KELYA - Kelly Services Inc. (KELYA) - How Does COVID Impact the Rest of the Year?
2Q20 Results. Second quarter revenue declined 28.7% to $975.3 million, driven by the COVID crisis. On a constant currency basis, revenue dropped 27.7%. Operating earnings totaled $11.1 million, down from $34.8 million in the year ago period. Diluted EPS was $1.04 versus $2.21 in the second quarter of 2019. On an adjusted basis EPS was $0.51 in 2Q20 compared to $0.81 in 2Q19. We had forecast revenue of $1.025 billion and a loss of $0.17 per share.Positives in the Quarter. There were some bright spots in the quarter, such as the Outcomes Based business, which actually grew in the quarter, Russia, also up, and some of the Company's specialty offerings, like Life Sciences. Although 2Q revenues were off 28.7% overall, the June exit rate improved to down 22.5%. The Company has experienced weekly improvements, although slow and uneven.Liquidity. Partly due to the vagaries of the staffing business, Kelly's financial position actually improved during the quarter. The Company generated $165 million of FCF during the quarter, up from $47.8 million a year ago. Kelly ended the second quarter with $216.2 million of cash, up from $48.3 million at the end of 1Q, no debt, and $296.8 million of availability under its credit facilities.Updated Projections. The key questions are how long the COVID impacts last and how quickly does the worldwide economy rebound? With much uncertainty surrounding both of these questions, we have lowered our top line number, although the expense reductions are helping the bottom line. We are now at $1.05 billion of revenue and EPS of $0.09 for 3Q20, although our confidence level in our numbers is not high.Maintain Market Perform. We maintain our Market Perform rating due to the uncertainty surrounding the COVID-19 crisis. We continue to believe, however, the Company is well positioned to weather the current storm and come out the other side in a stronger position to capitalize on both organic and inorganic growth opportunities.Read More >>