Kelly Services Inc (KELYA) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Kelly Services fourth-quarter earnings conference call. (Operator Instructions). Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host, Mr. Carl Camden, President and Chief Executive Officer. Sir, you may begin.

Thank you. Good morning, everyone. We are glad you could join us for Kelly Services 2011 Q4 and year-end conference call. With me on the call today is Patricia Little, our CFO. Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the Company's actual future performance.

We begin today's report on an upbeat note. With the completion of a solid successful fourth quarter, we can say without qualification that 2011 played out well for Kelly. This is especially gratifying given that the year took a course far different than its sanguine beginning. A devastating tsunami hit Japan early in the year, impacting economic growth throughout the world; the budget stalemate in Washington threatened to halt economic growth over the summer; and the financial crisis in Europe has kept markets seesawing. In short, a lot was thrown at us, and in spite of these challenges, we did well.

A number of factors converged during the second half of the year to create renewed optimism about the economy. Consumer confidence improved, increasing demand for goods and services. Manufacturing and construction, two particularly beleaguered industries, have begun to show signs of life, and most importantly, the year concluded with news that job growth has exceeded expectations. There is a long way to go before we recoup the job losses endured during such a lengthy and steep recession, but the recovery is at hand and slowly building momentum. 2011 should be viewed as an important step forward for Kelly.

Our fourth-quarter and full-year financial results showed nice improvement compared with the previous year. Our fourth-quarter earnings were also enhanced by better-than-expected tax rate. Patricia will provide you with more detail on what contributed to that lower rate in her financial review.

I'm pleased to report that revenue for the quarter was up more than 5%, and for the year revenue grew by 12% over 2010. We achieved an operating profit of $13 million for the quarter compared with the $17 million earned in the fourth quarter of 2010. While below the prior year, the fourth quarter of 2010 included a favorable $11 million benefit from the HIRE Act. For the year we achieved an adjusted operating profit of $61 million compared to last year's operating profit of $47 million.

Kelly's fourth-quarter earnings from continuing operations were $0.64 per share, significantly higher than last year's adjusted earnings of $0.40 per share for the same period. Our full-year adjusted earnings from continuing operations were $1.80 per share compared to 2011's adjusted earnings of $0.90 per share. Our gross profit rate also showed improvement, increasing to 16.3% during the quarter. We continue to benefit from strong operational leverage, a result of maintaining a tightened expense base.

Some additional highlights of the quarter included as expected our OCG segment returned to profitability this quarter with earnings improving $4 million year over year and roughly $1 million on a sequential basis. This is very encouraging because we believe OCG with its wide array of customized services is critical for employers seeking greater flexibility and innovative solutions in today's rapidly changing marketplace.

PT revenue and gross profit improved in all regions year over year, and growth rates surpassed commercial growth rates. PT remains a critical focus. Our strategy targets PT and other high-yield more profitable fee-based services where we can realize a sustainable positive impact on gross margins. However, as long as this recovery is slow moving and favors lower skilled disciplines, we recognize that pressure on margins will continue.

We experienced a slow but steady pickup in our temp-to-perm business for much of the quarter. Although December's rate of growth slowed, we experienced quarterly year-over-year growth of 30%. Until overall employment improves and the economy adds jobs in a more meaningful way, growth of this and our other fee-based businesses will remain somewhat muted and could bounce around from month to month.

Expenses increased compared to last quarter, due primarily to incentive-based compensation. We remain committed to maintaining a lower cost of service, moving in tandem with business demand, and any deviation from that will be at pace with revenue growth.

In addition to our own performance benchmarks, positive trends within the US labor market and the staffing industry in particular support our confidence that this recovery will continue in 2012. The US economy added jobs every month in 2011, and the pace quickened during the second half of the year. December's increase of 200,000 jobs was especially positive, driving the nation's unemployment rate down to 8.5%, the lowest in almost three years. And for the year, 1.6 million jobs were created, the best performance in five years.

Since the start of the labor market recovery, the private sector has added more than 2.6 million jobs. High unemployment masks a growing competition for skilled talent as evidenced by the continued reduction in joblessness among college grads now standing at a far more healthy 4.1%. Within the staffing industry, more than 550,000 jobs have been added since September 2009. Momentum has gradually built over this period. Year over year we continue to see fairly stable growth.

