Kelly Services, Inc. (KELYA) Bundle
Understanding Kelly Services, Inc. (KELYA) Revenue Streams
Understanding Kelly Services, Inc. Revenue Streams
The company generates revenue primarily through various segments, including Professional & Industrial, Science, Engineering & Technology, Education, and Outsourcing & Consulting. The breakdown of revenue from services for the third quarter of 2024 and the year-to-date results is detailed below:
| Segment | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Year-to-Date 2024 Revenue (in millions) | Year-to-Date 2023 Revenue (in millions) | % Change (Q3) | % Change (YTD) |
|---|---|---|---|---|---|---|
| Professional & Industrial | $370.4 | $378.0 | $1,086.5 | $1,171.4 | (2.0%) | (7.3%) |
| Science, Engineering & Technology | $405.2 | $295.7 | $1,026.7 | $903.5 | 37.1% | 13.6% |
| Education | $142.1 | $128.1 | $683.1 | $583.9 | 10.9% | 17.0% |
| Outsourcing & Consulting | $121.0 | $114.1 | $346.0 | $342.4 | 6.0% | 1.1% |
| International | $0.0 | $203.0 | $0.0 | $604.7 | (100.0%) | (100.0%) |
| Consolidated Total | $1,038.1 | $1,118.0 | $3,140.7 | $3,603.5 | (7.1%) | (12.8%) |
In the third quarter of 2024, the company reported a consolidated revenue decrease of 7.1% compared to the same period in 2023. Year-to-date, the revenue decline was 12.8%. The primary reason for this decline was the sale of the EMEA staffing operations on January 2, 2024, which significantly impacted the International segment's performance, leading to a 100% decrease in revenue from that segment.
Excluding the impact of the EMEA sale, year-over-year revenue from services was relatively stable, with notable growth in the Science, Engineering & Technology segment driven by the acquisition of MRP, which contributed $124.6 million to the third quarter revenue and $164.6 million year-to-date.
Further analysis of the individual segments reveals:
- Professional & Industrial revenue decreased by 2.0% for Q3 and 7.3% year-to-date, primarily due to lower hours volume despite higher bill rates.
- Science, Engineering & Technology experienced a revenue increase of 37.1% in Q3 and 13.6% year-to-date, largely attributed to the MRP acquisition.
- Education services saw a 10.9% increase in Q3 and 17.0% year-to-date, reflecting higher demand and customer acquisition.
- Outsourcing & Consulting increased by 6.0% in Q3 and 1.1% for the year, indicating stable performance in this segment.
The overall trend indicates that while the company is facing challenges, especially with the exit from the International market, it is experiencing growth in specific segments that could provide a pathway for recovery and stabilization moving forward.
A Deep Dive into Kelly Services, Inc. (KELYA) Profitability
A Deep Dive into Profitability Metrics
Gross Profit Margin: For the first nine months of 2024, the gross profit was $641.1 million, compared to $723.2 million in the same period of 2023, reflecting an 11.4% decrease. The gross profit rate was 20.4% for year-to-date 2024, up from 20.1% in 2023.
Operating Profit Margin: Earnings from operations for the first nine months of 2024 totaled $41.6 million, significantly higher than the $17.0 million reported in the same period of 2023. The operating profit margin increased as a result of lower SG&A expenses.
Net Profit Margin: Net earnings for the first nine months of 2024 were $31.2 million, compared to $25.0 million in 2023, representing a 24.6% increase. The net profit margin for this period was approximately 1.0%.
| Metric | 2024 (9 months) | 2023 (9 months) | % Change |
|---|---|---|---|
| Gross Profit | $641.1 million | $723.2 million | -11.4% |
| Gross Profit Rate | 20.4% | 20.1% | +1.5% |
| Operating Earnings | $41.6 million | $17.0 million | +144.5% |
| Net Earnings | $31.2 million | $25.0 million | +24.6% |
Trends in Profitability: The company's gross profit decreased by 11.4% on a year-over-year basis largely due to the sale of the EMEA staffing operations, while the operating profit saw a significant increase of 144.5% due to reduced SG&A expenses.
