Kelly Services Reports Mixed Sentiment in Earnings Call

Kelly Services ((KELYA)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call for Kelly Services presented a mixed sentiment, reflecting both positive developments and significant challenges. The company reported revenue growth and an improved gross profit rate, with a particularly strong performance in the education segment. However, the call also highlighted challenges such as reduced demand for federal contractors, high integration costs, and a decline in earnings per share and EBITDA margin. The sentiment was balanced, focusing equally on growth opportunities and the hurdles faced by the company.

Revenue Growth

Kelly Services reported a notable revenue growth for the first quarter of 2025, totaling $1.16 billion, which marks an 11.5% increase compared to the same quarter last year. On an organic basis, the year-over-year revenue increase was a modest 0.2%, indicating some underlying growth despite external challenges.

Education Segment Performance

The education segment of Kelly Services showed a robust performance, with a 6.6% year-over-year increase. This growth was driven by improved fill rates and higher bill rates, showcasing the segment’s resilience and potential for continued expansion.

Improved Gross Profit Rate

The company achieved a gross profit of $236.5 million, with a gross profit rate of 20.3%. This represents an improvement of 60 basis points compared to the previous year’s quarter, highlighting effective cost management and pricing strategies.

Integration and Efficiency Initiatives

Kelly Services is actively working on integrating Motion Recruitment Partners and unifying its OCG and P&I business units. These initiatives are expected to drive efficiencies and synergies, contributing to the company’s long-term strategic goals.

Semiconductor and Renewable Sectors

There is strong demand for higher-margin outcome-based solutions within the semiconductor and renewable sectors. This demand is a positive indicator for future growth in these high-potential areas.

Federal Contractor Demand Decline

The company faced a 0.8% negative impact on overall revenue due to reduced demand for federal contractors, which notably affected the SET and ETM segments. This decline poses a challenge that the company will need to address moving forward.

High Integration Costs

Kelly Services incurred integration charges of $10.7 million during the quarter, with ongoing charges expected due to IT and severance expenses. These costs are a significant factor in the company’s financial performance.

Earnings Per Share Reduction

The reported earnings per share for the quarter were $0.16, a decrease from $0.70 in Q1 2024. On an adjusted basis, earnings per share were $0.39 compared to $0.56 in the previous year, reflecting the financial pressures faced by the company.

Adjusted EBITDA Margin Decline

The adjusted EBITDA margin declined by 20 basis points to 3%, indicating a slight decrease in operational efficiency. Despite this, adjusted EBITDA increased by 5% to $34.9 million, suggesting some underlying strength in the company’s operations.

Forward-Looking Guidance

Looking ahead, Kelly Services anticipates a 6% to 7% revenue growth in the second quarter, despite a 1% to 1.5% negative impact from reduced federal contractor demand. The company expects adjusted EBITDA margin expansion in the latter half of the year as it continues to streamline operations and integrate its acquisitions, signaling optimism for future performance.

In conclusion, Kelly Services’ earnings call reflected a balanced sentiment, with both positive developments and notable challenges. The company demonstrated revenue growth and improved profitability, particularly in the education segment, while also facing integration costs and reduced demand in certain areas. Looking forward, the company remains optimistic about its growth prospects and operational improvements.