There are reasons to be concerned about the overall health of the human capital industry. Inflation at the wholesale level soared in September by the largest amount in more than 15 years. This along with rising interest rates is adversely impacting the economy – but to what degree it is impacting the HR space nobody really knows.
So far it has had a minimal impact – relative to other industries. What makes analysis so difficult is there is limited historical data on how HR stocks perform during economic downturns, since many HR stocks were IPO's within the last decade. But the HR space, like so many B2B industries, relies on the spending/hiring practices of big business. We can only hope the HR sector will be like the pharmaceutical or healthcare sectors – just like people always need medicine, employers always need good employees.
And there are definitive reasons to be optimistic. With our HRmarketer service, we work with and have fairly regular contact with nearly 300 human resource suppliers. And during the last month, most have expressed optimism, albeit cautious, on the future of the HR space and their own company's revenue outlook. We're also seeing increased advertising placements in many of the trades (Workforce Management recently increased their publication from once to twice a month), larger 2006 marketing budgets, well-attended trade shows and very good earnings announcements (see below).
This is all good news. And, as you can see below, 3rd quarter 2005 earnings were pretty darn good. Here is a sample:
- Paychex: Reported a quarterly revenue gain of 17% and an even bigger 31% increase in net income. Both results beat analyst estimates. Rising interest rates will help all payroll processing firms but economic growth and high employment rates drive this sector.
- Ultimate Software: Reported $22.2 million in total revenues for third quarter, a 22% increase compared with 2004's third quarter. Upgraded by First Albany and Piper Jaffray as a result of earnings announcement.
- Workstream: Quarterly revenue in the quarter ended August 31 was $6.3 million, up 11 per cent from last year. However, the company also continues to pile up large losses. The net loss for the quarter was US $3.8 million, or 8 cents a share compared to US $2.5 million, or 7 cents a share, a year earlier.
- IBM: Posted strong quarterly results and their new "services" business (which includes outsourced HR services) continues to perform well. IBM said it recorded $11 billion in orders for new service contracts during the latest quarter. How much is HR related we do not know. Interesting note: Mercer Human Resource Consulting recently awarded IBM a $58 million contract to manage its IT procurement systems.
Some HR companies who will be announcing quarterly earnings within the next few weeks include:
- ADP: Scheduled for Oct 26
- Administaff: Scheduled for Nov 1
- Gevity: Scheduled for Oct 27
- Kronos: Scheduled for Oct 26
- TALX: Scheduled for Oct 27
- Kenexa: Scheduled for Nov 1