The temporary help penetration rate has held steady at 1.75% for the past four months. Of course, there is still a significant way to go to reach the prior 2.03% peak rate. Job creation is now hovering around 150,000 jobs per month, still characteristic of a job's light recovery. We believe, though, that the ongoing economic uncertainty will help create a greater awareness of temporary staffing benefits and a secular shift in demand for temporary workers.

Now let me provide you with greater detail about our fourth-quarter performance in each of our business segments beginning with the Americas. Revenue in Americas Commercial in the fourth quarter increased nearly 5% year over year. On a sequential basis, revenue was up 2% for the quarter.

Within the Commercial segment, light industrial grew 12% year over year and 1% sequentially. Office clerical, on the other hand, saw a slight decline of 1% year over year, but did increase 5% sequentially from the third quarter. Combined temp-to-perm direct placement and other fees increased 41% year over year and were flat sequentially.

Commercial's gross profit rate for the current quarter was 14.3% or 90 basis points lower than the same period last year. This decline was due mainly to the expiration of the HIRE Act, partially offset by favorable customer mix.

On a sequential basis, the GP rate was 10 basis points higher than the third quarter.

Expenses for the quarter grew only 1% year over year. On a sequential basis, expenses were up 3% from the third quarter. Commercial earnings were $22.4 million for the quarter. While this is down 10% compared to last year, excluding the $8 million favorable impact of the HIRE Act in 2010, Q4 commercial earnings improved 30% year over year, nice leverage on a nearly 5% revenue increase.

Americas Professional and Technical revenue in the fourth quarter increased 6% year over year. On a sequential basis, PT revenue was down 3%. For the quarter we saw the strongest growth in our legal business, which grew 22% over the prior year, and then our IT business with a growth of 18%. Combined temp-to-perm, direct placement and other fees for Professional and Technical increased 57% year over year and 12% sequentially compared with the third quarter. For the entire segment, our gross profit rate was 15.6%, down 40 basis points from the same period last year. The decline is due primarily to the expiration of the HIRE Act, offset by favorable fees. Sequentially the gross profit rate is up 50 basis points, due mainly to favorable business line mix and fees.

Expenses for the quarter grew 7% year over year, due mainly to the salaries and performance-based compensation in support of our PT expansion. Sequentially expenses were up just 1%. All-in-all PT earnings were $12 million for the quarter, although 3% below prior year. Excluding the $2.6 million favorable impact of the HIRE Act, Q4 earnings improved 24%.

Before I leave the Americas, I want to highlight that during the fourth quarter we acquired Tradicao, a top national services provider in Brazil. This acquisition provides Kelly with a strong hold into one of the most robust and strategic markets in South America. We are pleased to welcome the Tradicao team to Kelly.

Let's turn now to our operations outside of the Americas, beginning with EMEA. Reported revenue in EMEA Commercial was up in the fourth quarter compared to last year by 4%. On a constant currency basis, revenue was up 3%. For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency.

Looking at the regions, the most significant improvement was seen in Eastern Europe with an increase of 12% year over year. This was primarily driven by the performance in Russia. Western Europe was up 2% year over year, primarily attributable to our operations in Switzerland. We continue to see nice improvement in fees for the quarter. Fee revenue for Q4 was up 26% year over year.

The quarterly GP rate for the fourth quarter was 16.2% as compared to the same period last year. At constant currency, expenses were up roughly 3% year over year and up 1% sequentially, primarily due to the reorganization of our Benelux operations. EMEA Commercial reported a profit of nearly $3 million for the quarter, up 11% compared to the same period last year.

EMEA Professional and Technical also improved those quarter with revenue increasing 8% year over year. Solid improvements were seen in the UK, France, Germany and Switzerland. Fees in the fourth quarter were up compared to last year by 11%. The growth in fees was primarily attributable to our scientific staffing unit. The gross profit rate in the segment remained at 25.4% for the quarter, unchanged from the same period last year. PT expenses increased by 12% compared to a year ago on a constant currency basis. Continued investments are being made in Russia and Germany. EMEA PT reported a profit of nearly $1 million for the quarter.

As we look at our overall EMEA operations, we are exercising caution due to the elevated economic uncertainty.

In our APAC region, combined revenue, both Commercial and PT, decreased by 4% compared with the 9% increase in the third quarter. Commercial revenue declined by 8% as we exited some large lower margin accounts in India and Australia. In contrast, our Professional and Technical segment continued to exhibit strong growth, growing 40% on a constant currency basis. For the remainder of my APAC discussion, all revenue results will be discussed in constant currency.

