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Kelly Services Inc. (NASDAQ: KELYA, KELYB) yesterday announced its results for the first quarter of 2013 with revenues in constant currency down -3% to $1.3 billion compared to the prior year. Gross profit also declined by -3% to $216.9 million.
Depite the decrease in revenue, SG&A increased slightly by +0.4% to $209.8 million and net earnings from operations took a -52% hit to $7.1 million.
Carl T. Camden, President and Chief Executive said, “The sluggish economic growth we saw throughout 2012 continued into the first quarter of 2013, accompanied by a softening in demand for temporary labour. Given these tough conditions, we’re pleased to report that Kelly’s performance exceeded expectations. We delivered an operating profit and controlled expenses while moving ahead with strategic investments”.
In the Company’s largest region, the Americas, the company saw softening demand resulting in a revenue decline of -3% to $889.3 million.
In EMEA (responsible for 18% of total revenue), revenue declined by -4% on a constant currency basis with commercial staffing revenue down -6% but professional staffing services up +3%. The company described the economic and business conditions in the region as challenging and, unlike a number of its peers who recently reported a bottoming out of the European market, expects these conditions to remain for the foreseeable future. In its Analyst call yesterday, the Nordics, Russia and Hungary were highlighted as bright spots. The EMEA gross margin declined to 17.1% from 17.6% in Q1 2012 despite benefiting from a tax credit in France worth 60 basis points. EMEA earnings were broadly flat compared to the prior year.
In APAC (responsible for 7% of total revenue), revenue declined by -7% on a constant currency basis with the professional staffing segment hit by a -20% decline. The Company attributed the performance to poor market conditions in Australia and New Zealand (where Kelly’s management teams have recently been combined) and to the fact that they have exited a number of low margin contracts in India. APAC gross margin declined 60 basis points to 16.3% compared to Q1 2012.
Highlight of the announcement was the performance of the KellyOCG division which provides business process outsourcing and contingent worker outsourcing globally. Here, revenue grew by +14% on a constant currency basis with particular strength in BPO services. The gross margin increased to 27.3% from 26.7% in Q1 2012 due to growth in higher margin practice areas. While the company was pleased with the performance of KellyOCG, it also cautioned that planned investments in Q2 to support a major contract will result in a loss for the division in that quarter.
The results were ahead of market expectations (for the fifth quarter in a row) and the shares were up 2.39% to $17.17 during the course of trading yesterday, 9.58% below its 52-week high of 18.99, set on 2nd April, 2013 and +31.37% above a year ago. This means the company is valued at $642.8 million.