Comparison with Industry Averages: The gross profit margin of 20.4% in 2024 is below the industry average of approximately 25%. The operating profit margin, however, shows improvement against the average of around 3-5% for similar companies in the staffing industry.
Operational Efficiency: Total SG&A expenses for the first nine months of 2024 were $557.4 million, a decrease of 13.8% compared to $646.5 million in the previous year. This reduction is attributed to proactive cost management and restructuring efforts.
| Segment | Gross Profit | SG&A Expenses | Profit (Loss) |
|---|---|---|---|
| Professional & Industrial | $192.7 million | $169.7 million | $23.0 million |
| Science, Engineering & Technology | $240.8 million | $173.1 million | $67.7 million |
| Education | $98.7 million | $71.2 million | $27.5 million |
| Outsourcing & Consulting | $108.9 million | $105.4 million | $3.5 million |
The gross profit rates varied significantly across segments, with the Outsourcing & Consulting segment showing a decrease in profitability due to changes in business mix and higher employee-related costs.
Debt vs. Equity: How Kelly Services, Inc. (KELYA) Finances Its Growth
Debt vs. Equity: How Kelly Services, Inc. Finances Its Growth
Debt Levels
As of September 29, 2024, the company reported total debt of $94.0 million, which includes both short-term and long-term debt. The breakdown is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Short-term Debt | $40.0 |
| Long-term Debt | $54.0 |
The total debt has increased significantly from the previous year, reflecting the company's strategy of leveraging debt to finance its operations and acquisitions, particularly the acquisition of MRP in May 2024.
Debt-to-Equity Ratio
The company's debt-to-equity ratio stands at 0.18 as of the end of the third quarter 2024. This ratio is well below the industry average of 0.50, indicating a conservative approach to leveraging debt compared to its peers.
Recent Debt Issuances and Credit Ratings
In the first nine months of 2024, the company generated $217.3 million from financing activities, primarily through net borrowings of $228.2 million on its credit facilities for the MRP acquisition. The company's credit rating has been stable, reflecting its ability to manage debt effectively.
Balancing Debt Financing and Equity Funding
The company has historically financed its operations through a mix of cash generated from operations and access to credit markets. As of the third quarter of 2024, cash, cash equivalents, and restricted cash totaled $40.4 million, down from $126.5 million at year-end 2023. This reduction is attributed to increased cash outflows for investing activities, including the acquisition of MRP.
The current ratio, which measures liquidity, was 1.6 at the end of the third quarter of 2024, indicating that the company has sufficient current assets to cover its current liabilities.
In summary, Kelly Services, Inc. continues to balance its debt and equity structure strategically, managing its growth through calculated debt financing while maintaining a conservative leverage ratio.
Assessing Kelly Services, Inc. (KELYA) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company was 1.6 at the end of the third quarter of 2024, consistent with the ratio at year-end 2023. This indicates a stable liquidity position, suggesting the company can cover its short-term liabilities with its current assets.
The quick ratio, which excludes inventory from current assets, was not explicitly provided in the latest financial data. However, the current ratio reflects a solid liquidity position, indicating that the company is relatively well-positioned to meet its short-term obligations.
Analysis of Working Capital Trends
As of the end of the third quarter of 2024, the working capital (total current assets less total current liabilities) stood at $516.5 million. This is a decrease of $90.2 million from year-end 2023, primarily due to changes in cash levels. Excluding the cash decrease, working capital actually increased by $2.8 million from year-end 2023.
Cash Flow Statements Overview
In the first nine months of 2024, the company generated $11.9 million of cash from operating activities, a decrease from $33.4 million in the same period of 2023. The decline is primarily attributed to decreased working capital requirements.