Fees continue to improve in the region and were up 4% for the quarter. China and New Zealand had solid growth of more than 20%.

Our GP rate for the region increased by 130 basis points, primarily due to the improvements in temporary margins in Australia and India. Expenses for the quarter were down 2% on a constant currency basis. The APAC region reported a small loss for the quarter.

Our final segment is our Outsourcing and Consulting group, OCG. As mentioned earlier, we are pleased that OCG reported a profit in the fourth quarter with earnings for the quarter of more than $800,000. OCG revenue was up 26% in the fourth quarter compared to last year. The strong growth is consistent with the 26% year-over-year growth we reported in the third quarter. Sequentially revenue is up nearly 17% from Q3. This is primarily due to the seasonality of a number of our PPO programs, which typically have stronger Q4 revenue performance. The $800,000 earnings for the quarter compares to a loss of $3.2 million a year ago, again consistent with our third-quarter results. This is a significant improvement of nearly $4 million over a year ago.

Revenue growth in demand for our OCG services continues to be strong. For example, globally in our RPO practice, revenue was up more than 17%. Revenue was up 46% in our Contingent Workforce Outsourcing practice, and our payroll processing practice also reported nice revenue growth of 24% in Q4 compared to last year.

Overall OCG's gross profit rate was 330 basis points higher than a year ago. On an absolute dollar basis, GP was up 43% over last year as compared to the 44% growth we reported in Q3. The improvement in GP rate continues to result from improved volume mix within the higher-margin practice areas. Expenses were up nearly $4 million or $17 million year over year in OCG. Expense growth continues to show good leverage. When compared to our growth in revenue and gross profit, this increase was primarily the result of servicing costs associated with the expansion of customer programs.

On a year-to-date basis, OCG revenue was up 25%, and earnings have improved by over $15 million. This is a significant turnaround. We are pleased with the improvements and progress we are making within OCG and believe we are well positioned for OCG to continue that progress this year.

I do note, however, that we expect to see a pullback in revenue and earnings in Q1 due to normal seasonal declines. The first-quarter is typically our weakest quarter, but we do believe the subsequent quarters in full-year 2012 will be profitable for OCG.

Now I will turn the call over to Patricia who will cover our quarterly results for the entire Company.

Thank you. Revenue totaled $1.4 billion, an increase of 5% compared to the fourth quarter last year. On a sequential basis, revenue was essentially flat compared to the third quarter. Worldwide our fees were up 29% year over year, also 29% on a constant currency basis.

On a sequential basis, our fees were down 8%. Our gross profit rate was 16.3%, the same as the fourth quarter last year. The growth in fee-based income, 40 basis points, as well as improvements in our customer mix offset an 80 basis points decline in the temp GP rate due to the migration of the HIRE Act benefits to the income tax line. We were pleased that we were able to essentially hold our GP rate in spite of losing almost a full point due to the HIRE Act.

Expenses were up 8% year over year. The increase is primarily due to higher compensation costs.

During the fourth quarter, we saw the impact of higher incentive-based compensation, as well as the impact of retirement benefits and merit increases we reinstated earlier in the year. A large portion of our full-year incentive-based compensation cost was recorded in the fourth quarter due to our improved EPS performance.

On a sequential basis, expenses were up 4%, higher than we had anticipated due to the higher incentive-based compensation. Excluding the increase in incentive-based compensation, expenses would have decreased slightly on a sequential basis.

In the fourth quarter, our GAAP earnings from operations were $13 million compared to 2010 earnings of $17 million. The fourth quarter of 2010 included an $11 million benefit from the HIRE Act. Excluding the effect of the payroll tax holiday, we achieved nice leverage on a year-over-year basis.

The movement of the HIRE Act benefit has made comparisons difficult all year. Excluding the HIRE Act impact, we improved our year-over-year fourth-quarter gross margin by 80 basis points and grew gross profits by 10%, twice the rate of sales. We did this while holding expense growth to 8%, including the compensation items we reinstated that I discussed earlier. Overall we are proud of the progress we are making.

