Kelly Badly Misses on Q2 Earnings Despite Revenue Rise

Staffing and outsourcing services provider Kelly Services, Inc. KELYA reported dismal second-quarter 2014 results with non-GAAP earnings of $4.0 million or 10 cents per share, down from $12.5 million or 33 cents per share in the year-ago period. The adjusted earnings also miserably missed the Zacks Consensus Estimate of 18 cents.

The company reported GAAP income of $2.8 million or 7 cents per share versus $10.0 million or 26 cents per share in the year-ago quarter. The year-over-year decrease in earnings was primarily due to higher operating expenses.

Revenues

Total revenue for second-quarter fiscal 2014 came in at $1,410.5 million, up 3.2% year over year backed by prudent investment decisions and steady improvements in the U.S. economy with decent job growth. However, the revenues failed to meet the Zacks Consensus Estimate of $1,414.0 million. The company is currently on track to adjust its operating models with aggressive investments in core markets and intensified focus on high-margin businesses.

Kelly has almost completed the transition of large US accounts into a centralized service delivery model. The company has created operational efficiencies that remove administrative burdens from recruiters and client-facing teams. In addition, sustained investments in technology during the year are expected to further accelerate this process.

By geographical regions, revenues from the Americas were up 1.9% year over year to $1,013.8 million. Revenues from EMEA (Europe, Middle East and Africa) improved 9.1% to $295.2 million, while that from APAC (Asia Pacific) remained relatively flat at $101.5 million.

By segments, revenue from services in the Commercial segment increased in the Americas and EMEA, but decreased in APAC. Revenue from services from the PT (Professional Technical) staffing business decreased in the Americas and APAC, while increasing in EMEA. Total OCG (Outsourcing and Consulting Group) revenues were up 16.5% to $137.9 million.

Balance Sheet and Cash Flow

Kelly ended the quarter with cash and cash equivalents of $62.8 million compared with $70.3 million in the year-ago period. Debt-to-capital remained relatively steady at 9.6%. Net cash utilized in operating activities aggregated $107.5 million during the first half of the year compared with $14.2 million of cash utilization in the prior-year period. The year-over-year increase in cash utilization for operating activities was primarily due to high restructuring measures undertaken by the company.

Kelly currently has a Zacks Rank #3 (Hold). Other stocks in the industry that are worth reckoning include ManpowerGroup Inc. MAN, Robert Half International Inc. RHI and TrueBlue, Inc. TBI, each carrying a Zacks Rank #2 (Buy).

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