10-Q: Kelly Services Reports Q2 2026 Results Amidst Revenue Decline

Kelly Services, Inc. announced its second quarter 2026 financial results, showing a year-over-year decrease in revenue and net earnings, though sequential improvements were noted across business segments.

Summary

• Revenue from services for the second quarter of 2026 was $1,038.2 million, a decrease of 5.8% compared to $1,101.8 million in the second quarter of 2025.
• Net earnings for the second quarter of 2026 were $11.4 million, a decrease of 40.0% from $19.0 million in the same period of 2025.
• For the six months ended June 28, 2026, revenue was $2,078.9 million, down 8.3% from $2,266.7 million in the prior year.
• Net earnings for the six months ended June 28, 2026, were $5.5 million, a significant decrease of 77.8% from $24.8 million in the prior year.
• The company experienced a decrease in staffing services revenue, partially offset by an increase in talent solutions revenue.
• Integration and realignment costs were $2.9 million for Q2 2026 and $7.6 million year-to-date 2026, down from $6.0 million and $16.7 million in the respective prior year periods.
• Cash from operating activities decreased significantly to $23.8 million in the first six months of 2026 from $119.3 million in the prior year.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to a significant year-over-year decline in revenue and net earnings, despite sequential improvements within business segments.

Positives

• Sequential improvement in each business segment was noted.
• Staffing revenue in the Enterprise Talent Management (ETM) segment returned to positive year-over-year growth, excluding discrete impacts.
• Business Process Outsourcing (BPO) in ETM also pivoted to growth.
• Talent Solutions delivered revenue growth with new customer wins.
• Trends among large customers who continue to do business with Kelly remained stable sequentially.
• The company maintained a disciplined approach to expense management.
• The revolving credit facility and securitization facility provide significant committed funding capacity.

Negatives

• Revenue from services decreased by 5.8% year-over-year for the second quarter and 8.3% year-to-date.
• Net earnings decreased by 40.0% year-over-year for the second quarter and 77.8% year-to-date.
• Gross profit decreased by 6.0% year-over-year for the second quarter and 11.6% year-to-date.
• Gross profit rate decreased by 80 basis points year-to-date to 19.6%.
• Cash from operating activities decreased significantly from $119.3 million to $23.8 million year-over-year for the first six months.
• The discrete impact of demand reductions among three large ETM customers and the U.S. federal government, while lessening, remains visible.
• Education segment results improved modestly sequentially but continued to experience pressure from prior year delayed contract decisions and enrollment declines.

Risks

• Changing market and economic conditions.
• Disruption 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.
• The impact of laws and regulations, including federal, state, and international tax laws.
• Unexpected changes in claim trends on workers' compensation, unemployment, disability, and medical benefit plans.
• Litigation and other legal liabilities in excess of estimates.
• Cyberattacks or other breaches of network or information technology security.

Future Outlook

The company expects its working capital requirements to increase if demand for its services increases. It believes its cash flow from operations, available liquidity under credit facilities, and ability to access capital markets will be sufficient to meet anticipated cash requirements.

Management Comments

• "In the second quarter, we delivered sequential improvement in each business across Kelly."
• "The discrete impact of demand reductions among three large ETM customers and the U.S. federal government, which we initially disclosed in the second quarter of 2025, is lessening but remains visible in our results."
• "Our ability to deliver sequential improvement across the enterprise while driving progress on our strategic initiatives in the second quarter reflects our enhanced focus on execution and operational discipline."
• "Our progress will position us to capitalize on improving demand trends, and driving profitable growth and long-term value creation."

Industry Context

StockSavvy.ai notes that the staffing industry is sensitive to economic cycles and labor market dynamics. Kelly Services' results reflect broader trends of moderating demand in certain sectors, particularly impacting staffing services, while talent solutions show resilience.

Comparison to Industry Standards

• The filing does not provide direct comparisons to specific industry benchmarks or competitors' financial results.
• The reported gross profit rate of 20.4% for Q2 2026 and 19.6% year-to-date is within the typical range for large staffing firms, but the year-over-year decline indicates margin pressure.
• The decrease in revenue and earnings is consistent with a general slowdown in the broader economic environment impacting the staffing sector.

Legal Proceedings

• The company is continuously engaged in litigation, threatened litigation, claims, audits, or investigations arising in the ordinary course of business, including matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters.
• The company believes the resolution of these proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows.

Related Party Transactions

• Hunt Equity Opportunities, LLC controls approximately 92.2% of the outstanding shares of Kelly Class B common stock as of May 19, 2026.
• There were no material transactions between the Company and Hunt Equity during the second quarter of 2026.

Stakeholder Impact

• Shareholders may be impacted by the decline in net earnings and earnings per share.
• Employees may be affected by ongoing integration and realignment efforts, which included severance costs.
• Customers may experience changes in service delivery due to segment realignments and demand fluctuations.
• Creditors are protected by the company's liquidity position and available credit facilities, with a decreasing debt-to-total capital ratio.

Next Steps

• Continue to align resources with demand and maintain a disciplined approach to expense management.
• Capitalize on improving demand trends to drive profitable growth and long-term value creation.
• Monitor and evaluate the need for valuation allowances against deferred tax assets on a quarterly basis.
• The company expects to meet its cash requirements through cash generated from operations, available cash, and credit facilities.

Key Dates

Recommendation

The company's significant year-over-year decline in revenue and earnings, coupled with reduced operating cash flow, warrants caution. However, sequential improvements in business segments, stable trends with key customers, and disciplined expense management suggest potential for recovery. The 'hold' recommendation reflects a balance between current negative performance and future potential, pending clearer signs of sustained growth and margin improvement.

Keywords

staffing services, talent management, science, engineering, technology, education, outcome-based services, permanent placement