Income taxes in the fourth quarter provided a benefit of $11 million. The benefit was partially from our best-in-class work opportunity and HIRE Act retention credit program. These programs provide tax credits for employing workers in certain disadvantaged groups such as disabled or unemployed veterans, recipients of government assistance and the long-term unemployed. We employed 30,000 workers from these targeted groups in 2011 and generated fourth-quarter credit of $7.9 million.

Also, in the fourth quarter, we determine that tax reporting purposes we were eligible for a worthless stock deduction related to the Netherlands, which resulted in an $8.4 million benefit.

Diluted earnings per share from continuing operations for the fourth quarter of 2011 totaled $0.64 per share compared to $0.39 in 2010.

Looking ahead to the first quarter of 2012, we expect continued revenue growth in the low single digits on a year-over-year basis, down slightly sequentially. Keep in mind that seasonally the first quarter is always our weakest quarter. Sequentially we expect the gross margin will be stable, although we may see some improvements if fees continue to increase. We plan to stay the course on expense control in 2012 and deliver growth with only modest increases in SG&A, those necessary to retain our workforce and to make targeted investments, primarily in OCG and PT.

On a year-over-year basis, expenses will increase slightly. However, on a sequential basis, we expect expenses will decrease slightly as we will not have the higher incentive comp levels we experienced in the fourth quarter.

We expect our income tax rate to be much higher in 2012. This is primarily due to the expiration of the work opportunity and HIRE Act retention credits, which provided $28 million of combined benefit in 2011. We do not anticipate the HIRE Act retention credit to be reinstated, but the work opportunity credit has expired and been reinstated several times even retroactively.

Given the current political environment, it is uncertain if or when the work opportunity credit will be reinstated. We estimate our annual tax rate to be 30% to 35% if work opportunity credits are reinstated and 40% to 45% if they are not. The accounting model for taxes means that we will not book any 2012 work opportunity credits until legislation is enacted. And, in fact, our first-quarter rate will be high due to seasonal items.

Overall the weaker euro will put pressure on our reported EMEA earnings.

I also want to alert you to a change we will be making in how we present and account for our operating segments. As we have continued to refine our operating structure and combined the management of Commercial and PT in each of our regions, we have been required to allocate a significant amount of expense between Commercial and PT.

Beginning in 2012, we are eliminating the expense allocation, which we do not perceive adds much value. While we will continue to report through the gross profit line for the seven operating and reporting segments, our expense reporting will be reduced to the four regions -- Americas, EMEA, APAC and OCG, and corporate. We have included a pro forma example of the new reporting structure as the last page in the press release.

Turning to the balance sheet, I will make a few comments. Our balance sheet includes Tradicao, the Brazil acquisition we completed late in the year. Tradicao's results will not be reflected in the income statement until 2012. Cash totaled $81 million, generally unchanged from year-end 2010. Accounts receivables totaled $945 million and increased $134 million compared with year-end 2010.

For the quarter our global DSO was 52 days, up from 49 days last year. The increase is due primarily to expansion of terms for CWO and other customers. Accounts Payable and accrued payroll and related taxes totaled $509 million and increased $84 million compared to year-end 2010.

At the end of the fourth quarter, debt stood at $96 million compared with $79 million at year-end last year due to the increase in DSO and the inclusion of Tradicao.

Debt to total capital was 12%, up slightly from 11% last year. In our cash flow, we generated $19 million of net cash from operating activities compared to $42 million last year. The change primarily reflects higher working capital requirements, partially offset by improved operating results in 2011.

I will turn it back over to Carl for his concluding thoughts.

Thank you, Patricia. As we reflect on 2011, it is time to take stock of how far we have come in what we accomplished. By most measures, it was a successful year for the industry and for Kelly. Despite the challenges we have faced, we have moved forward and demonstrated our resolve and capability to succeed. We are keenly focused on building a stronger company. A tightened expense base and ongoing cost control measures make us more competitive. Innovative product offerings through OCG provide more choices and customized solutions for customers' talent needs. We are earning high marks in customer satisfaction and winning new large accounts. And the investments we have made in our OCG segment are yielding a positive return, a segment that we believe is very aligned with labor market trends.

Our commercial business, our largest segment, is performing well. Demand for professional and technical workers is picking up, and fee-based services, while fluctuating a bit, are trending upward as well.

We enter 2012 with cautious optimism. Thus far, positive economic trends are continuing, and that will lead to greater demand for our services. There is a strongly growing demand for customized workforce solutions available through our OCG segment, and we believe these solutions will be even more widely accepted as the economy improves. Demographic shifts, most notably an aging workforce and shortages in high skilled labor areas, favor a more flexible staffing level.

