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KELLY SERVICES INC (KELYA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $1.10B (+4.2% YoY; −3.3% organic) with adjusted EPS $0.54 and adjusted EBITDA $37.0M; margins compressed 40 bps to 3.4% on near-term pressure in SET and ETM .
  • Results came in slightly below consensus: revenue missed by ~$21.4M, EBITDA missed by ~$4.0M, and EPS was essentially in line (miss by $0.01). Bolded below where material. Values retrieved from S&P Global.*
  • Management guided to Q3 YoY revenue decline of 5–7% driven by reduced demand from U.S. federal contractors and certain large customers, but expects adjusted EBITDA margin expansion of 80–90 bps and modest full-year margin improvement .
  • Operational themes: strong Education (K-12) growth (+5.6% YoY), telecom/engineering solutions strength in SET, and payroll process outsourcing resilience in ETM; ongoing integration/realignment spend and cost actions to align resources with demand .

What Went Well and What Went Wrong

  • What Went Well

    • Education segment revenue grew 5.6% YoY; business unit profit rose and GP rate held at 14.7% . “Kelly continued to drive growth in more resilient markets, including K-12 staffing in our Education business” — Peter Quigley .
    • SET posted strong reported revenue growth (+19.4% YoY), with adjusted business unit profit improving and GP rate up 50 bps to 26.0% .
    • YTD free cash flow surged to $114.8M vs $25.5M last year, supported by stronger operating cash flows and proceeds from the EMEA sale and PersolKelly investment .

  • What Went Wrong

    • Organic revenue declined 3.3% with ~1.4 pts headwind from federal contractor demand; adjusted operating earnings fell to $24.6M (−12.1% YoY) and adjusted EBITDA declined 8.7% YoY .
    • ETM revenue fell 3.9% YoY with adjusted EBITDA margin down to 2.3% (−60 bps) as large customer cost actions and mix weighed on margins .
    • EPS under pressure vs prior year: GAAP diluted EPS $0.52 vs $0.12 last year (boosted by non-operating items), but adjusted EPS fell to $0.54 from $0.71 due to higher net interest (MRP debt) and lower operating earnings .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,191.1 $1,164.9 $1,101.8
Gross Profit Rate (%)20.3% 20.3% 20.5%
Earnings from Operations ($M)$(56.7) (due to $80.8M impairments) $10.8 $22.2
Adjusted Earnings from Operations ($M)$29.2 $22.1 $24.6
Adjusted EBITDA ($M)$43.5 $34.9 $37.0
Adjusted EBITDA Margin (%)3.7% 3.0% 3.4%
Diluted EPS (GAAP) ($)$(0.90) $0.16 $0.52
Adjusted EPS ($)$0.82 $0.39 $0.54

Segment performance (new 2025 segments):

SegmentQ1 2025 Revenue ($M)Q1 2025 Adjusted EBITDA ($M)Q1 2025 Adjusted EBITDA Margin (%)Q2 2025 Revenue ($M)Q2 2025 Adjusted EBITDA ($M)Q2 2025 Adjusted EBITDA Margin (%)
Enterprise Talent Management (ETM)$534.0 $9.5 1.8% $520.2 $12.2 2.3%
Science, Engineering & Technology (SET)$322.4 $14.5 4.5% $317.3 $20.2 6.4%
Education$309.0 $19.3 6.2% $265.3 $13.7 5.2%

KPIs and cash metrics:

KPIQ4 2024Q1 2025Q2 2025
Permanent Placement Revenue ($M)$13.3 $11.5 $14.8
Global DSO (days)59 61 59
Working Capital ($M)$539.0 $528.1 $426.4
Year-to-Date Free Cash Flow ($M)$15.8 $21.4 $114.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue (YoY)Q2 2025+6% to +7% (provided in Q1 outlook) Actual: +4.2% YoY (−3.3% organic) Lower than guided
Adjusted EBITDA Margin (YoY)Q2 2025−20 to −30 bps YoY Actual: −40 bps YoY to 3.4% Lower than guided
Total Revenue (YoY)Q3 2025N/A−5% to −7% expected New guidance (decline)
Adjusted EBITDA Margin (YoY)Q3 2025N/A+80 to +90 bps expected New guidance (raised)
Adjusted EBITDA MarginFull Year 2025Anticipated expansion in Q3/Q4 and for the full year Modest YoY margin improvement for the full year Maintained/clarified
Dividend per shareQ2 2025$0.075 (declared May 6, paid June 3) $0.075 (declared Aug 6, payable Sep 3) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Federal contractor demandHHS contract headwind; ~0.8% total impact in Q1; SET ~3 pts; visibility improving Demand reduced in SET/ETM; leveled off in May/June per prepared remarks Ongoing headwind, stabilizing intra-quarter
AI/technology modernizationPlan to modernize SET front/back-office leveraging MRP tech stack; phased rollout with AI enablement Positioned to “rapidly integrate AI as new solutions/use cases emerge” with modern stack Building capabilities; execution underway
Outcome-based solutionsStrength in semiconductors/renewables; statementworX suite growth Continued resilience; mix shift supports margin expansion outlook Durable demand; favorable mix over time
Education K-12 + therapyDouble-digit growth in 2024; strong fill rates; therapy accretive margins (CTC) +5.6% revenue; consistent GP rate; sustained fill rates Still outperforming; seasonal ramp 2H
Macro/pricingCustomers cautious; some pricing compression in P&I; mixed bill rates Larger-than-anticipated macro drag; specific large customer reductions Cautious sentiment; cost actions aligned

Management Commentary

  • “Kelly continued to drive growth in more resilient markets, including K-12 staffing in our Education business, telecom and engineering solutions in SET, and payroll process outsourcing in ETM…aligning resource levels with demand.” — Peter Quigley .
  • Prepared remarks emphasized stabilized federal volumes by late Q2 and decisive cost alignment amid evolving macro conditions .
  • Non-GAAP reconciliation highlights integration/realignment costs ($6.1M in Q2; $16.8M YTD) across IT, severance, and fees to integrate MRP and prior acquisitions .

Q&A Highlights

  • Continued headwinds from federal contractor demand and large customers, but impacts were incorporated into outlook; volumes stabilized by May/June (prepared remarks) .
  • Execution focus on margin expansion from mix shift toward outcome-based services and SET efficiency via tech stack integration .
  • Education fill rates remain strong; high visibility into 2H bookings given school calendar .

Estimates Context

  • Consensus vs actual (Q2 2025):
    • Revenue: $1,123.2M estimate vs $1,101.8M actual — bold miss of ~$21.4M.*
    • EPS: $0.545 estimate vs $0.54 actual — essentially in line (miss $0.005).*
    • EBITDA: $38.7M estimate vs $34.7M actual — bold miss of ~$4.0M.*
MetricQ2 2025 ConsensusQ2 2025 Actual
Revenue ($USD Millions)1,123.2*1,101.8
Primary EPS ($)0.545*0.54
EBITDA ($USD Millions)38.7*34.7

Values retrieved from S&P Global.*
Implication: Street will likely lower near-term revenue and EBITDA forecasts given Q3 decline guidance; margin expansion outlook may support FY EBITDA revisions toward mix/efficiency benefits .

Key Takeaways for Investors

  • Organic softness persists (−3.3% YoY) with discrete federal and large-customer headwinds; Q3 guidance calls for −5% to −7% YoY revenue, signaling cautious near-term demand .
  • Margin story intact: Q3 adjusted EBITDA margin expansion of 80–90 bps and modest FY improvement supported by mix shift and disciplined SG&A actions .
  • SET and Education remain pillars: SET’s reported growth and margin uptick; Education’s steady GP rate and visibility into 2H school year underpin cash generation .
  • Free cash flow inflection: YTD FCF at $114.8M provides flexibility for debt paydown, dividends ($0.075), and selective investments even as demand moderates .
  • Integration runway: Ongoing IT modernization and MRP integration/realignment ($16.8M YTD) target structural efficiencies and AI-enabled delivery; expect incremental EBITDA benefits in 2H and into 2026 .
  • Trading lens: Expect near-term sentiment driven by Q3 revenue decline vs margin expansion narrative; watch SET margins and Education seasonality as catalysts into 2H .
  • Estimate resets likely: After Q2 misses on revenue and EBITDA and Q3 decline guide, consensus may trim near-term revenues while holding/improving margin assumptions into 2H/FY .