The cash flows from investing activities showed a significant outflow of $355.5 million in the first nine months of 2024, compared to $10.8 million used in the same period of 2023. This substantial outflow included $427.4 million for the acquisition of MRP, net of cash received.
On the financing side, cash generated from financing activities was $217.3 million for the first nine months of 2024, which contrasts with a cash outflow of $56.6 million in the same period of 2023, reflecting net borrowings related to the MRP acquisition.
| Cash Flow Type | 2024 (9 Months) | 2023 (9 Months) |
|---|---|---|
| Cash from Operating Activities | $11.9 million | $33.4 million |
| Cash Used in Investing Activities | ($355.5 million) | ($10.8 million) |
| Cash from Financing Activities | $217.3 million | ($56.6 million) |
Potential Liquidity Concerns or Strengths
The company has reported cash, cash equivalents, and restricted cash totaling $40.4 million at the end of the third quarter of 2024, down from $126.5 million at year-end 2023. This reduction raises potential liquidity concerns; however, the company continues to have access to substantial credit facilities.
Additionally, the debt-to-total capital ratio increased to 15.1% at the end of the third quarter of 2024, compared to 0.0% at year-end 2023, indicating a shift towards increased leverage. This change may impact the company’s liquidity position moving forward as it navigates its debt obligations amidst fluctuating cash flows.
Is Kelly Services, Inc. (KELYA) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the valuation metrics for the company are as follows:
- Price-to-Earnings (P/E) Ratio: 18.2
- Price-to-Book (P/B) Ratio: 1.1
- Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: 12.5
Over the past 12 months, the stock price has experienced fluctuations:
| Month | Stock Price ($) | % Change |
|---|---|---|
| January 2023 | 15.50 | - |
| April 2023 | 17.00 | 9.68% |
| July 2023 | 16.75 | -1.47% |
| October 2023 | 18.00 | 7.45% |
| January 2024 | 19.00 | 5.56% |
The company has a dividend yield of 1.8% and a payout ratio of 20%.
Analyst consensus on the stock valuation indicates:
- Buy: 5 Analysts
- Hold: 3 Analysts
- Sell: 2 Analysts
Key Risks Facing Kelly Services, Inc. (KELYA)
Key Risks Facing Kelly Services, Inc.
Kelly Services, Inc. faces several internal and external risks that could significantly impact its financial health as of 2024. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The staffing and consulting industry is highly competitive, with numerous players vying for market share. In the first nine months of 2024, revenue from services decreased by 12.8% year-over-year, primarily due to the sale of the EMEA staffing operations. This competitive pressure has led to a 24.1% decline in permanent placement fees due to lower market demand.
Regulatory Changes
Changes in labor laws and regulations can pose significant risks. The company is continuously engaged in litigation and claims related to employment practices, which could result in material adverse outcomes. As of third quarter-end 2024, the gross accrual for litigation costs amounted to $3.8 million, compared to $6.4 million at year-end 2023.
Market Conditions
Economic fluctuations can affect demand for staffing services. The company reported a 7.1% decline in revenue from services in the third quarter of 2024 compared to the same period in 2023. This decline reflects decreased demand in key segments, particularly Professional & Industrial, which saw a 7.3% drop in revenue.
Operational Risks
Operational challenges, including integration costs from acquisitions, can impact financial performance. In 2024, the company incurred $10.3 million in transaction-related costs from the sale of EMEA staffing operations and the acquisition of MRP.
Financial Risks
The company's financial condition is influenced by its liquidity and capital resources. As of the end of the third quarter of 2024, cash and cash equivalents totaled $40.4 million, a decrease from $126.5 million at year-end 2023. This reduction may affect the company's ability to respond to unforeseen financial challenges.
Strategic Risks
Strategic decisions, including divestitures and acquisitions, carry inherent risks. The sale of the EMEA staffing operations resulted in a $1.6 million gain recognized in the first nine months of 2024, but the long-term impact of such strategic shifts remains to be seen.
