Tags: Kelly | Services | competitors | KELYA

Kelly Services Face a Herd of Competitors

By    |   Wednesday, 11 Jan 2012 06:54 AM

Kelly Services (KELYA), a leader among agencies that place temporary workers, is recovering from recession and ready to fatten its profits as the economy improves. But Kelly also faces a herd of competitors in temp work, a field with low barriers to entry, and it is feeding on diminished revenues.

Kelly, founded in 1946 and headquartered in Troy, Michigan, places workers in the Americas, the Asia-Pacific region, Europe, the Middle East and Africa in more than 500,000 temporary jobs a year.

The company's biggest business segment, called Americas Commercial, accounts for between 40 percent and 50 percent of total revenue. Business units within this segment place a wide range of temporary help, including clerical workers, call-center staff, trade show crews, substitute teachers, aerospace technicians, maintenance workers and material handlers. Permanent placement services also are available from Kelly.

The November employment report from the U.S. Department of Labor contained a positive note Kelly and other staffing agencies: "Modest job gains continued in temporary help services."

Kelly has its own advantages, too. It has avoided over-dependence on a few large sources of revenue. Its largest customer accounted for 3 percent of 2010 revenue. Downsizing in the public sector is having minimal impact on Kelly because government work accounts for an insignificant portion of its business.

But competition is widespread, and some rivals are larger than Kelly. The company reported last year that its largest competitors include Manpower Inc. (MAN), Robert Half International (RHI) and SFN Group Inc., a U.S. arm of Randstad Holdings (RANJY), based in the Netherlands.

Altogether, "in the United States, approximately 100 competitors operate nationally and approximately 10,000 smaller companies compete in varying degrees at local levels," Kelly said in a filing.

Among securities analysts covering the company in early January, a slim majority recommended buying Kelly's Class A shares, and the rest had neutral hold ratings on the stock. The company has two classes of publicly traded stock, and the Class A shares are more actively traded than the closely held Class B shares.

Kelly's earnings jumped to $39.6 million in the first three quarters of 2011, more than triple its earnings in the same period in 2010. The company rang up $4.15 billion of revenue in first nine months of 2011, up 14.6 percent from the same period in 2010.

Recovering

The company is in recovery mode. It earned net income of $26 million in 2010 after incurring net losses in the previous two years totaling $186 million. Revenue totaled $4.9 billion in 2010, up from in 2009 but still below the $5 billion-plus level in each of the four preceding years.

The fourth-quarter report is likely to reflect seasonal softness in the temp market. Kelly is subject to seasonal demand for temporary help, which historically increases in the second quarter and third quarter of the year and decreases in the fourth quarter and first quarter.

Kelly summed up its post-recession prospects last year in its Form 10-K filing last year with the SEC, noting that demand for staffing has grown "since the low point in September 2009" but has remained "short of pre-recession levels ... It will likely take several years for the overall market to recover."

Kelly Services will release its next quarterly earnings report around Feb. 2.

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Wednesday, 11 Jan 2012 06:54 AM
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