Kelly Services (KELYA) Financials

Kelly Services (NASDAQ: KELYA) showed a meaningful sequential recovery in the second quarter of 2026, but the broader four-year trend remains mixed. Revenue was $1.04 billion, down slightly from $1.05 billion in Q1 2026 and 5.8% below the restated $1.10 billion recorded in Q2 2025. Revenue has generally declined from the $1.2 billion-plus quarterly levels reported in 2022 and 2023.

Profitability improved sharply from the first quarter. Gross profit increased to $212.0 million from $196.4 million, lifting the gross margin to approximately 20.4% from 18.9%. Operating income returned to positive territory at $16.1 million, compared with a $5.1 million operating loss in Q1. Consolidated net income was $11.4 million, or $0.31 per diluted share, versus a $5.9 million loss, or $0.17 per share, in the prior quarter.

Cash generation also recovered in Q2. Operating cash flow was $49.2 million, compared with negative operating cash flow of $25.4 million in Q1. The improvement was supported by a $21.7 million benefit from changes in operating assets and liabilities. However, first-half operating cash flow totaled only $23.8 million, well below the $119.3 million generated in the first half of 2025.

• Sequential earnings recovery: Kelly Services moved from a $5.9 million net loss in Q1 2026 to $11.4 million of net income in Q2, while diluted EPS improved from a loss of $0.17 to $0.31.
• Improved operating leverage: Gross profit rose $15.6 million sequentially while selling, general and administrative expense fell to $195.9 million from $199.3 million, helping operating income return to positive territory.
• Operating cash flow rebounded: Q2 operating cash flow of $49.2 million more than offset the $25.4 million outflow in Q1, indicating better short-term working-capital management.
• Lower reported long-term debt: Long-term debt declined to $78.1 million at the end of Q2 from $130.5 million in Q1 and $204.6 million at the end of Q1 2025.
• Liquidity remains adequate on a current basis: Kelly reported $1.30 billion of current assets against $866.6 million of current liabilities, implying a current ratio of roughly 1.5 times.
• Working-capital swings remain significant: Accounts receivable increased to $1.22 billion from $1.19 billion in Q3 2025, while the Q2 cash-flow benefit from operating assets and liabilities may not be recurring.
• Financing activity continues to be substantial: The company issued $329.3 million of debt and repaid $381.8 million during Q2, producing a net financing cash outflow of $55.4 million. This suggests ongoing refinancing or debt-management activity rather than purely internally funded deleveraging.
• Revenue momentum remains weak: Q2 2026 revenue was below the comparable 2025 quarter and materially below the $1.17 billion to $1.27 billion quarterly levels reported during much of 2023 and early 2024.
• Profitability is still thin and volatile: The Q2 operating margin was approximately 1.6%, compared with 2.0% in Q2 2025. Recent results have also been affected by a $102 million impairment charge in Q3 2025 and unusually large tax-related charges in Q4 2025.
• Equity has contracted over the longer term: Total equity was $982.0 million at the end of Q2 2026, down from $1.27 billion in Q2 2025. Goodwill and intangible assets totaled approximately $413.6 million, creating additional exposure to future impairment charges.

For investors, the key question is whether the Q2 improvement represents a sustainable turnaround or a temporary rebound from a weak first quarter. The stronger margins, positive earnings and improved operating cash flow are encouraging, but declining revenue, thin profitability, volatile working capital and a history of large special charges remain important risks.