Human Resource Stocks - Tough Year.

Yesterday, Kelly Services announced that their 2Q net income was down by one third and their CEO (Carl Camden) expects a "rough '08" saying: "The second quarter was a rough one. Overall demand for labor in the U.S., already weak, has worsened since we last reported to you, and demand for temporary staff is declining at an even faster rate.” The one bright spot was Kelly's Outsourcing and Consulting Group business which although only represents 4 percent of total revenue, increased nearly 60 percent for the quarter, year over year, to $61 million.

Kelly is smart to be expanding into non-cyclical services like outsourcing. Nothing is as cyclical as staffing - when economic times are good, companies do more hiring and when times are bad these services are in less demand.

So how are the publicly traded HR companies doing in 2008?

I ran a quick report of some publicly traded HR staffing and software firms (see image on this page - sorted by market cap - click to enlarge) and noticed the following:

1. Just about every publicly traded human resource stock is down in 2008 - not surprising since the entire market is down quite considerably.

2. There is no correlation between type of HR service offered and the devaluation of stock prices. In other words, one might assume that the stock prices of staffing firms would perform worse than HR software firms in this economic climate. But this has not been the case. Some of the worse performing HR stocks the last twelve months has been in software (e.g.,, Workstream, Kenexa) while several staffing firms have done better - relatively speaking (e.g., Robert Half).

3. It does appears that HR firms that have a more diversified portfolio and/or have strong international operations have performed better than those who do not. For example, Robert Half is a"staffing" firm but they also offer risk consulting and audit services and they have a very strong international staffing business.

Not that any of this really matters (what does Wall Street know about running a business?) but it is interesting from a strategic vantage point. As the employment market slows, it will likely have a negative impact on all HR suppliers (fewer employees and difficulties in signing new customers).

What we can learn from the well run suppliers is the importance of diversification and global expansion. I've had the pleasure of speaking with several CEOs of midsized HR firms the last several weeks who adopted this very strategy a few years ago and they are weathering the current economic storm quite well. One was a 30 year old outplacement firm who learned their lesson years ago when good economic conditions slowed the growth of outplacement. They have since expanded into talent management and software. It is a strategy we are embarking on at by offering considerably more "HR marketing services" and expanding into other non HR markets (healthcare and senior care).

By the way, for a nice overview (and history) of M&A activity and earnings in the human resource marketplace, bookmark HRmarketer's HR Marketplace Earnings and M&A News page. If you wish to comment on topics relating to HR M&A or earnings, visit our new HR Community Discussion Boards.

Posted by Mark Willaman

Labels: , , ,