Kelly Services Inc (KELYB) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Kelly Services' fourth-quarter earnings conference call. All parties will be on listen-only until the question-and-answer portion of the presentation.

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 CEO. Please go ahead, sir.

Thank you, John, and good morning, everyone. Welcome to Kelly Services' 2012 fourth quarter and year end conference call. With me on the call is Patricia Little, our CFO.

Let me remind you that any comments made during this call, including the Q and 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.

Turning to Kelly's fourth-quarter and full-year results, 2012 was a year of unrelenting headwinds and anemic economic growth, anxiety over the debt ceiling, turbulence leading up to the US Presidential election, uncertainty over the fiscal cliff, and persistent recessionary conditions across much of Europe converged to constrain growth throughout the year, and put pressure on Kelly's staffing revenues, permanent hire fees, and margins.

Additionally, a number of factors impacted our reported results. These factors include a restructuring charge in EMEA, as well as an adjustment for a loss on our investment in the North Asia JV, and asset impairment charges, all of which impact our overall Company results and are not recorded at the segment level. Patricia will provide more detail about the adjustments, but for the purposes of my discussion, I'll be using adjusted earnings.

I'm pleased to say that despite the challenges reflected in our fourth-quarter results, Kelly more than held her own in 2012. And for the full year, our performance showed healthy improvements in GP, operating earnings, and a firm commitment to keeping costs in check. Revenue for the fourth quarter was down 2% year over year in constant currency, a further deceleration from the slight year-over-year dip we saw in the third quarter. For the year, revenue was basically flat.

In keeping with our commitment to hold costs in line with revenue, our adjusted expenses were down 2% for the quarter, and basically flat for the year. We achieved an adjusted operating profit of $14 million for the quarter, up from the $13 million achieved for the same period last year. For the year, we achieved an adjusted operating profit of $75 million, compared to last year's adjusted operating profit of $61 million.

Kelly's fourth-quarter adjusted earnings from continuing operations were $0.33 per share, compared to last year's earnings of $0.64 per share for the same period. For full-year 2012, our adjusted earnings from continuing operations were $1.34 per share, compared to 2011's adjusted earnings of $1.80 per share.

On January 2, the work opportunity tax credit was reinstated. Had it been reinstated three days earlier, our full-year adjusted earnings would have been higher by $0.24 per share. And as a result of this timing, the $0.24 per share impact will be included in our first-quarter 2013 financial statements.

Our gross profit rate for the fourth quarter was 16.2%, up 10 basis points from the fourth quarter of 2011, and down 60 basis points sequentially from the third quarter. The decline sequentially in GP was due primarily to a decline in fees, which fell $4 million sequentially in the fourth quarter. For the full-year 2012, our gross profit rate was 16.5%, a healthy 60 basis points higher than our 2011 GP. Overall, we're pleased that Kelly improved its commitment to control costs, secure higher-margin business, and create operational leverage in a year of stubbornly mediocre economic growth.

Now, let's take a closer look at our fourth-quarter performance in each of our business segments, starting with the Americas. Consistent with the third quarter, we continued to experience softening revenue demand in the Americas, as customers remained cautious about the economic environment. Combined staffing revenue for the region was basically flat year over year. Americas' commercial revenue was down 2% year over year, a slight improvement from the 3% decrease we reported in Q3. Without Tradicao, commercial revenue would have been down about 4% for the quarter.

Light industrial trended 4% below prior year, however, we saw stronger revenue growth from Americas' professional and technical staffing, which grew 5% year over year. Within PT, the strongest year-over-year growth came from the engineering and healthcare practices.

For the Americas' region, combined temp to perm, direct placement, and other fees slowed considerably this quarter, as employers were hesitant to bring on full-time staff. Fees were basically flat for the quarter, year over year. Sequentially, fees were down 15% compared to the prior quarter.

Americas' gross profit rate for the quarter was 10 basis points higher than the same period last year. Expenses in the Americas were up 2% year over year. The increase was due to our ongoing investments, and professional and technical recruiters, centralized operation staff to support our largest customers, and investments in our technology infrastructure. These targeted investments will continue in 2013. And though they may be a drag on the region's earnings in the short term, we expect them to deliver a positive long-term impact as they enable us to execute our strategy with improved focus, speed and efficiency.

