Kelly Services Reports Record Revenue and Strong Earnings Growth for the 1st Quarter of 2005
TROY, Mich., April 26, 2005 -- Kelly Services, Inc., a global provider of staffing services, today announced record revenue and strong earnings growth for first quarter ended April 3, 2005.
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Terence E. Adderley, Kelly Services chairman and chief executive officer, announced revenue for the first quarter of 2005 totaled $1.249 billion, a 7.8% increase compared to the $1.159 billion for the corresponding quarter in 2004.
Net earnings for the first quarter of 2005 totaled $4.1 million, a 286% increase compared to $1.1 million reported for the first quarter of 2004. Diluted earnings per share in the first quarter of 2005 were $0.11, a 267% increase as compared to first quarter 2004 earnings of $0.03 per share.
Commenting on the results, Adderley said, "Our first quarter sales of $1.249 billion achieved a new sales record for the first quarter, exceeding the previous record we set in 2004 by over $90 million.
"We expect second quarter 2005 earnings to be in the range of $0.24 to $0.29, as compared to $0.14 per share in the second quarter of 2004. For the full year of 2005, we are maintaining our forecast that earnings will range between $1.00 and $1.20 per share. This forecast is based on moderate global economic growth in 2005.
"Revenue in our U.S. Commercial staffing segment, which accounted for 45% of total sales, increased 2.9% year over year during the first quarter. The gross profit rate in this segment increased nine-tenths of a percent, due to a combination of improved pricing, the decision to exit certain customers, lower workers compensation costs, and higher fee based income. Expenses increased 4.9% compared to last year. Operating earnings totaled $29.4 million, an increase of 20.9% compared to last year.
"Revenue in our Professional, Technical, and Staffing Alternatives (PTSA) segment, which accounted for 22% of total sales, increased 14.1% year over year during the first quarter. Kelly Scientific Resources, Kelly Engineering Resources and Kelly Financial Resources were the leading professional and technical performers in the first quarter. Kelly HRfirst continued to be the leading staffing alternatives unit. Kelly Home Care and the Automotive Services Group experienced small revenue decreases during the quarter. Kelly Staff Leasing revenue also declined, reflecting the repositioning of its customer mix. The PTSA gross profit rate decreased one tenth of a percent, primarily due to business unit mix, partially offset by higher fee based income. Expenses increased 14.7% as compared to last year. Operating earnings totaled $15.5 million and increased 10.2% on a year over year basis.
"Revenue in our International segment, which accounted for 33% of total sales, increased 11.0% year over year during the first quarter. The International gross profit rate increased by two-tenths of a percent, primarily due to growth in fee based income. Operating expenses increased by 9.8% in U.S. dollar terms. Operating earnings totaled $537 thousand, a significant improvement compared to a loss of $905 thousand last year.
"On a constant currency basis, International segment revenue increased 6.8%, and total Company revenue increased 6.5% year over year in the first quarter."
On February 7, 2005, the SEC issued a general letter on lease accounting. As a result, nearly 250 public companies have announced lease related restatements, adjustments or reviews of lease accounting. The Company is in process of completing a review of its lease accounting practices, and in consultation with its audit committee, plans to restate its financial statements for 2002, 2003 and 2004 to reflect what are expected to be certain immaterial adjustments. This conclusion has been discussed with the Company's independent registered public accountants.
The Company is revising its accounting for branch leases to recognize step rent increases on a straight line basis over the lease term. For over twenty- five years, the Company had consistently recognized rent expense as paid.
Although the corrections are not expected to be material to any period, the Company will provide comparable historical information by restating its financial statements for 2002, 2003 and 2004. Selling, general and administrative expense is estimated to increase or decrease by immaterial amounts for each of the three years.
The Company will also record allowances provided by landlords as deferred rent. Previously, these allowances had been recorded as reductions of property and equipment. The balance sheet correction is expected to increase property and equipment and deferred rent in equal amounts.
The net cumulative effect of the estimated corrections to lease accounting for all years prior to 2002, and any other prior period adjustments resulting from the restatement, are expected to be recorded as an adjustment to beginning of year 2002 retained earnings. The combined estimated after tax adjustment is expected to represent less than three tenths of a percent of stockholders' equity.
The adjustments for lease accounting, and any other adjustments resulting from the restatement, are not expected to have a material effect on historically reported diluted earnings per share. The adjustments are not expected to have any effect on historical or future total cash flows, or the timing of payments under the related leases. The adjustment for lease accounting had no material impact on first quarter 2005 results, and is not presently expected to have a material impact on future results.
