Will Kelly Services Surprise This Earnings Season?

Staffing and outsourcing services provider Kelly Services, Inc. (NASDAQ:KELYA) is scheduled to report its second-quarter 2014 results before the opening bell on Aug 6. In the last reported quarter, Kelly recorded phenomenal results with an 800% earnings surprise. Let’s see how things are shaping up for this announcement.

Growth Factors in the Second Quarter

With steady improvements in the U.S. economy and decent job growth, Kelly is well-positioned to meet the growing demand for flexible talent and strategic workforce solutions. Backed by stringent cost-cutting measures and prudent investment decisions, Kelly further expects healthy growth in revenues in the soon-to-be-reported quarter. The company is currently on track to adjust its operating models with aggressive investments in core markets and intensified focus on high-margin businesses.

Kelly has almost completed the transition of large US accounts into a centralized service delivery model. The company has created operational efficiencies that remove administrative burdens from recruiters and client-facing teams. In addition, sustained investments in technology during the year are expected to further accelerate this process.

However, Kelly expects its operating expenses to be adversely affected by regulatory pressures including the impact of implementation of the Affordable Care Act. At the same time, investments to drive growth in the PT (Professional Technical) staffing business and develop the solutions capability in OCG (Outsourcing and Consulting Group) are likely to strain the operating margin.

Earnings Whispers

Despite the best attempts to restructure its business, our proven model does not conclusively show that Kelly is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.

Zero Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in line earnings for the shares.

Zacks Rank #3 (Hold): Kelly’s Zacks Rank #3 reduces the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Other Stocks to Consider

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

Atmos Energy Corp. (NYSE:ATO)), earnings ESP of +2.22% and Zacks Rank #2 (Buy).

Cyrusone Inc. (NASDAQ:CONE), earnings ESP of +4.76% and Zacks Rank #2 (Buy).

Consolidated Edison, Inc. (NYSE:ED), earnings ESP of +9.26% and Zacks Rank #2 (Buy).

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