Kforce (KFRC) Set To Post Q3 Earnings: What's In The Cards?

Staffing company Kforce Inc. (NASDAQ:KFRC) is scheduled to report third-quarter 2017 results on Oct 31.

Last quarter, the company reported earnings of 44 cents, reflecting a miss of 4.4%. The company has surpassed earnings estimates twice in the trailing four quarters, with an average positive earnings surprise of 3.2%.

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

Factors to Consider

KForce expects skilled technology demand to be high as companies are becoming increasingly dependent on the efficiencies provided by technology along with the need for innovation and strategies. Particularly, technology investment, mobility, cloud computing, cyber security, eCommerce, digital marketing, big data and business intelligence contributed to the demand landscape for technology resources.

The company rolled out its new customer relationship management system to a number of offices during the second quarter, which is expected to improve client services and enhance business operations going forward. Recently, the company set up a new $300 million revolving credit facility with a syndicate led by Wells Fargo (NYSE:WFC) Bank, N.A. The new credit facility will expire in May 2022, replacing the existing $170 million asset-based revolving credit facility. This facility is likely to prove conductive to the company’s revenues in the upcoming quarter.

However, much like the commercial space, KForce’s Technology and Finance & Accounting operations are grappling with a challenging procurement environment. Notably, the Zacks Consensus Estimate for revenues from the Technology segment (which constitutes a major portion of KForce’s total revenues) in the to-be-reported quarter are anticipated to be flat year over year, with the estimates pegged at $228 million for the quarter. Additionally, revenues from Finance & accounting segment are expected to be lower, with estimate pegged at $87 million, compared with reported revenues of $88 million in the prior quarter.

This apart, softness in the labor market as well as increased competitive pressure adds to the company’s concerns.

Although management continues to make selective investments in revenue-generating talent, productivity remained significantly below the peak levels, adding to its concerns. Further, Kforce has been facing significant declines in a few of its largest clients in the past few quarters due to a challenging macroeconomic environment. Business disruption and internal organizational challenges faced by these clients impacted its overall revenues and are likely to remain headwinds in the impending quarter as well.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Kforce this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks ESP: Earnings ESP for the company is +1.32% as the Most Accurate estimate of 46 cents is pegged higher than the Zacks Consensus Estimate of 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Kforce carries a Zacks Rank #4 (Sell), which makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Avis Budget Group, Inc. (NASDAQ:CAR) has an Earnings ESP of +2.55% and a Zacks Rank #2.

The Brink's Company (NYSE:BCO) has an Earnings ESP of +2.33% and a Zacks Rank #2.

FleetCor Technologies, Inc. (NYSE:FLT) has an Earnings ESP of +1.10% and a Zacks Rank #2.

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