Randstad shares drop 7% despite Q3 EBIT beat on margin and outlook pressure

Investing.com -- Randstad NV (AS:RAND) shares fell more than 7% on Wednesday after the staffing group’s third-quarter results showed weaker margins and a muted outlook, offsetting a 5% earnings beat driven by cost reductions.

The Dutch employment services company reported adjusted EBITA of €191 million, about 5% above consensus estimates and in line with both banks’ projections. 

The result marked a 3% year-over-year decline. Revenue was €5.81 billion, down 3.4% from a year earlier and broadly flat against forecasts. Organic growth declined slightly by 1.2%, broadly in line with the expected 1.3% drop.

Gross profit margin fell 110 basis points from a year earlier to 18.4%, below the 18.7% consensus. 

Morgan Stanley said the decline was due to smaller contributions from temporary staffing (down 0.5 percentage points), permanent placements (down 0.2 points), and the divestment of Monster (down 0.4 points). Jefferies added that currency effects reduced margin by another 20 bps.

Free cash flow declined 12% year over year to €244 million, due to lower operating profit and working-capital movements. 

Net debt stood at €1.22 billion, with a leverage ratio of 1.6×. Exceptional costs were €38 million, compared with €35 million in the previous quarter.

Operating expenses totaled €878 million, about 3% below consensus, and fell 10% from the same period a year earlier. SG&A accounted for 15.1% of sales, below consensus of 15.6%. Headcount declined 1% quarter over quarter.

Regional results were mixed. North America recorded flat organic growth after a 1% decline in the prior quarter. Southern Europe, the U.K., and Latin America recorded a smaller decline of 1% in organic growth, improving from a 3% drop in the second quarter, supported by France. 

Northern Europe contracted 4%, with Germany down 7% and the Netherlands down 6%. France fell 4%, and Belgium and Luxembourg decreased 1%. Asia-Pacific rose 2%, led by India up 14% and Japan up 6%, while Australia and New Zealand declined 4%.

Jefferies said the results were “mixed,” noting the EBIT beat but weaker gross margin and limited improvement in fourth-quarter expectations. 

The brokerage said Randstad’s guidance implied “low-to MSD downward pressure” on the current fourth-quarter adjusted EBIT consensus of €204 million.

Randstad said activity levels and volumes in October were consistent with the third quarter, indicating sequentially stable organic growth. 

The company expects gross margin to be “slightly higher” sequentially, up about 10 basis points, and operating expenses to rise between €5 million and €10 million. 

Morgan Stanley forecast adjusted EBITA of about €200 million for the fourth quarter, slightly below consensus.

The company’s 2025 consensus forecasts a 2.1% decline in organic growth (adjusted for working days), a gross margin of 18.9%, and an EBITA margin of 3.1%, implying an adjusted EBITA of €724 million.

Morgan Stanley maintained its “underweight” rating on the stock with a €36 price target, citing margin pressure and weaker free cash flow.