Adecco shares down as Q3 earnings miss estimates

Investing.com -- Shares of Adecco (SIX:ADEN ) were down on Tuesday followings its disappointing third-quarter results, which missed earnings expectations and has ongoing challenges in its core business lines.

At 7:54 am (12:54 GMT), Adecco was trading 9.4% lower at CHF 24.46.

Adecco’s EBITA came in at €186 million, falling short by 3% against the consensus of €192 million, a miss despite extensive cuts in Selling, General & Administrative (SG&A) costs. 

Although the company posted a slight 1% rise in adjusted EPS, organic growth declined by 5%, driven by underperformance in temporary staffing, which remained weak, and outplacement services, which have worsened sequentially. 

While SG&A was reduced by 6% year-over-year, it wasn’t enough to counter the impacts of the lower revenue, leading to a contraction in the adjusted operating margin to 3.3%, down by 70 basis points from the previous year.

J.P. Morgan analysts noted specific challenges within Adecco’s key regions and services. For instance, France, one of Adecco’s core markets, saw a major profit margin drop of 180 basis points year-over-year, while the Americas faced a similar decline of 120 basis points. 

By segment, Adecco's core general staffing unit declined by 3% organically year-over-year, while its LHH segment dropped by 6%, and Akkodis also declined by 3%. 

Additionally, temporary staffing, which forms a substantial portion of Adecco's revenue, underperformed with a 5% organic decline.

Free cash flow has been another concern, falling sharply to €82 million in Q3 2024 from €249 million in the same period in 2023. 

This reduction was influenced by timing impacts and increased cash taxes, with headcount also down by 2% sequentially. 

Adecco’s leverage now stands at 3.1x net debt to EBITDA, elevating concerns over the company's ability to sustain dividend payouts without impacting liquidity, a point the analysts emphasized as a risk not fully alleviated.

Looking forward, J.P. Morgan suggests that expectations for Adecco’s fourth-quarter performance will need downward revision. 

Adecco’s management anticipates revenue trends to stabilize on a year-over-year basis in Q4; however, analysts indicate that the anticipated seasonal drop in gross margins could intensify these financial pressures. 

The company’s FY24 outlook has now been reduced by over 5%, further signaling potential challenges in achieving near-term recovery.

“We are positive generally on staffing, believing we are getting close to the trough and the end of the downgrade cycle,” said analysts from RBC Capital Markets in a note. 

Source: Investing.com