It stands to reason that temporary staffing firms would benefit from any degree of economic recovery. Meanwhile, at the beginning cusp of an economic buildup, many corporations likely take the cautious approach to hiring, and temps are often the way to go. Kelly Services
Indeed, it wasn't so long ago that longtime Fool contributor Selena Maranjian posed the question of whether such firms would see increased earnings potential as the economy recovers. It seems that has, indeed, come to pass.
Kelly tripled its second-quarter earnings to $5.0 million, or $0.14 per diluted share, with a 16% increase in revenues. The company is also taking advantage of overseas hiring opportunities by expanding its office in India, the outsourcing hot spot.
In the meantime, Manpower also reported some pretty upbeat numbers today. Its second-quarter earnings came in 82% higher at $53.1 million, or $0.56 per diluted share, with revenues increasing 20% to $3.6 billion. Manpower said it expects next quarter's earnings to be a bit below target, coming in at $0.63 to $0.67 per share, as opposed to Wall Street's consensus estimate, which calls for $0.67 per share.
While investors shrugged off Manpower's results to a great extent, they looked down on Kelly, bidding the stock down 5% in recent trading after it lowered its third-quarter guidance to $0.16 to $0.21 per share, lowering the high end of Wall Street's estimates of $0.28 per share.
In its conference call (transcript courtesy of CCBN StreetEvents), Kelly management said that it expects a slower increase in GDP growth and temporary staffing than Wall Street does. Kelly also said, "Although the economy is recovering nicely, it is not as robust as some past recoveries have been."
Though it's disappointing to investors, it shouldn't come as any surprise. Economic data on jobs and otherwise have seesawed over recent months. Compared to many months ago when we were all bracing for what was being dubbed a "jobless recovery," things seem to be on the mend, even if things aren't moving and shaking as they were in the late '90s.
And, while times may be looking up for temporary staffing firms right now, it shouldn't be lost on prospective investors that over the long term, such stocks will always be tied to the ebb and flow of the economy.
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Alyce Lomax does not own shares of any of the companies mentioned.