All told, Americas achieved earnings of $33 million for the fourth quarter. While this is a 5% decrease from the previous year, we feel our performance was solid, given both the investments we've chosen to make, and the political and economic headwinds we faced during the quarter.

Let's turn now to our operations outside of the Americas, beginning with EMEA. Reported revenue in EMEA was down 10% in the fourth quarter compared to last year. On a constant-currency basis, revenue was down 8%. For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency. Economic and business conditions remain challenging across EMEA, and staffing markets are continuing to decline at double-digit rates.

For Kelly specifically, eastern Europe was up 4% year over year, due primarily to the performance of Hungary and Poland, while the Nordics and western Europe experienced declines of 12% and 10%, respectively. The declines are primarily attributable to weak commercial temp sales, however, PT growth has also slowed over the course of this year, declining 2% during the quarter compared to the same period last year.

During the quarter, we also saw a decrease in our fees across the region. Fee revenue for the fourth quarter was down 15% year over year, and also down 15% sequentially. This decrease can be seen across both our commercial and PT segments. EMEA's GP rate for the fourth quarter was 16.7%, compared to 17.7% for the same period last year. The decline is attributable to continued margin erosion in the commercial segment, due to customer mix, as well as the decline in perm fees.

In constant currency, expenses decreased by 7% year over year, excluding restructuring. This reduction is primarily due to decreases in variable costs in the commercial segment, in line with our level of activity, partially offset by targeted investments in the PT segment. Netting everything all out, EMEA reported adjusted earnings of nearly $400,000 for the quarter, a decrease of roughly $3.2 million compared to last year, excluding restructuring. We are pleased with our ability to remain profitable in such a difficult market, and we expect conditions across Europe to remain challenging for the staffing industry for the foreseeable future.

Next we turn to APAC. We completed our North Asia joint venture with Temp Holdings, effective November 1. As a result, we are no longer consolidating our former subsidiaries in China, South Korea, and Hong Kong. The marco-economic headwinds continue to be felt across parts of the APAC region as well, impacting our operations there. Combined revenue for the region, both commercial and PT, declined by 12% in constant currency, due to economic headwinds as well as exiting a number of low-margin customers.

Fees declined by 13% year over year, due to both weakness throughout the region, as well as deconsolidating our North Asia operations. However, we are seeing improvements in fees within our remaining APAC PT segment, resulting from our strategy to deliver higher level skill sets.

Our gross profit rate for the region was 16.6%, unchanged compared to last year, but down by 230 basis points compared to the prior quarter. The sequential decrease in gross profit rate is primarily due to the reduction in fees. Expenses remain well controlled, and were down more than 13% in constant currency for the quarter. We concluded the quarter slightly above break-even, compared with a small loss for the same period last year.

Turning now to our OCG segment, we're pleased to report, this quarter marks the fifth consecutive quarter of positive earnings. OCG revenue was up 20% in the fourth quarter compared to last year. Growth within our OCG segment is being driven by two core elements of our talent supply chain management strategy -- Business Process Outsourcing and Contingent Workforce Outsourcing. Revenue in our Business Process Outsourcing practice was up 41% year over year, driven primarily by high demand in our KellyConnect Contact Center solution within that practice, as well as an increase in our more traditional BPO solutions within the Americas. Fee revenue was up 46% year over year in our Contingent Workforce Outsourcing practice. Overall OCG's gross profit rate was 25.6% as compared to 24.3% a year ago, with the improvement due to growth in higher margin practice areas.

Expenses were up roughly $4 million, or 16% year over year. This increase is the result of service and costs associated with the expansion of customer programs, and new customer program implementations. But all in all, we are continuing to realize significant operating leverage. For the quarter, OCG reported earnings of $3.2 million, compared to earnings of $800,000 a year ago. Strong growth in our BPO unit, and strong fee growth in CWO clearly helped to boost our fourth-quarter earnings. We're very pleased with the strategic progress we're making in this important segment.

