Kforce (KFRC) To Report Q3 Earnings: Will It Disappoint?

Staffing company Kforce Inc. (NASDAQ:KFRC) is scheduled to report third-quarter 2016 results after the market closes on Nov 1.

In the last reported quarter, Kforce managed to marginally beat earnings by a penny. Kforce has a lackluster earnings track record for the past few quarters, beating earnings estimates in two of the trailing four quarters with an average negative earnings surprise of 0.41%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Kforce provides professional and technical specialty staffing services and solutions globally. The company is in a restructuring mode as it continues to divest non-core operations and invest the proceeds in higher-growth markets.

For the third quarter, KForce expects secular drivers for technology investments which include mobility, cloud computing, cyber security, ecommerce, digital marketing and Big Data. Most companies aim to leverage technology for efficiency gains to contribute towards demand for technology resources. Advancements in these areas are likely to remain critical across all industries for meeting evolving customer expectations. The fall in supply of these resources and the requirement for specialized skill sets in such project-oriented discipline will remain a challenge for the company.

Employers are also becoming increasingly uncertain about the near-term prospects. While the company continues to witness record levels of job orders, productivity levels of their associates have declined. These dynamics might dampen growth rates across the sector, as the company expects to see slower growth rate in the third quarter. However, the secular drivers should be sufficient to sustain a positive demand environment over the longer term.

The company’s business is subject to government regulations and licensing and the failure to obtain all necessary licenses or approvals could adversely affect Kforce’s financial results. In addition, softness in the labor market and increased competitive pressure remain concerns for the company.

Due to a challenging macroeconomic environment, Kforce has been facing significant declines in a few of its largest clients over the past few quarters. Business disruption and internal organizational challenges faced by these clients have impacted Kforce’s overall revenues and is likely to remain concerns in the impending quarter as well.

For the third quarter, the company expects revenues to be in the range of $335 million to $339 million with earnings in the range of 41 cents to 43 cents per share.

Earnings Whispers

Our proven model does not conclusively show that Kforce is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for a successful earnings beat. This is not the case here as you will see below:

Zacks ESP:Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is currently at 0.00%.

Zacks Rank:Kforce has a Zacks Rank #4 (Sell).

As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Avon Products Inc. (NYSE:AVP) has an Earnings ESP of +33.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ACI Worldwide, Inc. (NASDAQ:ACIW) has an Earnings ESP of +6.25% and a Zacks Rank #3.

AMN Healthcare Services Inc AMN (NYSE:AMN) has an Earnings ESP of +1.79% and a Zacks Rank #3.

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