Kelly Services, Inc. (KELYA)
Q4 2009 Earnings Call
February 5, 2010 9:00 am ET
Carl Camden - President and CEO
Patricia Little - EVP and CFO
Toby Sommer - SunTrust Robinson Humphrey
T.C. Robillard - Signal Hill Capital
John Healy - North Coast
Ashwin Shirvaikar - Citi
Bill Sutherland - Boenning
Dale Dutile - The Boston Company
Ty Govatos - CL King
Previous Statements by KELYA
» Kelly Services, Inc. Q3 2009 Earnings Call Transcript
» Kelly Services Inc. Q1 2009 Earnings Call Transcript
» Kelly Services Inc. Q4 2008 Earnings Call Transcript
I would like to turn the conference over to your host, Mr. Carl Camden, President and CEO. You may begin, sir. Thank you.
Great and thank you. Good morning. Welcome to Kelly Services' 2009 fourth quarter and year end conference call. With me on today's call is Patricia Little, our CFO.
Let me remind you that any comments made during this call including the Q&A may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. Please refer to our 10-K for a description of the risk factors that could influence the company's actual future performance.
Let me start this morning by saying we're very pleased to report improved results for fourth quarter of 2009. Most notably, we experienced better than expected revenue increases across all of our individual business segments, which I'll highlight in my segment discussion. We exhibited solid expense control during the quarter and Patricia will detail our cost-cutting actions and restructuring efforts in her financial review.
And finally, our renewed strategy is strengthening Kelly's competitive position, both operationally and strategically. And I'll share elements of that updated strategy in my concluding remarks, after which we'll open the call for your questions.
Let me tell you, it's good to put 2009 behind us. The year began with little optimism. There was high anxiety over the depth and duration of the global economic slowdown and a great deal of uncertainty about the condition of labor markets was felt throughout the year.
The end of the U.S. recession was officially declared in June. For our industry and for Kelly, improvements didn't really begin to show up until the third quarter with more pronounced progress in the fourth and we ended the year decidedly more optimistic and with greater confidence that the stage has been set for a solid sustainable recovery in 2010.
We are encouraged by the recent trends we're seeing. In particular, temp volumes are showing meaningful sequential increases, but we know the impact of the past recession will be felt for quite a while and it will take considerable time to recover all of the lost jobs. As is always the case, the impact of a recession was very pronounced in our industry.
However, we're very pleased to see that temp employment has risen more than 12% since June with January marking the sixth consecutive monthly increase. The temp penetration rate in the U.S. has increased to 1.52% continuing to rebound after bottoming in July 2009 at roughly 1.33.
For Kelly, in particular, we've now experienced eight consecutive months of increased demand in our light industrial staffing and after stabilizing in the third quarter, demand for office/clerical is again picking up, as is demand across nearly all of our professional and technical business lines.
Further, these trends translated into improvements in our quarterly results. Fourth quarter revenue was up 14% sequentially from the third quarter. Now, we attribute roughly four to five percentage points of that growth to the extra billing week in December. Our fourth quarter contained 14 weeks and our fiscal year included 53 weeks.
Please keep in mind that all references made to prior periods include the 4% to 5% point impact of this extra week.
We're very pleased that in spite of a year-over-year revenue decline of 7% in the fourth quarter, excluding restructuring costs, Kelly achieved a small operating profit for the quarter of $400,000 and ahead of street expectations.
Expenses for the quarter were down 16% year-over-year and down 20% for the entire year. That's a reduction of $200 million excluding restructuring charges.
Our gross profit rate was 15.8% in the fourth quarter, down 180 basis points from the prior year due to changing mix and declines in placement fees, but remained unchanged from the third quarter.
Let's now review the operating results by business segment beginning with Americas Commercial, which represents 40% of our revenue. Sequentially, revenue in number Americas Commercial in the fourth quarter was about 19% higher than that in the third. This compares to a sequential drop of nearly 4% for the same period last year.
On a reported basis, revenues fell 6% year-over-year in the quarter, an improvement from the 25% decline in the third. On the other hand, as you would expect in the early stages of a recovery, fees continued to be significantly down.
Our combined temp-to-perm and direct placement fees were down 58% year-over-year for the quarter, about the same as the 61% decline in the third.
Kelly's gross profit rate continues to be negatively impacted by this year-over-year drop in fees, growth in light industrial staffing as well as higher workers' compensation cost. For the current quarter, the gross profit rate was 14.3% or 190 basis points lower than the same period last year. However, sequentially, the GP rate was about the same as the third quarter.
Tight expense control in our Americas Commercial has reduced spending this quarter by about 15% compared to last year excluding restructuring costs.
During the quarter, we incurred roughly $3 million related to severance and consolidation and closure of 53 additional branches. We closed and consolidated approximately 85 commercial branches in the Americas in 2009.
Commercial earnings were down 48% year-over-year in the fourth quarter, but were sequentially improved from the third. I'm very pleased, however, that in spite of the challenging economy here in the U.S., excluding employee and lease termination costs, Americas Commercial achieved profitability in all four quarters of 2009.