Harold Messmer, CEO of Robert Half, said in a statement.

In the first quarter, Robert Half expects sales of $465 million to $475 million, compared to estimates for $522 million. The company predicts earnings of 5 cents to 6 cents per share, vs. estimates for 8 cents. The company is anticipating a quarterly decline in revenue of 9% to 19% for permanent placement services, with a 7% to 8% sequential drop in revenue from temporary and consulting activity.

Robert Half, whose warning is the third in the last four quarters, isn't the only outsourcer feeling it. In March, placement firm Spherion (SFN Quote) said it would miss first-quarter estimates. And Korn/Ferry (KFY Quote) posted a loss for its third quarter, and said it expects another in the fourth quarter.

Still, shares of staffing firms have rallied off of lows in 2001, on hopes of an economic recovery. But while Robert Half is up 40%, Korn/Ferry is ahead 32%, Spherion is higher by 68%, and Manpower (MAN Quote) has rallied 58% since the fall, some analysts think those levels are unsustainable.

"We've been warning investors about a top-down rally in recruitment shares," said Adam Waldo, an analyst at Lehman Brothers, who downgraded the stock to market underperform from market perform. Salomon Smith Barney also cut its rating on the stock on Wednesday to neutral from outperform.

Waldo says Wall Street's sentiment on staffing companies lately has been divorced from reality. "People have been buying the stocks as if they are cyclicals, which correlate with GDP," he said. "But the employment cycle lagged the GDP cycle by six quarters, coming out of the 1991 recession, for example."

In recent trading, Robert Half was down 7.7% at $26.26, while Korn/Ferry was falling 8% at $9.06. Spherion was losing 4.75% at $9.83 and Manpower was shedding 1.25% at $38.65.