Again, as these factors play out, let me affirm what Patricia has noted. We look for sustainable growth with sales increasing during the next -- the current quarter in the low single digits. We expect our gross margins to remain stable, and we remain committed to maintaining firm control over expenses.

Before we conclude this morning, let me reaffirm what we have committed to do over the longer term. We are focused on achieving competitive returns and increased value for our shareholders. Specifically our sites are set on achieving a ROS of 4%, and key to that goal is our success in growing PT, fee-based and other higher-margin offerings and maintaining our cost of service delivery. The pace of which we reach this goal is dependent in part on the overall economic growth and demand for labor, but we are intent on acting with a sense of urgency, while pursuing a strategy that enables us to leverage our reputation for exceptional service and the broader more profitable customer relationships. And we are delivering customer-focused solutions across a broad continuum of orders that span traditional staffing, Professional and Technical offerings and Outsourcing and Consulting services.

And finally, we will engage the best talent by attracting and retaining an exceptional team of employees, free agents and suppliers.

In closing, I want to acknowledge our talented team of employees and thank them for their efforts during the past year. They did a terrific job of maintaining a strong customer focus, guarding expenses and working smart to deliver solid results.

That concludes today's report. Patricia and I will now be happy to answer your questions. The call can now be opened.

(Operator Instructions). James Samford, Citigroup.

It looks like things are going fairly well this quarter in Europe, particularly in Switzerland and Russia and Norway. I am just wondering could you comment on what is working well there and any trends that you are seeing as this quarter has progressed in terms of potential slowdowns from the macro things that are going on over there?

When we were reporting Q3 and then Q2 the uncertainty in the US over how the budget and debt deficit debate were going to be resolved, we talked about how that made companies hunker down and much more tentative in their planning, and you see some of that in Europe now as they are going through that same uncertainty about how are they going to sort through some of the mess that they are dealing with. And I think you see more tentativeness in the planning, and you see cautious growth, I think, to echo the words of some of our compatriots in the industry, and we see the same thing in Western Europe.

The further East you go -- so you hear us talking about Switzerland and Russia -- the more robust the economic recovery and the less tied to the euro in many regards they are. In Switzerland and Russia, as you noted, have been strong areas of growth for us, and particularly Russia has been for several quarters now a source of double-digit growth. It is a solid market that has a fair amount of resource base in its overall economy, and demand for right now minerals and resources is very high.

And maybe just a little bit of detail on the Brazilian acquisition, particularly any thoughts on what an organic growth rate might be in Q1, or will it impact that low single-digit guidance number that you gave?

I don't think it will impact the low single-digit number, and the Brazilian economy is performing very well. Until we have had a longer period of time of managing with our new colleagues in Brazil, I would hesitate to give any market specific guidance yet. But ask us next quarter.

Okay. I guess if I can get one last one in, just from a seasonality perspective, should we expect compensation, sort of a Q4 event just generally going forward as well, Patricia?

No. I mean you can see that given the tax benefit that we had, that was more impactful than just the normal -- this would be a not too normal seasonal pattern for us. I think if you go back to 2010, you can see a more normal pattern, and the incentive comp booking follows that.

Tobey Sommer, SunTrust.

I was wondering if you could describe a little bit more the worthless stock deduction from the Netherlands and, I think, Carl, you mentioned Benelux reorganization. Thanks.

Yes, we did some realignment of our business in Netherlands. We closed a couple of branches. We outsourced some of our back office, and we are starting to share management within the Benelux area. That was a part of the requirement -- or not requirements, but documentation and understanding that we needed from -- for the IRS requirements to make a worthless stock deduction. So that allowed us to essentially deduct our value of our stock in the Netherlands. It is a pretty standard tax event. We have done it before. This one was just larger.

It also had a sort of outsized impact because those events happened in the fourth quarter. If they would have happened in the first quarter, we would have taken $8 million and spread it across the full year, and there would have been a couple of million dollars a quarter, and it would not have been so impactful. So it was magnified a little bit by the fact of when we did it.

Thank you. In the legal business in the Americas PT, Carl, you mentioned that was up strongly, kind of called that out. Are you involved in staffing for e-discovery type work, and if so, was that a driver of the growth there?

