May 8, 2018 / 5:32 AM / 9 months ago

UPDATE 2-Adecco Group's shares fall as profits miss expectations

* Q1 net profit 130 mln euros vs Reuters poll avg 149 mln

* Underlying revenue growth 6 pct in Q1 vs 7 pct in Q4

* Sees underlying revenue growth of 5-6 pct in March/April

* Shares fall more than 6 pct (Adds CEO quotes, details and market reaction)

By Michael Shields

ZURICH, May 8 (Reuters) - Adecco Group’s earnings rose less than expected in the first quarter and underlying revenue growth cooled while the world’s largest staffing company invested in shifting its services online.

Chief Executive Alain Dehaze is spending heavily on digital initiatives like online staffing platform Adia and its Vettery digital recruitment marketplace, all of which is weighing on profits in the short term in hopes of a payoff down the road.

Adecco’s revenue growth slowed in the quarter to 6 percent from 7 percent at end of 2017, but Dehaze said on Tuesday the varying pattern of Easter holidays made comparisons tough.

Dehaze said profit suffered from the unfavourable holiday schedule, a high sickness rate and strikes that limited hiring in Germany, and reduced hiring incentives in France.

Operating profitability would improve as the impact of investments declines and the company benefits from a more favourable public holiday schedule, he said.

Dehaze said growth was strong in the first quarter in Adecco Group’s main market France, as well as southern Europe.

“For more than five quarters we were at 6 percent or even one point higher in the fourth quarter of last year so what we see is a good continuation of the momentum,” he told Reuters in an interview.

Adecco’s first-quarter net income fell 26 percent to 130 million euros ($154.8 million), missing even the lowest estimate in a Reuters poll, which had an average estimate of 149 million. Its EBITA operating margin, excluding one-offs, fell a full percentage point to 3.8 percent.

“Adecco’s first quarter 2018 results are anything but overwhelming and miss our and consensus estimates despite expectations that were quite low,” Baader Helvea analyst Christian Weiz said.

Analysts at Vontobel expected margins to remain under pressure as the group continues to roll out its strategic agenda before seeing productivity gains in the second half.

Shares fell 6.1 percent by 0800 GMT, extending a 9.5 percent drop so far this year.

Zuercher Kantonalbank said EBITA was well below expectations, even stripping out 19 million euros in restructuring costs.

Revenue fell 1 percent in reported terms and rose 4 percent on an organic basis in the three months to March 31 to 5.69 billion euros ($6.78 billion), in line with the poll.

Adjusted for trading days, organic growth was 6 percent in the first quarter and 5-6 percent in March and April.

Selling, general and administrative expenses, excluding one-offs, rose 8 percent year on year to 819 million euros.

Adecco said these related in part to its GrowTogether initiative, including the roll-out of new IT infrastructure in France, North America, the UK and Japan, as well as investments in digital ventures, including Adia and freelance platform YOSS.

Dehaze said permanent staffing in Britain had bottomed out as companies hire full-time staff.

Last month, Dutch rival Randstad reported 7.4 percent organic revenue growth and said that pace had been roughly maintained in April.

U.S. rival Manpower has reported a 5 percent increase in first-quarter revenue when adjusted for currencies.

$1 = 0.8399 euros Reporting by Michael Shields and John Revill, editing by John Miller and Jane Merriman

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