Adecco’s Margin Squeeze Overshadows Profit Surge, Prompting Leadership Shake-Up at LHH

Majority of shareholders opt for stock dividend as Adecco shares hit 52-week low, Q1 revenue beats but margin miss and high debt weigh on outlook.

A majority of Adecco shareholders chose to take their latest dividend in shares rather than cash, a vote of confidence in the staffing group’s long-term recovery even as the stock plunged to a fresh 52-week low. The €16.34 closing price on Friday marked a 35% decline from a year ago and capped a week that saw the stock fall roughly 19%.

The sell-off came despite what appeared to be a solid set of first-quarter numbers. Revenue clocked in at €5.66 billion, beating analyst estimates, while adjusted operating profit (EBITA) jumped 24% to €148 million and net income surged 41%. But investors zeroed in on the gross margin, which slipped to 18.8% — 40 basis points below the prior year and just shy of the consensus 18.9% forecast. The disappointment was compounded by management’s own earlier guidance for broadly stable margins.

Adding to the unease, Adecco’s net debt stood at €2.54 billion, well above Jefferies’ €2.20 billion estimate. The company had raised €450 million in April via a hybrid bond carrying a 4.875% coupon and maturing in 2056, strengthening liquidity but also adding to interest costs.

Regionally, the picture was mixed. American operations posted 15% organic growth, and Asia-Pacific added 8%. The DACH region, however, stagnated, with weakness in logistics and the public sector offsetting gains in aerospace and defence. The German automotive market continued to weigh on the Akkodis unit, while the LHH talent solutions division saw organic sales dip 1%. That struggling subsidiary is now getting new leadership: Ranjit de Sousa will take the helm at the end of May, replacing Gaëlle de la Fosse. De Sousa, a 16-year Adecco veteran who helped build the coaching platform Ezra, faces the task of restoring profitability in a sluggish recruitment environment.

The timing could hardly be worse for Adecco’s largest stakeholder, Silchester International. The London-based asset manager had raised its voting rights to more than 15% just before the earnings release, buying at prices of CHF 18 and above. When the stock cratered on May 13 — losing over 13% in a single day — Silchester was left sitting on paper losses.

At the annual general meeting, 53% of shareholders elected to receive the dividend in stock rather than cash, accepting a 6% discount to the reference price of CHF 16.94 for the new shares. The resulting dilution — roughly five million new shares — was apparently seen as a worthwhile trade-off to preserve the company’s cash. Even so, the dividend yield now stands above 5%, a reflection of the depressed share price rather than any payout generosity: the stock trades roughly 43% below its 52-week high of €28.64.

Looking ahead, the outlook offers little immediate relief. Management has flagged a marginally lower gross margin and slightly higher administrative costs for the second quarter, suggesting the margin pressure is not yet behind the group. For Adecco’s new LHH chief and its biggest shareholder alike, the road to recovery looks steep.