Kelly Services Q3 Underlying Revenue Grows 2.3%

Kelly Services, Inc. (NASDAQ: KELYA) reported a 0.8% year-over-year decline in third-quarter 2026 revenue to $0.9 billion, while revenue excluding specified customer-related impacts grew 2.3%. Adjusted EBITDA rose 29.1% to $21.3 million, and the adjusted EBITDA margin expanded 50 basis points to 2.3%, reflecting a higher gross profit rate and lower adjusted operating expenses.

The staffing company said its overall revenue decline improved by 500 basis points from the second quarter as performance strengthened across much of its portfolio and discrete customer impacts diminished. Those impacts included reduced demand from U.S. federal government contractors in Science, Engineering & Technology, or SET, and lower business from three large commercial customers in Enterprise Talent Management, or ETM.

GAAP earnings from operations totaled $0.6 million, compared with adjusted earnings from operations of $6.1 million, up 41.9% from a year earlier. Kelly posted a diluted loss of $0.05 per share, while adjusted earnings were $0.07 per share, down $0.10 year over year.

The gross profit rate increased 20 basis points from the prior-year quarter and 60 basis points from the second quarter to 21.0%. Kelly attributed the year-over-year improvement primarily to higher permanent-placement fees and lower employee-related costs, partly offset by changes in business mix.

Reported selling, general and administrative expenses declined 0.4% year over year. Adjusted SG&A excluding depreciation and amortization fell 2.5%, reflecting lower performance-based incentive compensation and salary-related expenses as Kelly aligned resources with business volumes and pursued structural efficiencies. These savings were partly counterbalanced by higher integration and realignment costs tied to MRP and other prior acquisitions, along with increased amortization associated with the company’s branding initiative.

Segment performance

ETM revenue increased 2.4% year over year on a reported basis and 7.7% excluding discrete impacts. Kelly said underlying demand grew in ETM Staffing and Talent Solutions.

SET revenue declined 2.0%, or 0.8% excluding discrete impacts. Science and Engineering specialties generated underlying year-over-year growth, while the presentation indicated that most other major specialty areas improved their performance compared with the second quarter.

Education remained the weakest major segment, with revenue down 6.4% from a year earlier. Its delayed return to growth was one factor behind Kelly’s revised fourth-quarter expectations.

For the first nine months of 2026, revenue declined 6.1% to $3.0 billion. Adjusted EBITDA fell 22.9% to $68.2 million, with the adjusted EBITDA margin contracting 50 basis points to 2.3%. GAAP earnings from operations were $11.6 million, while adjusted earnings from operations declined 42.2% to $29.5 million.

Outlook and operating priorities

Kelly expects fourth-quarter revenue to range from flat to 1% growth year over year and an adjusted EBITDA margin of 3.8% to 4.0%, representing expansion of 180 to 200 basis points. The company adjusted its quarterly expectations relative to its prior view, largely because of the delayed recovery in Education and additional near-term demand pressure from one ETM customer.

The fourth-quarter outlook includes an extra fiscal week, which Kelly expects to add about three percentage points to revenue growth but negatively affect adjusted EBITDA. For full-year 2026, the company continues to expect a mid-single-digit revenue decline and an adjusted EBITDA margin of 2.6% to 2.7%, equal to flat performance or an improvement of as much as 10 basis points from 2025. Kelly said the full-year expectations remain consistent with those initially announced in February.

The outlook assumes no material change in the macroeconomic environment. Management said it is continuing to focus on growth and efficiency while monitoring evolving demand conditions.

Kelly also launched an enterprise-scale middle- and back-office platform and implemented Workday Human Capital Management for internal employees. The company said it is expanding artificial-intelligence use cases and other technology initiatives intended to support innovation and operating efficiency.

As part of a broader “One Kelly” framework, the company consolidated 21 brands, including brands from prior acquisitions, into 10 brands aligned with the Kelly master brand. Its commercial priorities include strengthening large-account management, expanding business with existing clients and supporting new customer acquisition.

Kelly identified changing economic conditions, weaker demand for human capital, customer losses, competitive and pricing pressure, technology disruption, foreign-currency movements, regulatory changes, cybersecurity incidents and the availability of workers with appropriate skills among the factors that could cause actual results to differ from its outlook.