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

Thank you, Carl. Before I get into the total Company results, I'd like to go through the unusual items we have that affected our fourth quarter. Early in the fourth quarter, we decided not to deploy the PeopleSoft billing module, and as a result, we recorded an impairment charge of $3.1 million pretax, or $0.05 per share. We did successfully launch PeopleSoft payroll in the US in the first week of January, but we decided that the cost benefit wasn't compelling for a subsequent change to our billing system.

We also made a decision to restructure certain operations in EMEA, primarily in France and Italy. As a result, we recorded a pretax charge of $1.3 million, or $0.02 per share, primarily related to employee and lease termination costs. We expect to complete the restructuring in the first quarter at an additional cost of $500,000, or $0.01 per share. Because we also re-estimated the impact of prior restructurings earlier in 2012, our full-year impact of restructuring was a $900,000 benefit for the year.

Early in the fourth quarter, we completed our joint venture transaction with Temp Holdings in North Asia. As a result of the transaction, the accounting rules required us to report a pretax loss of $700,000 or $0.03 per share. This amount is included in Other expense. When I refer to adjusted earnings, we've excluded the impact of the impairment, restructuring, and loss on North Asia. Of course, 2012 did not include the impact of the extension of the Work Opportunity Credit, which will be worth about $9.3 million, or $0.24 per share in the first quarter of 2013.

Moving on to operating results for the quarter, revenue totaled $1.4 billion, a decrease of 2% compared to the fourth quarter last year. On a sequential basis, revenue was up 2% compared to the third quarter. Our acquisition of Tradicao in Brazil a year ago added about 1% to our fourth-quarter revenue compared to last year. Worldwide, our fees were up 2% year over year, and 2% on a constant-currency basis. On a sequential basis, our fees were down 10%.

Our gross profit rate was 16.2%, up 10 basis points compared to the fourth quarter last year. On a sequential basis, our GP rate was down 60 basis points. The decrease was due, in large part, to the sharp decline in fees, 30 basis points, as well as third-quarter adjustments to prior years' workers' comp in the US, which were not repeated at the same levels in the fourth quarter, worth about 20 basis points of the GP rate decrease. Adjusted expenses were down 2% year over year, and on a sequential basis were up 2%.

In the fourth quarter, our adjusted earnings from operations were $14.2 million, compared to 2011 earnings of $12.7 million. This is the third quarter in a row, as well as the full year, we have pulled through an operating increase on lower top-line results. Income tax for the fourth quarter was a benefit of $800,000, compared to a benefit of $11.4 million in 2011. The decrease in the tax benefit is due to the expiration of both the HIRE act and Work Opportunity Credits, plus the non-recurrence of a 2011 benefit related to tax planning. In 2012, we released $5.3 million in reserves, related to audit closures.

Diluted adjusted earnings per share from continuing operations for the fourth quarter of 2012 totaled $0.33 per share, compared to $0.64 in 2011. Again, the decrease is due to the income tax rate.

Looking ahead to the first quarter of 2013, we expect revenue to be down 3% to 4% on a year-over-year basis, slightly more sequentially. The first quarter is always our weakest quarter, and we also see a continued weak global employment market. Our expectations for the gross profit rate are dependent on fees. Our base expectation is that fees will be lower than the first quarter of 2012, but will improve from the fourth quarter. On this basis, overall GP would be relatively flat to last year. However, if fees remain soft, we will see our GP rate decline year over year.

We expect SG&A to increase 1% to 2% both year over year and sequentially. During the first quarter, we will continue to invest in our PT and OCG businesses, as well as front office systems and expansion of our large customer service delivery model. This will be partially offset by savings from restructurings in EMEA, as well as other expense reductions we are making. However, on a net basis, we expect our expenses will increase. The combination of lower revenue and our continued investment in the business, mean that we expect first-quarter operating earnings to be significantly lower than either the prior year or prior quarter.

