Reuters
July 23, 2008 - 12:00 a.m. EST

(Reuters) - Staffing company Kelly Services Inc (KELYA.O: Quote, Profile, Research, Stock Buzz) posted lower-than-expected quarterly earnings, hurt by a weakening staffing market and a lagging economy, sending shares down as much as 16 percent.

CEO Carl Camden said the company had opted not to forecast future earnings due to the economic uncertainty continuing to cloud the outlook for the industry.

In June, the government reported that U.S. employers cut workers from their payrolls for the sixth straight month in June. Since the beginning of the year, 438,000 jobs have been lost.

"Kelly itself is performing fine but it is a broad-based staffing company with exposure in many parts of the labor market and as a result, needs the labor market to perform well for it to do very well," analyst Tobey Sommer of Suntrust Robinson Humphrey said.

Kelly Services assigns professional and technical employees in areas such as finance, education, engineering, information technology, law, healthcare and home care.

Shares of Kelly Services have fallen as much as 27 percent since hitting a 52-week peak on July 23, 2007. The Standard & Poor's 1500 Human Resource and Employment Services sub-industry index has fallen 39 percent in the same period.

INT'L MARKETS GETTING HIT

Camden said weakening economic conditions in the U.S. was affecting other global markets as well.

Analyst James Janesky from Stifel Nicolaus said he sees a mid-single digit slow down in Europe on the temporary staffing side.

"As the third quarter progresses and we move into the fourth quarter, we expect there will be additional weakness in both temporary and permanent sectors in the international arena," Janesky said by phone.

Kelly Services competes with peers such as Manpower Inc (MAN.N: Quote, Profile, Research, Stock Buzz) and Spherion Corp (SFN.N: Quote, Profile, Research, Stock Buzz), and has operations in Europe, Asia and Australia.

SECOND QUARTER MISS

The company posted second-quarter earnings of $10.5 million, or 30 cents a share, compared with $15.31 million, or 41 cents a share, a year earlier.

Revenue rose 3 percent to $1.45 billion for the quarter ended June 29.

Analysts on average were expecting earnings of 39 cents a share on revenue of $1.46 billion, according to Reuters Estimates.

Shares of the Troy, Michigan-based company were down $2.30 at $17.26 in Tuesday afternoon trade on Nasdaq. They touched an intra-day low of $16.50 earlier in the day. (Editing by Bernard Orr)