Adecco shares up on better-than-expected Q2 results

Investing.com -- Shares of Adecco Group AG (SIX:ADEN)jumped on Tuesday following its second-quarter results which were slightly ahead of expectations despite a challenging macroeconomic environment.

At 4:10 am (0810 GMT), Adecco was trading 3.6% higher at CHF 28.82

Adecco Group reported EBITA of €179 million for Q2, surpassing both RBC Capital Markets' estimate of €177 million and the consensus forecast of €173 million. 

While it was slightly above expectations, it was reported before accounting for significant one-off costs amounting to €45 million, which were primarily related to restructuring activities.

Organic revenue growth for the quarter stood at -2%, aligning with RBC Capital Markets' estimate and slightly better than the consensus forecast of -2.0%. 

Although this figure represents a decline compared to the previous quarter, it shows resilience when juxtaposed with peers such as Randstad (-7.5%) and ManpowerGroup (NYSE:MAN) (-3%).

The company's gross margin was down by 70 basis points to 19.4%, which was weaker than the forecasted 19.7%. The decline in gross margin was driven by reduced margins across various segments, including temporary staffing, permanent staffing, and outsourcing/consulting services. 

“We are positive generally on staffing, believing we are getting close to the trough and the end of the downgrade cycle,” said analysts at RBC. 

Despite this, Adecco managed to offset some of the margin pressure with lower Selling, General, and Administrative expenses (SG&A).

SG&A expenses were reported at €969 million, which was below both RBC Capital Markets' forecast of €995 million and the consensus estimate of €993 million. 

This reduction, driven by a 6% decrease in full-time equivalents (FTEs) and sequential savings, contributed to an overall 5% organic decline in SG&A costs. 

Notably, Adecco achieved €162 million in SG&A savings, surpassing its initial target of €150 million.

Adecco's net income came in at €73 million, exceeding the forecast of €64 million and the consensus estimate of €59 million. The company's underlying EBITA margin remained stable at 3.1%, benefiting from the timing of income from the FESCO joint venture, which contributed €16 million compared to €5 million in the previous year.

In terms of cashflow and net debt, Days Sales Outstanding (DSOs) were slightly higher at 52.5 days compared to 52.0 days last year. 

However, there was a significant seasonal peak in net debt, which increased to €2.972 billion from €2.660 billion in Q1, primarily due to dividend payments.

Adecco's outlook for Q3 suggests that revenue developments will be in line with Q2 levels. The company expects to see sequential improvement in gross margins and a modest reduction in SG&A costs. 

Despite the ongoing macroeconomic challenges, Adecco is positioned to continue capturing market share and improving operational efficiencies.

Shares of Adecco Group have seen weakness year-to-date, trading at 0.3x 24E EV/sales, placing them towards the lower end of their historical range, RBC said.