In conjunction with its first quarter earnings release, Kelly Services, Inc. will host a conference call at 9:00 a.m. (ET) on April 26, 2005 to review the results. The call may be accessed in one of the following ways:
Via the Telephone:
U.S. 1-888-423-3281
International 1-612-332-0345
The conference call leader is Terence Adderley
The passcode is Kelly Services
Via the Internet:
You may access the call via the internet through the Kelly Services website:
http://www.kellyservices.com
This release contains statements that are forward looking in nature and accordingly, are subject to risks and uncertainties. These factors include: competition, changing market and economic conditions, currency fluctuations, changes in laws and regulations, including tax laws, the company's ability to effectively manage its information technology programs, and other factors discussed in this release and in the company's filings with the Securities and Exchange Commission. Actual results may differ materially from any projections contained herein.
Kelly Services, Inc. (Nasdaq: KELYA, KELYB) is a Fortune 500 company headquartered in Troy, Mich., offering staffing solutions that include temporary staffing services, staff leasing, outsourcing, vendor on-site and full-time placement. Kelly owns and operates nearly 2,600 offices in 27 countries. Kelly provides employment to over 700,000 employees annually, with skills including office services, accounting, engineering, information technology, law, science, marketing, light industrial, education, health care, and home care. Revenue in 2004 was $4.98 billion. Visit http://www.kellyservices.com.
KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY STATEMENTS OF EARNINGS
FOR THE 13 WEEKS ENDED APRIL 3, 2005 AND MARCH 28, 2004
(UNAUDITED)
(In thousands of dollars except per share data)
2005 2004 Change % Change
Revenue from services $1,249,335 $1,158,811 $90,524 7.8%
Cost of services 1,044,967 975,455 69,512 7.1
Gross profit 204,368 183,356 21,012 11.5
Selling, general and
administrative expenses 197,989 181,342 16,647 9.2
Earnings from operations 6,379 2,014 4,365 216.7
Interest expense, net (35) (239) 204 85.4
Earnings before taxes 6,344 1,775 4,569 257.4
Income taxes 2,230 710 1,520 214.1
Net earnings $4,114 $1,065 $3,049 286.3%
Basic earnings per share $0.12 $0.03 $0.09 300.0%
Diluted earnings per share $0.11 $0.03 $0.08 266.7%
STATISTICS:
Gross profit rate 16.4% 15.8% 0.6%
Expenses as a % of revenue 15.8 15.6 0.2
% Return - Earnings from operations 0.5 0.2 0.3
Earnings before taxes 0.5 0.2 0.3
Net earnings 0.3 0.1 0.2
Effective income tax rate 35.2 40.0 (4.8)
Average number of shares outstanding (thousands):
Basic 35,535 34,881
Diluted 35,934 35,302
The financial information above is considered preliminary and is subject
to change related to the Company's review of lease accounting.
KELLY SERVICES, INC.
PRELIMINARY RESULTS OF OPERATIONS BY SEGMENT
(UNAUDITED)
(In thousands of dollars)
First Quarter
2005 2004 Change % Change
Revenue from Services:
U.S. Commercial Staffing $565,514 $549,330 $16,184 2.9%
PTSA 272,422 238,790 33,632 14.1
International 411,399 370,691 40,708 11.0
Consolidated Total $1,249,335 $1,158,811 $90,524 7.8%
Earnings (Loss) from
Operations:
U.S. Commercial Staffing $29,386 $24,307 $5,079 20.9%
PTSA 15,469 14,032 1,437 10.2
International 537 (905) 1,442 N/A
Corporate Expense (39,013) (35,420) (3,593) (10.1)
Consolidated Total $6,379 $2,014 $4,365 216.7%
The financial information above is considered preliminary and
is subject to change related to the Company's review of lease accounting.
KELLY SERVICES, INC.
PRELIMINARY RECONCILIATION OF CONSTANT CURRENCY
REVENUE FROM SERVICES TO REPORTED REVENUE FROM SERVICES
UNAUDITED
(In thousands of dollars)
First Quarter
2005 2004 Change % Change
U.S. Commercial Staffing $565,514 $549,330 $16,184 2.9%
PTSA 272,422 238,790 33,632 14.1
International - constant
currency* 395,789 370,691 25,098 6.8
Revenue from services -
constant currency 1,233,725 1,158,811 74,914 6.5%
Foreign currency impact 15,610 15,610
Revenue from services $1,249,335 $1,158,811 $90,524 7.8%
* Information on constant currencies is provided to allow investors to separate the impact of foreign currency translations on reported results. Constant currency results are calculated by translating the current year results at prior year average exchange rates.
The financial information above is considered preliminary and is subject
to change related to the Company's review of lease accounting.
KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY BALANCE SHEETS
UNAUDITED
(In thousands of dollars)
April 3, January 2, March 28,
2005 2005 2004
Current Assets
Cash and equivalents $69,531 $87,554 $55,347
Short-term investments 512 1,288 452
Trade accounts receivable, less
allowances of $16,296, $16,228
and $16,004, respectively 740,980 727,366 704,771
Prepaid expenses and other
current assets 41,447 40,736 34,777
Deferred taxes 36,339 34,967 24,530
Total current assets 888,809 891,911 819,877
Property and Equipment, Net 174,805 179,786 181,487
Noncurrent Deferred Taxes 18,489 17,960 14,378
Goodwill, Net 92,031 94,652 84,398
Other Assets 82,706 63,059 58,847
Total Assets $1,256,840 $1,247,368 $1,158,987
Current Liabilities
Short-term borrowings $47,061 $34,289 $37,904
Accounts payable 109,635 102,264 96,561
Accrued payroll and related taxes 245,442 246,061 218,792
Accrued insurance 32,734 33,165 33,674
Income and other taxes 62,419 67,839 52,754
Total current liabilities 497,291 483,618 439,685
Noncurrent Liabilities
Accrued insurance 57,828 58,548 54,941
Accrued retirement benefits 52,156 50,892 48,788
Total noncurrent
liabilities 109,984 109,440 103,729
Stockholders' Equity
Common stock 40,116 40,116 40,116
Treasury stock (96,328) (97,693) (108,023)
Paid-in capital 22,787 22,530 19,651
Earnings invested in the business 664,738 664,813 654,300
Accumulated other comprehensive
income 18,252 24,544 9,529
Total stockholders' equity 649,565 654,310 615,573
Total Liabilities and Stockholders'
Equity $1,256,840 $1,247,368 $1,158,987
STATISTICS:
Working Capital $391,518 $408,293 $380,192
Current Ratio 1.8 1.8 1.9
Debt-to-capital % 6.8% 5.0% 5.8%
Global Days Sales Outstanding
Year-to-date 54 54 55
The financial information above is considered preliminary and is subject
to change related to the Company's review of lease accounting.
KELLY SERVICES, INC. AND SUBSIDIARIES
PRELIMINARY STATEMENTS OF CASH FLOWS
FOR THE 13 WEEKS ENDED APRIL 3, 2005 AND MARCH 28, 2004
UNAUDITED
(In thousands of dollars)
2005 2004
Cash flows from operating activities
Net earnings $4,114 $1,065
Noncash adjustments:
Depreciation and amortization 10,382 11,326
Increase in trade accounts
receivable, net (21,698) (47,447)
Changes in other operating assets
and liabilities 7,222 18,743
Net cash from operating
activities 20 (16,313)
Cash flows from investing activities
Capital expenditures (5,945) (4,375)
Decrease in short-term investments 834 5
Increase in other assets (2,867) (173)
Investment in unconsolidated
affiliate (18,450) -
Net cash from investing
activities (26,428) (4,543)
Cash flows from financing activities
Increase (decrease) in short-term
borrowings 14,674 (708)
Dividend payments (3,554) (3,491)
Stock options and other (777) 4,169
Purchase of treasury stock - (3)
Net cash from financing activities 10,343 (33)
Effect of exchange rates on cash and
equivalents (1,958) (142)
Net change in cash and equivalents (18,023) (21,031)
Cash and equivalents at beginning of period 87,554 76,378
Cash and equivalents at end of period $69,531 $55,347
The financial information above is considered preliminary and is subject
to change related to the Company's review of lease accounting.
SOURCE Kelly Services, Inc.
ANALYST CONTACT: James Polehna, +1-248-244-4586,
james_polehna@kellyservices.com , or
MEDIA CONTACT: Renee Walker, +1-248-244-5362,
renee_walker@kellyservices.com , both
of Kelly Services, Inc.