Our legal business has two parts. You know, you have the ongoing normal types of staffing supplement that you do for law firms and for law departments and corporations. But you will hear us from quarter to quarter talking about big burst of growth or big declines in legal staffing, and much of that comes with large actions around large civil lawsuits, large amounts of litigation. A portion of that is always e-discovery. That has been a part of what we have been doing for a while, but I would not attribute it particularly to that. The rise and fall of our legal business and exceptional levels tends to do with the success we have in supporting various litigation efforts.

And then a question about OCG and I will get back in the queue. How does your visibility for revenue growth headed into 2012 look? Maybe if you could break it apart between your expectations for existing customers versus whatever kind of new clients you signed up and your visibility into ramping that business?

Visibility is improving. As you know, when we started into some of the larger account implementations, we struggled with understanding how quickly you could implement and how quickly you could get fee revenue online. We have a better understanding of that, and internally our forecasting ability has improved as we have gained more experience with some of those accounts.

In this economy that we have endured for the last three years, I never trust anybody's long-range projections on any form of demand.

So I think we have pretty good visibility two to three months out. I think we understand what customers say they are going to do over the next year.

And then to the last part of your question, in terms of new customers, as I stated in our comments, this is an area of strong demand for the services. We have a good pipeline of proposals and pitches, and it is where many of the senior officers are spending much of our time right now in participating in those activities.

Do you have an expectation for incremental profitability in the OCG segment, and could you share that with us?

Yes and then no. But I have an expectation. I would like it to be better informed by the speed of implementation of projects, how quickly can we get to it, and how much infrastructure have we -- that we have been building to support the new accounts than is transferable to other accounts. That will be a better question to ask us in two to three quarters from now. I think things -- we would have a better handle on that.

John Healy, Northcoast Research.

I wanted to ask about gross margins as we maybe move throughout 2012. I know there were a number of items that masked some of the progress you made this year. But are you of the view that gross margins can make some what is a modest improvement on an annual basis in 2012? I know you mentioned it will be similar in the first quarter, but I was hoping to just get some sort of maybe thoughts on where the trajectory of those might be working over the next year or so.

You have moving parts. If you listen to the -- if you look at some of the detail we provided, we still had strong growth in light industrial in Q4. So you can still have some of your lower margin activities. The lower skill sets still seem to be in high demand in the economy, and that can -- you can have GP improvement within business segments, but business line mix could offset that.

On the other hand, we have been seeing pretty exceptional growth on the placement fees, direct hire fees, and that is more, as Patricia was saying, in some of the segments more than offset some of the downward pressure.

As I was saying to Tobey, I have confidence in the next few weeks outlook, and after that it is more uncertain how fast will job creation be. If you ask me do I think there is a possibility that fee growth will be sufficient to provide some upward movement in gross profit, Patricia said that in her comments. That is what I believe also that it is a possibility at this point.

Great. I wanted to ask you, I feel like so much of the recovery so far in the staffing world has been driven by some of your larger customers. Anecdotally can you provide some color on maybe what you are hearing from the small and medium-size businesses out there, maybe specifically in the US? Does it sound like they are feeling better about hiring, or does it sound like they are feeling better about their business? Anything you can provide there would be helpful.

I will give you opinions and then you can take them as just that.

On the large customer side, we have been talking about that they have been committed to an increase in secular shift to various forms of free agent labor, and they are in the process during this recovery of changing their overall mix. That is tougher for smaller customers to do.

As I engage in speaking events and talk to smaller business, they are more susceptible to the political uncertainty and the political rhetoric and are much more hunkered down in terms of committing to the future growth and are doing it at the absolute last possible moment in terms of hiring activities. And not, by the way, the larger companies are wildly spending either, but small business in particular has been distressed by the political rhetoric and by the uncertainty over economic growth. And no, I don't see yet a genuine shift in small enterprise saying, okay, everything is going to be cool. Let's start investing a little bit ahead of the growth.

Thank you. That was helpful. And then just last question, as you guys think about capital deployment, I know this year was kind of a milestone getting back on the horse in terms of paying a dividend. But I was curious to know how you think about that dividend, and maybe when you might begin to evaluate it a bit further, and if that is something that you think about increasing on a gradual basis or on a regular basis? I was just curious of your thoughts there.