As for taxes, the biggest impact will be the Work Opportunity Credits related to 2012. On January 2, the President signed the American Taxpayer Relief Act of 2012, which included the retroactive reinstatement of Work Opportunity Credits, and the extension of them through 2013. Because the Bill wasn't signed until 2013, our 2012 results do not include the benefit of $9.3 million, or $0.24 per share of Work Opportunity Credits, and we will record these credits in our first-quarter 2013 results, and also the fees associated with them, which are in SG&A.

Work Opportunity Credits are important to Kelly, and our field operation does a terrific job of optimizing our hiring in order to maximize them. Our 2013 annual income tax rate will be around 20%, including the retroactive Work Opportunity Credits. Our tax rate is highly dependent on the mix of our business, especially the amount of US-[led] business, which drives Work Opportunity Credits, the geographic mix of business, earnings or losses from our deferred compensation plans, and tax planning. And of course, any corporate tax reform has the potential to alter our results as well.

Turning to the balance sheet, I'll make a few comments. Cash totaled $76 million, down slightly from $81 million at year-end 2011. Accounts receivable totaled $1 billion, and increased $69 million compared to year-end 2011. For the quarter, our global DSO was 53 days, up from 52 days last year. The increase is due mainly to extending customer terms. Accounts payable and accrued payroll and related taxes totaled $560 million, and increased $52 million compared to year-end 2011.

At the end of the fourth quarter, debt stood at $64 million, down $32 million from year-end 2011. Debt to total capital was 8%, down from 12% at year end. In our cash flow, we generated $61 million of net cash from operating activities, compared to $19 million last year. The change primarily reflects lower additional working capital requirements in 2012.

With the weak revenue situation, it's still a strong operational performance this quarter, and I'll turn it back over to Carl for his concluding thoughts.

Thank you, Patricia. Looking back on 2012, it's clear that operational leverage played a key role in Kelly's ability to maintain our footing. In the face of economic uncertainty, softening demand, and declining revenue, we held firm to our commitment to keep costs in check, improve operational efficiency, and pursue higher-margin business. Looking ahead, though the US unemployment rate is holding below 8%, overall job growth remains tepid, and the US temp job growth is decelerating, trends that we believe are likely to continue in 2013. We expect that ongoing economic uncertainty in the US, fueled by the fiscal situation, will continue to constrain hiring in the near term.

In the Euro Zone, we don't anticipate any significant changes to the recessionary conditions that continue to take their toll on the labor market. However, we are confident the Kelly strategy equips us to respond to these marketing conditions. We're operating more efficiently. But let me add, that regardless of the weakness we typically experience in Q1, we will be making intentional, targeted investments that support our long-term growth, including adding PT recruiters to meet increased demand, and making improvements to our infrastructure.

Our OCG segment continues to deliver strong, sustained improvements in revenue, GP and earnings, reflecting the growing demand for high-margin outsource talent solutions. And our PT staffing solutions are driving a more profitable business mix, as we rise to the challenge of meeting increased demand for high-skilled, higher-margin talent.

And so, we enter 2013 with realistic resolve. Without acceleration and economic growth here in the US, and the continued recessionary conditions across EMEA, any earnings growth is likely to require a shift of business mix, sustain strong performance by our OCG segment, and ongoing vigilance regarding cost control. Though reaching our goal of 4% ROS will require more vibrant economic growth than we anticipate seeing in 2013, we remain focused on achieving competitive returns and increased value for our shareholders, and we're invested in pursuit of those returns.

Our strategy is responding to market trends and driving profitable long-term customer relationships. We are delivering innovative workforce solutions that span traditional staffing, professional and technical offerings, and outsourcing and consulting services, increasing our value within the talent supply chain, as well as proving our expertise in managing the entire talent supply chain on our customers' behalf. And we're building that supply chain by engaging the best talent, and attracting and retaining an exceptional team of free agents and suppliers.

Before closing, I'll take a moment to thank Kelly's employees around the world, and acknowledge their efforts during a very difficult year. They did a great job of controlling spending, winning higher-margin business, and embracing operational efficiencies. That concludes today's report. Patricia and I will now be happy to answer your questions.

John, the call can now be opened.

(Operator Instructions)

James Samford, Citigroup.

