Kelly Services Earnings Call Insights: Western Europe, Expense Control
On Wednesday, Kelly Services, Inc. Class A (NASDAQ:KELYA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.
James Samford – Citigroup: Just wanted to get a sense for – things seem to be deteriorating here in Europe, certainly at least on the rhetoric level. Just wondering, what you are hearing or what you’ve been seeing in the quarter so far and particularly in, maybe, at the Western European side?
Carl T. Camden – President and CEO: I am not seeing any signs of a miraculous recovery in Europe, but that’s what we’re hoping for. I think the rhetoric is hard, speaking not necessarily of the hours we are seeing, but talking to the customer sets in general. I see customers in all of the European areas being very cautious about starting anything new, very cautious about investing – investing inside the European markets. I think there is insufficient certainty and until there is some understanding of how the Euro crisis, that situation is going to play out. I am not expecting there to be any resolution of the certainty crisis in Europe and we are not counting on a return to strong growth in Europe this year.
James Samford – Citigroup: I guess one of the segment, I guess in Switzerland, you are still seeing some pretty nice growth there and I think from the data, looks like given Switzerland temp data has gone negative. Is there a share gain going on there do you think or is something particularly in Switzerland that’s going on?
Carl T. Camden – President and CEO: For growing market the overall data shows that it’s losing, then you would argue that there is a share shift. I haven’t seen any object of report to that effect, but that would be the only way the two numbers could be reconciled.
James Samford – Citigroup: I guess switching to the U.S. really quickly, just any comment on trends you are seeing there between sort of your larger clients versus smaller client mix?
Carl T. Camden – President and CEO: Well, there was more growth as we talked about, there was more employment being created in the smaller customer set, but not the dynamics aren’t such that would have caused any appreciable shift in our overall balance sheet. What I tend to look for is my signs that doom and gloom is coming, as our customer is talking about contingency plans for what happens if they need 10% less staff, that’s not really taking place. On the other hand, there is not a whole lot of conversations taking place about how would we ramp up rapidly given 10% more. Kind of stable set of expectation, that’s why we talk about very low, single digit type of growth for a bit here in the U.S.
Frank Pinkerton – SunTrust Robinson Humphrey: This is actually Frank in for Tobey. I wanted to ask about the expense control and SG&A. You talked about continued improvement there throughout 2012, you have done a good job so far. Can you give us any color on additionally where that’s coming from?
Patricia Little – CFO: We are basically keeping the same tight rein on what I would call staff and discretionary costs. In addition to that we really are focused on making sure our field is as efficient as they can be. Where it’s appropriate we are centralizing functions, which also give us some efficiency. I will also say that to a certain extent, the only negative in the whole picture is that, we do have a fair amount of turnover in the U.S. as well as in Asia. So, sometimes we wished we had a little bit more expense to have a few more recruiters to deck against our business, but that said, that’s not a big worry, it’s just one of the pieces that we need to keep managing.
Frank Pinkerton – SunTrust Robinson Humphrey: Can you talk a little bit about pricing in APAC Commercial, what are the trends you are seeing there?
Carl T. Camden – President and CEO: What you are seeing inside our own data is not a reflection per se of pricing, that was a reflection of restructuring our portfolio of business and removing the lower price points. Clearly, there are parts of the business that have been more than commoditized, they have been brought down to gross profits that are razor thin and we are not going to play in those areas. At the upper end, we seem to be capable of moving up the skill sets both in Professional and Technical temp staffing, as well as in the placement fees, the question is to the more macro pricing environment, I’m not really set to answer.
Frank Pinkerton – SunTrust Robinson Humphrey: In EMEA, I guess France has a particularly large exposure there. We’ve had some I guess political results lately, any thoughts about either regulatory changes or shifts that could occur in that region?
Carl T. Camden – President and CEO: It’s hard to imagine more regulation on this temporary staffing industry than already exist in France. It’s a very regulated market and it has been a long and core part of the French approach to the labor markets. I suspect over time, we might see various legislative initiatives that might impact the market in France, but it’s not high on the legislative agenda, I’m not expecting any significant policy change within the next 18 months.
Frank Pinkerton – SunTrust Robinson Humphrey: Finally, looking at cash flow and balance sheet, can you talk a little bit about your view of acquisitions, what you see out there versus your balancing of repurchases and perhaps dividend?
Carl T. Camden – President and CEO: There is never an end to the possible uses of cash and we still have a tad more debt than I would like and so that’s obviously an area I keep focus on. As we have now come out of the post-recession environment, there are people now beginning to place more staffing properties on the market, and we, like everybody else, would take a look at those. If we found one particularly interesting and useful to our strategy, we would probably participate, but it is not an explicit strategy to go purchase just for the sake of purchasing.