There is no commitment to increasing either gradually or on a long-term basis, but, of course, it is something we look at every year as part of our planning process. This economy has been slow, and like many staffing firms, we went deep into demand on our capital during the down side, and there are still some things we would like to put in better working order as we are generating more operating profit. And that would tend to be my higher priority at the moment. Patricia, I don't know --

Yes, I agree.

Okay.

Gary Bragar, NelsonHall.

Congratulations on nice results. My question is you noted that in the fourth quarter RPO revenue was up 17%. It is kind of a two-part question. Do you have the full-year RPO growth results, and also where do you see the growth coming from? Is that new clients added in 2011, plus the addition of more increased hiring from existing clients?

So, first off, in terms of do we have the full-year number, I see people flipping through books quickly to see if we have it. I don't know if we do or not.

And then secondly, in terms of whether it is from new customers or old customers, it tends to be more from the older customers where we are seeing some signs of pickup of growth reflecting what I talked about in my presentation -- in my part of the discussion earlier about a slowly accelerating job growth market and, again, tending to be in the lower levels of corporations, and that tends to be a level of high activity for RPOs.

Our full-year growth was a little over 40%.

Ty Govatos, CL King.

Just a little clarification. My pencil could not move fast enough. SG&A in the first quarter would be down sequentially but up year to year?

Yes.

And when you say you had gross margins stable, is that on a year to year or sequential basis?

Sequential.

That is all I needed. Thank you very much.

(Operator Instructions). Tobey Sommer.

I think I missed it. Did you for the first quarter give a comment on revenue growth?

Yes, up low single digits year over year.

Year over year, okay. And then does that incorporate -- what kind of euro kind of performance -- is that a snapshot of kind of like where it is treading over the last week or so?

Yes, that is consistent with that. I mean on a year-over-year basis, that will be a little bit of a downside, but that downside is included in the low single digits expectation.

Okay. And then, Carl, kind of a broader question to you. Generating operating leverage has been a goal, and there has been evidence of that in the Company's performance since the recession. What kind of minimum revenue growth do you need to continue to generate operating leverage?

We are going to be able to do so even off of low single-digit growth. The question that I really fret with is, how can we pick up the pace of moving much more rapidly to a 4% return on sales? And you know and I know, low single-digit growth is not going to help us get there quickly. I need growth much more like what you are seeing us talk about in some of our PT and fee businesses where you hear us talking about 30%, 40% growth in some of the fees and 10% or high single digits on the PT side.

The question all comes down to on the speed of that improvement is, when do we think for us the US economy in particular gets back to producing 200,000 to 300,000 jobs on a steady month by month basis, and if we knew that, we could predict the next election.

Thank you for that answer. Then, in terms of the revenue growth of low single digits, I guess if you are going to get operating leverage on that, there is an assumption of a positive mix shift towards more -- better growth on the fee elements of your revenue?

Yes, we have been reporting positive mix shift in terms of fees versus staffing and in terms of elements inside the staffing, not quite as much because of sometimes the rapid growth of light industrial. So it is going to require tight control on expenses and a continued shift into higher-margin, more profitable business lines.

The last question for me, could you comment on what you think is the durability of the growth we have seen in manufacturing and light industrial employment in the US and comment as to how Kelly participates in what seems to be a resilient auto industry?

So lots of little subparts in there. So, first off, the US has -- I will admit somewhat to my surprise -- more competitive as a place to locate manufacturing for a whole variety of reasons, some of which now -- some of which focus around the ability of manufacturing companies to deploy labor in a more flexible manner, and obviously we have been participating in that, and we have been a recipient. That is one of the reasons you have seen our light industrial business lines growing as much. And as long as manufacturing companies feel like they have a flexibility to rapidly increase or decrease labor cost in response to demand, I think you will continue to see the US become a better manufacturing site.

And secondly, we are not paying attention to the fact that even though the total number of manufacturing jobs are in decline, the value of manufactured goods are increasing. The US is doing a very good job at producing more manufacturing output with fewer people, and that has been partly what has been behind the demand for Professional and Technical labor inside our business lines.

So I think that is fairly sustainable. And when you start getting into the effective currency rates and all other types of things, I'm way beyond my ability to speak. But I think fundamentally the US is in the process of being an important player in the manufacturing revival, but it is going to be a jobs light revival in manufacturing.

And, Mr. Camden, no additional questions.

Thank you and look forward to talking to you all next quarter.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.