Some of your competitors have talked about the stabilization and the decline rate over in Europe. Your comments are fairly, certainly not as optimistic as some of your competitors. I was wondering if it was just the fact that you're hedging on European still being very weak? But are the trends getting worse or better at this point?

The trends aren't getting worse, but they're not getting better, which gives you a year-over-year decline that we expect to continue. But I don't see the recession changing into a depression, or the temporary staffing market taking another huge step decline in sales. But you have to have positive GDP growth in general to see the type of strong temporary staffing growth that is going to be required for the European markets to get back to where they were.

Yes, fair enough. On the US side, a lot of talk about the healthcare act driving more secular trend towards temp. I was wondering if you're seeing any of that, any chatter about that with your clients, particularly on the OCG side, if that provides an opportunity for you to help your clients get through, or manage through some of their thinking about their staffing needs?

No, it's -- I would rephrase some things differently. I'll start with, employment regulation around the world gets difficult and as it gets difficult, they turn to companies that offer an ability to help manage that complexity. Kelly's good at managing employment complexity. And I expect that ACA is just one more piece of employment complexity that would cause customers who want to turn over aspects of managing those relationships to us.

On the bottom side of the, in terms of size of companies, while there's a large number of companies with less than 50 employees, large numbers of that group aren't sitting in the 45 to 49 zone that would require movement. So I think that you'll see small companies continuing to increase their use of free-agent labor. They've been doing that over the last few years. I expect that trend to continue, but I don't see ACA as a particularly strong punctuation point for that.

What I do think isn't being talked about enough, is that the number one reason that more of the talent inside the United States doesn't choose to operate in a free-agent style is because access to healthcare has been very difficult for them under our antiquated system. And with some of the reforms that come out of ACA, we expect more talent to be able to work within a work style they would prefer, which is a free-agent mode.

And while everybody is focused a little bit on the demand side, I think more attention needs to be paid to the fact that it will increase the supply side, especially of professional and technical workers. And I see that as the more important trend over the next two to three years, than a momentary blip as companies adjust to trying to size their employment base to fit or not fit within the ACA framework.

Thank you.

Tobey Sommer, SunTrust.

Carl, I want to ask a follow up to your, response to that question previously. What would be the top two factors with an ACA you think would help stimulate and release this pent-up supply of labor that is looking for a contingent opportunity?

I think two things. I think one is that it makes it more possible for, between exchanges and other programs, it makes it more possible for various categories of free agent to access the healthcare market without being discriminated against. If you look at the individual policy or the small company policies, the cost of healthcare insurance was dramatically higher for free agents than it was for those working in a more traditional employment mode.

There are several aspects of ACA which would take longer than we're going to have on this call that will have the effect of making it possible for those free agents to access healthcare insurance at a more reasonable cost. If, assuming the exchanges get up and operating officially, that will be one of the more significant mechanisms that make it possible.

Thank you, that's helpful. I wanted to ask a broad question. Several of your larger competitors are undertaking meaningful numerical cost cuts to their G&A, recognizing that the growth environment, because of a lackluster economic growth, maybe won't provide the top-line cover to get them operating margins that they desire. I know you took a real hard look at this prior and during to the previous recession. Are there opportunities for you to have an appreciable effect on your operating margin performance in this kind of revenue environment?

You're correct in saying we took very significant reductions in our expense lines earlier, and we've continued to chip away at the expense base as market dynamics shift. As the supply chain increases, as we're able to do more of our business from centralized servicings. I'm not expecting, in this environment, a dramatic one-time reduction in expenses. But what I am expecting is that the Kelly team will continue to focus on the opportunities to reduce as we can. Patricia?

I think the difference now is, instead of making investments by restructuring our business. In other words, spending money to reduce our footprint. We're trying to improve our expenses by making investments in the infrastructure of our business by moving more of our business to our large customer service delivery model, to improving our infrastructure on our IT side, which is very important.

We had a great launch of our PeopleSoft payroll system this month, and that's given us a lot of confidence to tackle things like our front office system, and our candidate experience, which we think will drive efficiencies. So I would just say that we're continuing to pursue efficiencies. It's less through reducing our footprint and more through making our base operations more productive.

