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WIKI ANALYSIS
Kelly Services (KELYA) is a staffing company that makes money by placing people in temporary positions at firms around the globe. About 45% of the company’s placements are for the commoditized low-skilled positions.[1] A significant number of the firm's clients are major corporations-- in 2007, Kelly provided labor to 90% of Fortune 500 companies. These companies typically "order" large numbers of workers and are able to negotiate volume discounts with Kelly. As a result of its high concentration of low skilled labor and the large size of its clients, Kelly's operating margins were among the lowest in the staffing industry at 1.4%.[2]
Temporary staffing is highly influenced by economic cycles because temporary employees are the first to be cut in down cycles and the first to be hired in up cycles.[3] Kelly is more vulnerable to economic cycles, particularly those in the U.S., than its more geographically diverse competitors. Although the company's international revenues have been growing as a percentage of total revenue over the last 5 years, a majority (70% in 2007)[4] of Kelly's revenue still comes from the U.S. and to a much lesser extent Canada. [5] This is markedly different from its major competitors, Manpower (MAN) and Adecco SA (ADO) , which generate no more than 1/3 of their revenue from any one country and 90% [6] and 85% [7] , respectively, of revenue outside the U.S .
Company Overview
Commercial (75% of revenue, 61% of operating income in 2007): This segment primarily includes temporary and permanent staffing for office services, contact centers, light industrial jobs, and electronic assembly jobs. Commercial staffing makes up the majority of Kelly's revenue and also accounts for much of the low skill staffing the company provides. Gross profit rate was 15.9% and 17.6% for the Americas and International segments in 2007, respectively.
Professional, Technical, and Staffing Alternatives (25% of revenue, 39% of operating income in 2007): This segment primarily includes temporary and permanent staffing for jobs in information technology, engineering, and finance. This segment provides more specialized offerings resulting in higher profitability. Americas - PTSA had a gross profit rate of 18.7% and International - PTSA had a gross profit rate of 31.2% in 2007.[8]
Trends and Forces
U.S. Temporary Employment down 5.7% since June 2007
Temporary employment is usually a leading indicator of overall employment: in a down economy temporary employees are let go first and in a booming economy temporary employees are first to be hired.[10] From June 2007 through June 2008, temporary employment is down 5.7% in the US.[11] Kelly's revenue dropped almost 8% in its Americas segment from Q1 2007 to Q1 2008 because Kelly gets the majority of its revenue from the US and the country's temporary employment.
International Growth offsets Falling Domestic Growth
In 2007, Kelly's International - Commercial and International - PTSA segments grew by 16.4% and 38% in 2007, respectively. In comparison, Kelly's Americas - Commercial segment dropped 5.4% and Americas - PTSA segment was flat in 2007. Kelly's total growth was lackluster in 2007, only 2.2%, because of the slowing US economy, but by growing internationally Kelly can better offset the US market and capitalize on the growing foreign markets. Temporary staffing is increasing in many emerging economies and in countries like Germany and Japan that are adopting flexible employment strategies. As an example, over 33% of workers in Japan are temporary workers.[12] Kelly services has expanded its international operations from 26.5% of revenue in 2002 to close to 30% in 2007.[13]
EU Directive Makes Effort to Reduce Labor Laws
In June 2008, the EU made a directive that addressed the positive impact temporary staffing has on the labor market. The directive requires countries in the EU to make at least the minimum requirements specified by the directive. Some of these actions include banning all laws that discriminate in any way and adding a law against disability discrimination.[14] These discrimination laws have more of an impact today because falling birthrates in Europe have caused many countries to start importing workers, in particular muslims.[15] France has already lifted restrictions on permanent placement; however, restrictions are still prevalent in other countries. In Spain, temporary staffing is prohibited in the construction industry, as well as public services (Belgium does not allow temporary staffing in public services either).[16] A report by Eurociett, the European Confederation of Private Employment Agencies, stated that if only two of the recommended actions of the directive are adopted by six EU countries, then by 2012 about 570,000 more jobs could be created.[17]
Competition
Kelly competes with about 100 national staffing companies in the US and another 10,000 local staffing companies.[18] Kelly competes with much larger competitors such as Manpower and Adecco, as well as more specialized firms such as Robert Half International. Competitors Manpower and Adecco both get over 50% of revenues from low skilled staffing and get their revenues from placing very large amounts of people per year (Manpower placed 5 million people in 2007). Competitor Robert Half International specializes in accounting and financial staffing and this specialization allows the company to charge premiums and attain industry leading profitability (RHI operating margin was 10.6% in 2007). Kelly falls in the middle with about 45% of its revenues coming from low skill staffing and the rest coming from more specialized IT, engineering and financial staffing.
| Company | Revenue (in millions) | Net Income (in millions) | Operating Margin | Return on Equity | Offices | Number of Clients | Number Employed in permanent, temporary, and contract positions | Countries Occupied |
|---|---|---|---|---|---|---|---|---|
| Kelly Services[19] | $5,600 | $61 | 1.41% | 6.95% | 2,500 | 750,000 | 34 | |
| Adecco SA (ADEN-VX)[20] | $33,000 | $1,150 | 5% | 27.53% | 7,000 | 150,000 | 60 | |
| Manpower[21] | $20,500 | $484.7 | 4% | 18.85% | 4,498 | 400,000 | 5,000,000 | 80 |
| Robert Half[22] | $4,650 | $296.2 | 10.6% | 29.23% | 360 | 18 | ||
| Spherion Corporation[23] | $2,017 | $25.3 | 2.3% | 6% | 940 | 8,000 | 300,000 | 8 |
| MPS Group Inc.[24] | $2,100 | $87.1 | 6.2% | 8.98% | 230 |
References
- ↑ Morningstar Analyst Research, Thesis
- ↑ Based on comparing operating margins pulled from 10-Ks, see table in Competition section
- ↑ The Temp Boom: Will Hiring Follow
- ↑ KELYA 2007 10-K pg.17
- ↑ KELYA 2007 10-K pg.21
- ↑ 2007 Annual Report pg. 28
- ↑ Adecco 2007 10-K pg.9
- ↑ KELYA 2007 10-K pg.20
- ↑ Google Finance KELYA Income Statement
- ↑ The Temp Boom: Will Hiring Follow
- ↑ Economic Egomaniacs
- ↑ Temporary Employment in Japan
- ↑ KELYA 2007 10-K pg.17
- ↑ EBU Newsletter #49
- ↑ What in the World is Going On? A Global Intelligence Briefing for CEOs by Herbert Meyer
- ↑ Adecco Welcomes Compromise in EU Agency Work Directive
- ↑ More Work Opportunities for More People
- ↑ KELYA Morningstar Analyst Research, Thesis
- ↑ Kelly Services on Google Finance
- ↑ Adecco 2007 Annual Report
- ↑ MAN 2007 10-K
- ↑ RHI 2007 10-K
- ↑ SFN on Google Finance
- ↑ MPS Group on Google Finance
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