Adecco's Third-Quarter Results Miss Expectations

Shares of Adecco (SIX:ADEN) fell on Tuesday following disappointing third-quarter results, which missed earnings expectations and highlighted 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 stood at €186 million, falling short by 3% against the consensus of €192 million, despite significant cuts in Selling, General & Administrative (SG&A) costs.

The company experienced a slight 1% rise in adjusted EPS, but organic growth declined by 5%. This decline was attributed to the underperformance in temporary staffing, which remained weak, and worsening outplacement services.

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

J.P. Morgan analysts identified specific challenges within Adecco’s key regions and services. For example, France, a core market, experienced a significant profit margin drop of 180 basis points year-over-year, and the Americas faced a 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 saw a 3% decline.

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

Free cash flow fell 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, raising concerns over the company's ability to sustain dividend payouts without impacting liquidity, a risk highlighted by analysts.

Looking ahead, analysts from J.P. Morgan suggest that expectations for Adecco’s fourth-quarter performance will likely need to be revised downward. Adecco’s management anticipates revenue trends to stabilize on a year-over-year basis in Q4; however, analysts caution that an anticipated seasonal drop in gross margins could intensify financial pressures.

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

Analysts from RBC Capital Markets expressed optimism, noting, "We believe we are approaching the trough and the end of the downgrade cycle."