Thank you very much. I'll get back in the queue.

Andrew Steinerman, JPMorgan.

Carl, I wanted to focus in on your comment that you expect US temporary help to continue to decelerate. I'm pretty sure that's the wording that you said in the prepared remarks. The US temporary help market has already decelerated from high single digit to mid-single digit growth. What gave you the perspective that will it continue to decelerate? Is that what you're seeing in January in the US? And are you putting aside the fact that economists expect real GDP growth to pick up through the year?

To answer the last part, I'm somewhat putting aside that perspective, because until I see how the fiscal debate finishes playing out, and how the sequester plays out, I never underestimate the ability of our government to shatter a growth trend. So, with an effective government, would I expect GDP to improve throughout the year? Yes, but I'm not yet confident that's the probable outcome. And that drives a lot of the comments on a continued view of deceleration.

And could you make more specific comments about what you saw in January in the US in terms of year over year?

No, not yet, but what I would say is we're not seeing an acceleration, or we would have talked about it. We work primarily, as you know, Andrew, in the larger customer set, and I will tell you, their forward views are on all hold, and without anticipation of much growth in demand for any type of talent, be it permanent or non-permanent. In fact, some of our customers who have been doing their earnings releases have been stating very explicitly they are seeing zero growth in demand for talent in the United States.

Right. And lastly, do you think Kelly Services' US performance is at market, below market? And is this in any way part of your goals to stay at market in terms of year-over-year performance for US flexible staffing?

As we've seen with the results delivered so far, and what I hear at conferences, we're performing at market, while we're executing a shift into more of a PT business environment. So we're happy with the US performance, compared to competitors.

Thank you very much, Carl.

Buzz Heidtke, MidSouth Investor Fund.

Under these Obamacare rules, there's an advantage of hiring part-time workers who work at 30 hours or less, save about $2,000 a year. and I've read a lot of people that are in labor-intensive businesses like the restaurant business or retailing are going to be changing and hiring more part-timers. Is that going to help you all out any at all?

When I tend to hear that discussion most is in, what I would call, minimum-wage workers, lower-paid workers and that is not a segment that we're particularly well-represented in, so I don't view that as helping. I also know that the various enforcement arms attached to ACA are very much looking for abuse of the system, restructuring workforce in a way that you're deliberately trying to walk below the 30 hour limit, is identified as an abuse, and would receive a hard look by this administration's enforcement agencies.

I don't see that as particularly benefiting Kelly. It's not market segments that we work within. And we intend to be fully compliant with the intent as well as the letter of this law.

Thank you.

Gary Bragar, NelsonHall.

Great to hear that Kelly OCG continues to do so well. Just want to make sure if I had heard this right, and a follow-up question. Was RPO revenue up 41% year over year in the quarter? And also, what was full-year RPO, if you're able to say that? And anything you can comment on what is driving that high growth.

I may have misarticulated. We talked about our BPO practice, not our RPO practice, being up 41%. We didn't give the numbers for RPO, but if it had been in the high 40%s, you would have probably would have heard about it.

Okay, thank you. Sorry about that.

Not a problem.

Anything you can comment, though, on related to the RPO business?

It's enjoying healthy response, but as you would expect, given the very tepid employment in permanent employees, and that's what RPO does. It would be facing more pressures on its growth than other business units would inside the OCG space.

All right. Thanks.

Allen Gittleman, Janney Montgomery Scott.

Back on the affordable care. With the new anticipated regs on insurance, and also the, in general, the paperwork involved, wouldn't we be picking up some additional expenses going forward if things were implemented?

Yes. If you come back to my earlier comments, I think the regulation burden that comes on various forms of employment, has steadily increased in the country, and it's one of the reasons that various forms of employment outsourcing have continued to increase. I expect that to be more of a growth factor ultimately for our industry, than people trying to dodge the 30-hour limits.

