Kforce (KFRC)

Professional staffing firm Kforce (NYSE:KFRC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 6.2% year on year to $330 million. Next quarter’s revenue guidance of $336 million underwhelmed, coming in 2% below analysts’ estimates. Its GAAP profit of $0.45 per share was 3.3% below analysts’ consensus estimates.

Company Overview

With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.

The Professional Staffing & HR Solutions subsector within Business Services is set to benefit from evolving workforce trends, including the rise of remote work and the gig economy. With companies casting a wider net to find talent due to remote work, the expertise of staffing and recruiting companies is even more valuable. For those who invest wisely, the use of predictive AI in recruitment and screening as well as automation in HR workflows can enhance efficiency and scalability. On the other hand, digitization means that talent discovery is less of a manual process, opening the door for tech-first platforms. Additionally, regulatory scrutiny around data privacy in HR is evolving and may require companies in this sector to change their go-to-market strategies over time.

Kforce competes with other professional staffing firms including Robert Half (NYSE:RHI), ManpowerGroup (NYSE:MAN), and Randstad (OTC:RANJY), as well as specialized technology staffing companies like TEKsystems (private) and Insight Global (private).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $1.38 billion in revenue over the past 12 months, Kforce is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.

As you can see below, Kforce struggled to increase demand as its $1.38 billion of sales for the trailing 12 months was close to its revenue five years ago. This shows demand was soft, a poor baseline for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Kforce’s recent performance shows its demand remained suppressed as its revenue has declined by 9.8% annually over the last two years.

This quarter, