Kelly Services, Inc.
May 11, 2017

Kelly Services(R) Reports First Quarter Earnings

TROY, MI -- (Marketwired) -- 05/11/17 --

Financial Highlights

Kelly Services (NASDAQ: KELYA)(NASDAQ: KELYB), a global leader in providing workforce solutions, today announced results for the first quarter 2017.

George S. Corona, President and Chief Executive Officer, announced revenue for the first quarter of 2017 totaled $1.3 billion, a 4.4% decrease compared to the corresponding quarter of 2016. Revenue comparisons are unfavorably impacted by the transfer of APAC staffing operations to the TS Kelly Asia Pacific Joint Venture at the beginning of the third quarter of 2016.

Earnings from operations for the first quarter of 2017 totaled $16.4 million, compared to $14.7 million reported for the first quarter of 2016. Included in the results of operations in the first quarter of 2017 are restructuring charges of $2.4 million. Excluding the restructuring charges in 2017 and excluding the APAC staffing operations from 2016, earnings from operations were $18.8 million and $10.2 million, respectively.

Diluted earnings per share in the first quarter of 2017 were $0.31 compared to $0.29 per share in the first quarter of 2016. Excluding restructuring charges, earnings per share were $0.35 in the first quarter of 2017.

Reflecting on the first quarter, Corona stated, "It was a strong start to the year, and we're pleased with Kelly's performance. We returned to top-line growth, delivered healthy operating earnings in each of our segments, and provided solid returns for our shareholders." Commenting on the first quarter restructuring charges, Corona added, "Our operating structures are now fully aligned with how companies are choosing to access talent, and confirm our strategic approach to delivering accelerated growth."

Kelly also reported that on May 10, its board of directors declared a dividend of $0.075 per share. The dividend is payable June 7, 2017 to shareholders of record as of the close of business on May 23, 2017.

In conjunction with its first quarter earnings release, Kelly Services has published a financial presentation on the Investor Relations page of our public website and will host a conference call at 9:00 a.m. (ET) on May 11 to review the results and answer questions. The call may be accessed in one of the following ways:

Via the Internet:
Kellyservices.com

Via the Telephone:
U.S. 1 800 288-9626
International 1 651 291-5254
The pass code is Kelly Services

This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. These factors include, but are not limited to, competitive market pressures including pricing and technology introductions and disruptions, changing market and economic conditions, our ability to achieve our business strategy, the risk of damage to our brand, the risk our intellectual property assets could be infringed upon or compromised, our ability to successfully develop new service offerings, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, our increasing dependency on third parties for the execution of critical functions, the risks associated with past and future acquisitions, exposure to risks associated with investments in equity affiliates including TS Kelly Asia Pacific, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks associated with conducting business in foreign countries, including foreign currency fluctuations, availability of full-time employees to lead complex talent supply chain sales and operations, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyber attacks or other breaches of network or information technology security, our ability to sustain critical business applications through our key data centers, our ability to effectively implement and manage our information technology programs, our ability to maintain adequate financial and management processes and controls, impairment charges triggered by adverse industry developments or operational circumstances, unexpected changes in claim trends on workers' compensation, unemployment compensation, disability and medical benefit plans, the impact of changes in laws and regulations (including federal, state and international tax laws), the risk of additional tax or unclaimed property liabilities in excess of our estimates, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this release and in the Company's filings with the Securities and Exchange Commission. Actual results may differ materially from any forward looking statements contained herein, and we have no intention to update these statements.

About Kelly Services®

As a global leader in providing workforce solutions, Kelly Services, Inc. (NASDAQ: KELYA)(NASDAQ: KELYB) and its subsidiaries, offer a comprehensive array of outsourcing and consulting services as well as world-class staffing on a temporary, temporary-to-hire, and direct-hire basis. Kelly® directly employs nearly 500,000 people around the world in addition to having a role in connecting thousands more with work through its global network of talent suppliers and partners. Revenue in 2016 was $5.3 billion. Visit kellyservices.com and connect with us on Facebook, LinkedIn, & Twitter.

KLYA-FIN

   
KELLY SERVICES, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF EARNINGS  
FOR THE 13 WEEKS ENDED APRIL 2, 2017 AND APRIL 3, 2016  
(UNAUDITED)  
(In millions of dollars except per share data)  
                        %     CC %  
    2017     2016     Change       Change     Change  
                                       
Revenue from services   $ 1,289.7     $ 1,349.1     $ (59.4 )     (4.4 )%   (4.2 )%
                                       
Cost of services     1,058.1       1,116.4       (58.3 )     (5.2 )      
                                       
Gross profit     231.6       232.7       (1.1 )     (0.5 )   (0.3 )
                                       
Selling, general and administrative expenses     215.2       218.0       (2.8 )     (1.3 )   (1.1 )
                                       
Earnings from operations     16.4       14.7       1.7       11.2        
                                       
Other expense, net     (1.6 )     (0.9 )     (0.7 )     (74.5 )      
                                       
Earnings before taxes and equity in net earnings (loss) of affiliate     14.8       13.8       1.0       6.9        
                                       
Income tax expense     2.7       2.7       --       (0.1 )      
                                       
Net earnings before equity in net earnings (loss) of affiliate     12.1       11.1       1.0       8.7        
                                       
Equity in net earnings (loss) of affiliate     0.1       0.1       --       (7.8 )      
                                       
Net earnings   $ 12.2     $ 11.2     $ 1.0       8.4 %      
                                       
Basic earnings per share   $ 0.31     $ 0.29     $ 0.02       6.9 %      
Diluted earnings per share   $ 0.31     $ 0.29     $ 0.02       6.9 %      
                                       
                                       
STATISTICS:                                      
                                       
Staffing fee-based income (included in revenue from services)   $ 13.5     $ 16.5     $ (3.0 )     (18.7 )%   (18.9 )%
                                       
Gross profit rate     18.0 %     17.3 %     0.7   pts.            
                                       
Conversion rate     7.1       6.3       0.8                
                                       
% Return:                                      
  Earnings from operations     1.3       1.1       0.2                
  Net earnings     0.9       0.8       0.1                
                                       
Effective income tax rate     18.4 %     19.7 %     (1.3 ) pts.            
                                       
Average shares outstanding (millions):                                      
  Basic     38.3       38.0                        
  Diluted     38.7       38.2                        
                                         
   
KELLY SERVICES, INC. AND SUBSIDIARIES  
RESULTS OF OPERATIONS BY SEGMENT  
(UNAUDITED)  
(In millions of dollars)  
                           
    First Quarter  
                           
                %       CC %  
    2017     2016     Change       Change  
AMERICAS STAFFING                          
  Revenue from services   $ 573.1     $ 554.1     3.4 %     3.4 %
  Gross profit     105.3       100.7     4.6       4.4  
  SG&A expenses excluding restructuring charges     83.7       83.6     0.1       0.1  
  Restructuring charges     0.4       -     NM       NM  
  Total SG&A expenses     84.1       83.6     0.5       0.5  
  Earnings from operations     21.2       17.1     24.3          
  Earnings from operations excluding restructuring charges     21.6       17.1     26.4          
                                 
  Gross profit rate     18.4 %     18.2 %   0.2   pts.      
  Conversion rate     20.1       16.9     3.2          
  Conversion rate excluding restructuring charges     20.5       16.9     3.6          
  Return on sales     3.7       3.1     0.6          
  Return on sales excluding restructuring charges     3.8       3.1     0.7          
                               
GLOBAL TALENT SOLUTIONS                              
  Revenue from services   $ 487.3     $ 490.9     (0.7 )%     (0.8 )%
  Gross profit     90.5       85.3     6.1       6.2  
  SG&A expenses excluding restructuring charges     73.2       71.6     2.2       2.4  
  Restructuring charges     2.0       -     NM       NM  
  Total SG&A expenses     75.2       71.6     5.0       5.2  
  Earnings from operations     15.3       13.7     11.6          
  Earnings from operations excluding restructuring charges     17.3       13.7     26.2          
                                 
  Gross profit rate     18.6 %     17.4 %   1.2   pts.      
  Conversion rate     16.9       16.0     0.9          
  Conversion rate excluding restructuring charges     19.1       16.0     3.1          
  Return on sales     3.1       2.8     0.3          
  Return on sales excluding restructuring charges     3.5       2.8     0.7          
                               
INTERNATIONAL STAFFING                              
  Revenue from services   $ 233.6     $ 309.0     (24.4 )%     (23.2 )%
  Gross profit     36.4       47.8     (23.9 )     (22.6 )
  Total SG&A expenses     31.2       41.2     (24.2 )     (23.3 )
  Earnings from operations     5.2       6.6     (21.7 )        
                                 
  Gross profit rate     15.6 %     15.5 %   0.1   pts.      
  Conversion rate     14.4       14.0     0.4          
  Return on sales     2.2       2.2     --          
                               
 
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions of dollars)
                   
    April 2, 2017     Jan. 1, 2017     April 3, 2016  
Current Assets                  
  Cash and equivalents   $ 46.0     $ 29.6     $ 46.4  
  Trade accounts receivable, less allowances of $11.9, $12.5 and $11.6, respectively     1,164.6       1,138.3       1,168.8  
  Prepaid expenses and other current assets     59.0       46.7       53.0  
Total current assets     1,269.6       1,214.6       1,268.2  
                         
Noncurrent Assets                        
  Property and equipment, net     79.0       80.8       85.7  
  Deferred taxes     183.5       180.1       193.6  
  Goodwill     88.4       88.4       90.3  
  Investment in equity affiliate     114.9       114.8       9.5  
  Other assets     399.7       349.4       331.1  
Total noncurrent assets     865.5       813.5       710.2  
                         
Total Assets   $ 2,135.1     $ 2,028.1     $ 1,978.4  
                         
Current Liabilities                        
  Short-term borrowings   $ --     $ --     $ 39.3  
  Accounts payable and accrued liabilities     471.9       455.1       437.4  
  Accrued payroll and related taxes     276.5       241.5       277.6  
  Accrued insurance     22.3       23.4       27.0  
  Income and other taxes     54.7       51.1       57.8  
Total current liabilities     825.4       771.1       839.1  
                         
Noncurrent Liabilities                        
  Accrued insurance     43.3       45.5       40.5  
  Accrued retirement benefits     164.3       157.4       145.2  
  Other long-term liabilities     52.4       42.1       42.8  
Total noncurrent liabilities     260.0       245.0       228.5  
                         
Stockholders' Equity                        
  Common stock     40.1       40.1       40.1  
  Treasury stock     (38.1 )     (39.0 )     (43.7 )
  Paid-in capital     31.5       28.6       27.4  
  Earnings invested in the business     932.9       923.6       822.8  
  Accumulated other comprehensive income     83.3       58.7       64.2  
Total stockholders' equity     1,049.7       1,012.0       910.8  
                         
Total Liabilities and Stockholders' Equity   $ 2,135.1     $ 2,028.1     $ 1,978.4  
                         
                         
STATISTICS:                        
  Working Capital   $ 444.2     $ 443.5     $ 429.1  
  Current Ratio     1.5       1.6       1.5  
  Debt-to-capital %     -- %     -- %     4.1 %
  Global Days Sales Outstanding     55       53       55  
  Year-to-Date Free Cash Flow   $ 21.5     $ 24.7     $ 18.7  
                           
   
KELLY SERVICES, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE 13 WEEKS ENDED APRIL 2, 2017 AND APRIL 3, 2016  
(UNAUDITED)  
(In millions of dollars)  
       
    2017     2016  
Cash flows from operating activities:            
  Net earnings   $ 12.2     $ 11.2  
  Noncash adjustments:                
    Depreciation and amortization     5.3       5.6  
    Provision for bad debts     1.5       1.7  
    Stock-based compensation     3.9       2.7  
    Other, net     (0.2 )     (0.1 )
Changes in operating assets and liabilities     1.6       (0.9 )
                 
    Net cash from operating activities     24.3       20.2  
                 
Cash flows from investing activities:                
  Capital expenditures     (2.8 )     (1.5 )
  Other investing activities     (0.1 )     (0.3 )
                 
Net cash used in investing activities     (2.9 )     (1.8 )
                 
Cash flows from financing activities:                
  Net change in short-term borrowings     -       (16.4 )
  Dividend payments     (2.9 )     (1.9 )
  Other financing activities     (0.1 )     -  
                 
    Net cash used in financing activities     (3.0 )     (18.3 )
                 
Effect of exchange rates on cash and equivalents     (2.0 )     4.1  
                 
Net change in cash and equivalents     16.4       4.2  
Cash and equivalents at beginning of period     29.6       42.2  
                 
                 
Cash and equivalents at end of period   $ 46.0     $ 46.4  
                 
   
KELLY SERVICES, INC. AND SUBSIDIARIES  
REVENUE FROM SERVICES  
(UNAUDITED)  
(In millions of dollars)  
                     
    First Quarter (Americas, International and GTS)  
                     
            %     CC %  
    2017   2016   Change     Change  
                     
Americas                        
  United States   $ 955.6   $ 934.7   2.2 %   2.2 %
  Canada     34.1     34.5   (1.3 )   (4.6 )
  Mexico     23.8     26.6   (10.3 )   0.7  
  Puerto Rico     17.7     22.5   (21.4 )   (21.4 )
  Brazil     13.3     10.0   33.5     8.5  
Total Americas     1,044.5     1,028.3   1.6     1.5  
                         
EMEA                        
  France     60.8     56.5   7.6     11.6  
  Switzerland     48.3     46.6   3.6     4.9  
  Portugal     36.3     33.7   7.8     11.9  
  Russia     22.8     14.0   63.0     29.2  
  United Kingdom     20.2     23.6   (14.4 )   (1.2 )
  Italy     13.7     13.4   2.1     6.1  
  Germany     13.2     15.4   (14.8 )   (11.6 )
  Ireland     7.7     5.0   55.7     61.5  
  Norway     7.6     7.6   0.5     (1.5 )
  Other     10.4     8.7   19.6     23.8  
Total EMEA     241.0     224.5   7.3     9.2  
                         
Total APAC     4.2     96.3   (95.6 )   (95.7 )
                         
Total Kelly Services, Inc.   $ 1,289.7   $ 1,349.1   (4.4 )%   (4.2 )%
                         
   
KELLY SERVICES, INC. AND SUBSIDIARIES  
RECONCILIATION OF NON-GAAP MEASURES  
FOR THE 13 WEEKS ENDED APRIL 2, 2017 AND APRIL 3, 2016  
(UNAUDITED)  
(In millions of dollars except per share data)  
           
       
    First Quarter  
    2017   2016  
               
Revenue from services   $ 1,289.7   $ 1,349.1  
Disposal of APAC businesses (Note 1)     -     (92.7 )
Adjusted revenue from services   $ 1,289.7   $ 1,256.4  
               
               
    First Quarter  
    2017   2016  
               
Gross profit   $ 231.6   $ 232.7  
Disposal of APAC businesses (Note 1)     -     (16.3 )
Adjusted gross profit   $ 231.6   $ 216.4  
               
               
    First Quarter  
    2017   2016  
               
Earnings from operations   $ 16.4   $ 14.7  
Disposal of APAC businesses (Note 1)     -     (4.5 )
Restructuring charges (Note 2)     2.4     -  
Adjusted earnings from operations   $ 18.8   $ 10.2  
               
       
    First Quarter  
    2017   2016  
    Amount   Per Share   Amount     Per Share  
                             
Net earnings   $ 12.2   $ 0.31   $ 11.2     $ 0.29  
Disposal of APAC businesses, net of taxes (Note 1)     -     -     (3.7 )     (0.09 )
Restructuring charges, net of taxes (Note 2)     1.7     0.04     -       -  
Adjusted net earnings   $ 13.9   $ 0.35   $ 7.5     $ 0.19  
                             

Note: Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year.

KELLY SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)

Management believes that the non-GAAP (Generally Accepted Accounting Principles) information excluding the 2017 restructuring charges and 2016 disposal of APAC businesses is useful to understand the Company's fiscal 2017 financial performance and increases comparability. Specifically, Management believes that removing the impact of these items allows for a more meaningful comparison of current period operating performance with the operating results of prior periods. These non-GAAP measures may have limitations as analytical tools because they exclude items which can have a material impact on cash flow and earnings per share. As a result, Management considers these measures, along with reported results, when it reviews and evaluates the Company's financial performance. Management believes that these measures provide greater transparency to investors and provide insight into how Management is evaluating the Company's financial performance. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

(1) Disposal of APAC businesses represents the first quarter 2016 operational results of businesses contributed to TS Kelly Asia Pacific in the third quarter of 2016.

(2) Restructuring charges in 2017 represent costs related primarily to optimizing our GTS service delivery models to deliver expected cost savings.

ANALYST CONTACT:
James Polehna
(248) 244-4586
james_polehna@kellyservices.com

MEDIA CONTACT:
Jane Stehney
(248) 244-5630
jane_stehney@kellyservices.com

Source: Kelly Services

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