As I was reading through the list of holdings for the Delafield Fund, I came across the name of a company that I did not recognize, which is rare, because I write about a huge number of stocks in any given year. This stock is TrueBlue (NYSE:TBI), a staffing business that I seem to remember operating as Labor Ready. Since 2007, it's operated as TrueBlue with Labor Ready as just one of several staffing businesses. Slowly, the staffing industry appears to be shaking off 2008. Long-term, the business is winner.

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Name Change
The company changed its name to reflect its emphasis on blue collar industries. With five lines of business: Labor Ready, Spartan Staffing, CLP, Centerline and PlaneTechs, TrueBlue is dedicated to bringing workers together with companies in need. From general labor to very skilled labor, True Blue is meeting the staffing needs of 175,000 businesses in the services, transportation, manufacturing, retail, wholesale and construction industries.

As Investopedia's Matthew McCall stated in his January 18 article about the staffing sector, companies like TrueBlue, Robert Half International (NYSE:RHI), Korn/Ferry International (NYSE:KFY) and Manpower Group (NYSE:MAN) need the economy to continue getting stronger. Not a lot, mind you, but enough to keep companies thinking about hiring. In the staffing business, out of sight is definitely out of mind, so a little positive PR on the job front goes a long way towards keeping TrueBlue and its peers top of mind. (For related reading, see Jobless Recovery: The New Normal Since 1990.)
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Profitability
Revenue wasn't the problem for TrueBlue during the 2008 recession. Around $1.38 billion, just $2 million less than in 2007. The problem was attributable to falling stock prices and future cash flows. In 2008, like most publicly traded companies, its shares declined by about 33.9%. That would have been OK if it hadn't seen a 21% drop in 2007 and near a 12% decline in 2006. At the beginning of 2006, TrueBlue's stock was under $22. By the end of 2008, it was down to around $6.

More importantly, the carrying values of its goodwill on the books exceeded fair value based on future net cash flows. In addition, its market capitalization fell below the value of its consolidated net assets. The combination of events led to it taking a $61 million non-cash impairment charge. Excluding this charge, its 2008 EBITDA profit was $80.4 million, which is an EBITDA margin of roughly 5.8%.

In 2006, its most profitable year on record, its EBITDA margin was 280 basis points higher at approximately 8.6%. There's not a whole lot of difference between the two. In terms of profitability, things really bottomed out in 2009, when EBITDA profits dropped to a low of $28.8 million on just over $1 billion in revenue.


Looking Ahead
The final quarter in 2011 was better than expected, thanks to the energy and retail industries. The trends are definitely improving. Monthly revenue growth in October, November and December were 18%, 22% and 24% respectively. Revenues for the quarter increased 12% (22% on a comparable number of weeks) to over $350 million year-over-year with about a 90% improvement in net income to nearly $7.6 million or 19 cents a diluted EPS.

The year in its entirety delivered revenues of around $1.32 billion, which is a 14.5% increase from 2010. Net income jumped 55.6% to about $30.8 million. Comparing apples-to-apples, its EBITDA profit was $64.2 million, a 43.3% increase year-over-year. In terms of margin, 2011 saw a 100 basis point increase to 4.9% and within striking distance of its record year. Things are looking better for sure. Expect slightly slower, but steady, revenue growth in the next few quarters to go along with higher operating profits. (To learn more, read How To Decode A Company's Earnings Reports.)

The Bottom Line
In the past decade, TrueBlue's average annual return is roughly 13%. That's better than the S&P 500. As of February 15, its stock is trading 42% below its five-year high of $28.63. Blue-collar staffing is only going to become more important as America inches its way back into manufacturing. From where I sit, the upside is far greater than any perceived risk there might be.

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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.