Barrett Beats on Q4 Earnings - Analyst Blog

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

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