8-K: Kelly Services Reports Q1 2026 Earnings

Kelly Services announced first-quarter 2026 results, with revenue at $1.0 billion, a 10.7% decrease year-over-year, but underlying revenue decline improved sequentially.

Summary

• Kelly Services reported first-quarter 2026 revenue of $1.0 billion, a 10.7% decrease year-over-year. This decline was impacted by discrete factors totaling approximately 7.4% from reduced demand for U.S. federal government contractors and three large commercial customers.
• Underlying revenue, excluding these discrete impacts, decreased by approximately 3.3% year-over-year, showing a 60 basis point improvement from the prior quarter.
• The company reported an operating loss of $5.1 million, compared to an operating profit of $10.8 million in the prior year's first quarter.
• Adjusted EBITDA for the quarter was $15.8 million, a decrease of 54.7% year-over-year, with an adjusted EBITDA margin of 1.5%, down 150 basis points.
• Kelly affirmed its expectation for improved year-over-year performance in revenue and adjusted EBITDA margin in each successive quarter of 2026, with a return to organic revenue growth and margin expansion in the second half of the year.
• The company's board declared a quarterly cash dividend of $0.075 per share, payable on June 2, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to significant year-over-year declines in revenue, profitability, and earnings per share, despite sequential improvements and a positive outlook for the second half of the year.

Positives

• Underlying revenue decline improved sequentially by 60 basis points compared to the prior quarter.
• Adjusted SG&A decreased by 10.3% year-over-year, marking the third consecutive quarter of significant reduction and demonstrating continued expense optimization.
• The ETM segment showed sequential improvement in demand, and pockets of growth were seen in the SET segment (Telecom, Science, and Engineering specialties).
• Technology modernization initiatives are on track, supporting structural and volume-related expense optimizations.
• The company expects year-over-year revenue improvement in Q2 2026, with an overall revenue decline of 7% to 9%, and an underlying improvement of at least 100 basis points.
• Adjusted EBITDA margin is expected to be at least 2.5% in Q2 2026, a 100 basis point improvement from Q1.
• The company anticipates modest year-over-year revenue growth and measurable adjusted EBITDA margin expansion in the second half of 2026.

Negatives

• Total revenue decreased by 10.7% to $1.0 billion compared to the first quarter of 2025.
• Operating loss was $5.1 million, a significant decrease from an operating profit of $10.8 million in Q1 2025.
• Adjusted EBITDA decreased by 54.7% to $15.8 million compared to the prior year.
• Adjusted EBITDA margin declined by 150 basis points to 1.5%.
• Loss per share was $0.17, compared to earnings per share of $0.16 in Q1 2025.
• Adjusted earnings per share decreased to $0.03 from $0.39 in the prior year's first quarter.
• The Education segment experienced a decline driven by delayed contract decisions, weather-related school closures, and reduced student enrollment.
• Lower demand was noted in other SET segment specialties, particularly the technology specialty.

Risks

• Changing market and economic conditions could impact performance.
• Disruptions in the labor market and weakened demand for human capital due to technological advances, competitive pressures, and pricing.
• Loss of large corporate customers and government contractor requirements.
• Impact of laws and regulations, including federal, state, and international tax laws.
• Unexpected changes in claim trends for workers' compensation, unemployment, disability, and medical benefit plans.
• Litigation and other legal liabilities, including tax liabilities, in excess of estimates.
• Challenges in achieving anticipated business growth strategies and future business development.
• Dependence on third parties for critical functions and conducting business in foreign countries, including foreign currency fluctuations.

Future Outlook

Kelly Services expects year-over-year improvement in revenue and adjusted EBITDA margin in each successive quarter of 2026. The company anticipates a return to organic revenue growth and adjusted EBITDA margin expansion in the second half of 2026, assuming no material changes in macroeconomic or industry dynamics.

Management Comments

• "In the first quarter, Kellys disciplined execution against our growth and efficiency priorities continued to stabilize the business."
• "Revenue exceeded our expectations and adjusted EBITDA was in line with our outlook, driven by sequential improvement in ETM and pockets of growth in SET."
• "With our technology modernization and go-to-market initiatives on track and our pipeline continuing to gain momentum, we remain confident in our ability to deliver revenue growth and margin expansion in the second half of the year."

Industry Context

StockSavvy.ai notes that Kelly Services' Q1 2026 results reflect ongoing challenges in the broader talent solutions and staffing industry, characterized by a general slowdown in demand, particularly in certain segments like technology and government contracting. The company's focus on sequential improvement and future growth in the second half of the year aligns with industry expectations for a gradual recovery.

Comparison to Industry Standards

• The reported revenue decline of 10.7% is steeper than some industry peers who may have more diversified revenue streams or less exposure to specific challenged sectors like government contracting.
• The adjusted EBITDA margin of 1.5% is below the typical range for established staffing firms, indicating pressure on profitability, though the sequential improvement is a positive sign.
• The company's focus on technology modernization and expense optimization is a common strategy across the industry to combat margin pressures and improve efficiency.
• Competitors like Robert Half and ManpowerGroup are also navigating similar market conditions, with varying degrees of success in maintaining revenue growth and profitability.

Stakeholder Impact

• Shareholders: The decline in earnings per share and adjusted EBITDA may negatively impact shareholder returns in the short term, although the declared dividend provides some return. The positive outlook for H2 2026 could be a positive driver.
• Employees: Continued focus on expense optimization and structural efficiencies may impact staffing levels or operational roles.
• Customers: The company is addressing specific customer demand issues and aims to strengthen customer relationships and acquisition.
• Suppliers: Potential for changes in demand for services could indirectly affect suppliers.

Next Steps

• Continue execution of technology modernization and go-to-market initiatives.
• Focus on accelerating profitable growth and capturing revenue and cost synergies.
• Monitor macroeconomic and industry dynamics for potential impacts.
• Host a conference call on May 7, 2026, to discuss Q1 2026 results.

Key Dates

Recommendation

While the Q1 results show significant year-over-year declines, the company's affirmation of a positive outlook for the second half of 2026, with expected revenue growth and margin expansion, suggests a potential turnaround. The sequential improvements in underlying revenue and SG&A, coupled with ongoing strategic initiatives, warrant a 'hold' recommendation to observe execution and market recovery.

Keywords

Kelly Services, Q1 2026 Earnings, Specialty Talent Solutions, Revenue, Adjusted EBITDA, Staffing Industry, Financial Results, SEC Filing