But almost certainly, every staffing firm is going to see an increase in expenses in making IT systems capable of providing the type of analysis necessary to be in compliance. As well as an increased administrative burden from having more people inside your insurance system. So that will be, as 2014 rolls through, will be a noticeable expense line. And in 2013, we will see, and others will see, expenses in making the systems capable of doing what needs to be done.

Wouldn't this be particularly burdensome to the ma and pa staffings? And would there be any potential for growth picking up business from that?

It will be particularly burdensome to them, but you already see the answer may be yes, but the fact is many of the smaller staffing firms have already outsourced much of their back-office operations and administrative functions to third parties. I suspect you'll see that trend to continue. And over the year, as the administrative burden comes up, I would expect you would see some smaller staffing firms choose to exit and move into other enterprises. The administrative burden in the United States, as you know, for employment is very high, and continues to get worse and more complex as we add more components to it.

Right, thank you very much.

(Operator Instructions)

Follow up from Tobey Sommer. Tobey, your line is open. Please go ahead.

With regards to your expectations for the US, I was just curious, what verticals or industries would you consider to provide you the most visibility into demand? Is it call centers, distribution, electronic assembly? What are you seeing from those industries that mute your expectations? Thanks.

I'm trying to think. We are spread across most of the Fortune 500 fairly well, so we have verticals that we tend to do a little more in. petrochem and mineral extraction in general, pharmaceutical, as examples, life sciences and so on. But it's more a tenor of their future planning which is all on hold. This would be a point in a cycle where we would tend to see, Tobey, more project type of spending.

Let's add, let's retool a whole business line, let's change out a whole software system, and to the extent our customers can, they are not looking at that type of project spin. That often fuels a lot of the mid-cycle growth, and it's just not there.

Okay. And then one follow-up on OCG. You got some real good growth on the BPO side, and perhaps slightly slower growth on the RPO side, but 20% over all. Can that trajectory continue based on some of the secular trends? Is it likely to decelerate as the overall employment is restrained this year?

If you had a better overall employment market, I would be challenging them to deliver even better results, in terms of the top-line growth, because they should be seeing fundamental growth in the current programs. This is a new management model that is emerging as companies are combining various forms of free-agent labor into a single management team. And we're doing very well in that category. So to a large degree, even without employment growth, you will have a period of fairly high growth, in parts of this category, that if the overall talent supply chain.

There will be segments that are going to be challenged. RPO business and executive placement is going to be tough markets inside the OCG world and this environment. But overall, you should see very strong growth continuing for quite a while in this category. There's still several companies that are in the process of adopting or making decisions as to how they're going to play in the talent supply chain space. So I think there's a lot of secular growth available in this category. Even in this economic environment.

Thank you.

Follow up from James Samford.

One of the areas that this year characterizes having a concentration in is manufacturing. Any thoughts on the long-term manufacturing renaissance benefiting you more than perhaps the other staffing companies? You also mentioned petrochem, obviously there's a lot of activity there. Curious if that area is seeing some nice growth? And for Patricia, just a quick follow up. How should we think about the taxes as the year progresses? It sounds like Q1 should have pretty sizable benefit, and then the overall tax rate I think you said was 20%? Is that correct?

Yes, that's correct.

So, in terms of mineral extraction, in general, resource extraction, it's a strong market for us. I suspect it's going to continue to be a strong market. Anybody looking at both their revenue growth and employment growth, it's one of the sectors of the economy, here and around the world, that's continuing to grow. It does great for us.

In terms of manufacturing, to the extent that manufacturing touches the lid business, you note we talked about being 4% down year over year in the fourth quarter. At the upper end of manufacturing, that's one of the places where demand for our engineers and some of the other PT segments is high. But the manufacturing renaissance is a great delight to the country.

But one of the stories not being particularly well-reported is that the growth in revenues or GDP that is coming significantly is outpacing the growth in employment in the manufacturing space. Because what is taking place here is highly productive, highly efficient types of manufacturing, which is awesome for our GDP, but not so awesome in terms of overall employment growth. So I don't see Kelly benefiting more or less than average for what happens in the employment market and manufacturing.

All right, thanks.

And Mr. Camden, no further questions in queue.

Thank you all. And thank you, John.

You're welcome. Ladies and Gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.