KELYA - Kelly Services (KELYA) - Improving Environment but 3Q Operating Results Fall Short
3Q21. Revenue of $1.19 billion was up 15% year-over-year (14.5% in constant currency) but fell short of the consensus $1.25 billion and our $1.275 billion estimate. Kelly reported operating earnings of $9 million, compared to a loss in 3Q20, and up 25.9% on an adjusted basis. GAAP EPS for 3Q21 was $0.87 compared to $0.42 in 3Q20. Adjusted EPS for the third quarter was $0.25 versus $0.29 last year. We had projected adjusted EPS of $0.44.Demand Continues to Rebound. All five of Kelly's operating segments delivered organic y-o-y growth. P&I revenues rose 1.4% y-o-y, SET rose 25.5%, Education was up 142.1%, OCG revenues rose 29.1%, and International revenues were up 10.5% y-o-y. The SET, Education, and OCG segments also showed improved operating earnings.Labor Availability Remains an Issue. The tight labor force continues to impact Kelly, making it more difficult to meet demand from clients. The Company is working with its clients on a broad range of programs to help attract and retain employees.Updated Projections. Management noted a more moderate pace of economic recovery than previously anticipated. Full-year revenue growth is now expected in the 9.5%-10.5% range, down from 11%-12% previously. We maintained our fourth quarter revenue expectation, but lowered our expected GP rate and increased our estimate of SG&A costs. For the fourth quarter, we are projecting revenue of $1.31 billion and adjusted EPS of $0.32. For the full year, we are now at revenue of $4.97 billion and adjusted EPS of $1.13.Maintaining Outperform and $30 PT. We are maintaining our Outperform rating and our 12-month price target of $30. While the recovery is occurring at a slower pace than anticipated, Kelly's specialization focus will help drive faster top line growth and higher margins over time. We believe the shares represent a favorable risk/reward at the current price. At our price target, KELYA shares would trade at 16.7x our 2021 adjusted EPS estimate, 15.4x EV/estimated 2021 EBITDA, and 0.2x EV/estimated 2021 revenues. Read More >>