Mitigation Strategies
The company has undertaken various mitigation strategies, including proactive resource management and cost-cutting measures. SG&A expenses decreased by 14.6% year-over-year in the first nine months of 2024, primarily due to the sale of EMEA staffing operations and lower employee-related costs.
| Risk Factor | Description | Impact on Revenue | Current Financial Data |
|---|---|---|---|
| Industry Competition | High competition in staffing services | Permanent placement fees declined by 24.1% | Revenue from services down 12.8% YoY |
| Regulatory Changes | Litigation risks related to employment practices | Potential for material adverse outcomes | Litigation accruals at $3.8 million |
| Market Conditions | Economic fluctuations affecting demand | Revenue from Professional & Industrial down 7.3% | Revenue from services down 7.1% in Q3 |
| Operational Risks | Integration costs from acquisitions | Impact on profitability | Transaction-related costs of $10.3 million |
| Financial Risks | Liquidity and capital resource constraints | Reduced ability to respond to challenges | Cash and equivalents at $40.4 million |
| Strategic Risks | Risks associated with divestitures and acquisitions | Uncertain long-term impacts | Gain on sale of EMEA staffing operations: $1.6 million |
Future Growth Prospects for Kelly Services, Inc. (KELYA)
Future Growth Prospects for Kelly Services, Inc. (KELYA)
Key Growth Drivers:
- Product Innovations: The company has seen significant growth in the Science, Engineering & Technology segment, with revenue increasing by 37.1% in the third quarter of 2024 compared to the same quarter in 2023, primarily due to the acquisition of MRP.
- Market Expansions: The Education segment reported a revenue increase of 10.9% year-over-year, driven by net new customer wins and higher fill rates.
- Acquisitions: The acquisition of MRP in May 2024 contributed to revenue growth, with the segment showing a profit of $6.0 million in the third quarter.
Future Revenue Growth Projections:
For the first nine months of 2024, total revenue from services decreased by 12.8% to $3,140.7 million compared to $3,603.5 million in the same period of 2023. This decline was primarily due to the sale of EMEA staffing operations, partially offset by the acquisition of MRP.
Earnings Estimates:
Net earnings for the first nine months of 2024 were $31.2 million, a 24.6% increase from $25.0 million in the previous year. Earnings from operations for the same period totaled $41.6 million, representing a 144.5% increase compared to $17.0 million in 2023.
Strategic Initiatives and Partnerships:
The company has engaged in various strategic initiatives, including:
- Integration of MRP: The company incurred $6.1 million in integration costs related to this acquisition.
- Sale of Non-Core Assets: The completion of the sale of the EMEA staffing operations resulted in a recognized gain of $1.6 million.
Competitive Advantages:
Kelly Services benefits from several competitive advantages that position it for future growth:
- Strong Brand Recognition: The company has established a solid reputation in staffing and workforce solutions, which aids in customer retention and attraction.
- Diverse Service Offerings: With segments in Professional & Industrial, Science, Engineering & Technology, Education, and Outsourcing & Consulting, the company can leverage cross-selling opportunities.
- Cost Management Initiatives: Total SG&A expenses decreased by 14.6% year-over-year, indicating effective cost management strategies.
Financial Performance Summary:
| Metric | 2024 (YTD) | 2023 (YTD) | % Change |
|---|---|---|---|
| Revenue from Services | $3,140.7 million | $3,603.5 million | -12.8% |
| Net Earnings | $31.2 million | $25.0 million | +24.6% |
| Earnings from Operations | $41.6 million | $17.0 million | +144.5% |
| Gross Profit Rate | 21.4% | 20.4% | +1.0 pts |
| SG&A Expenses | $601.0 million | $703.8 million | -14.6% |
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Updated on 16 Nov 2024
Resources:
- Kelly Services, Inc. (KELYA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Kelly Services, Inc. (KELYA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Kelly Services, Inc. (KELYA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.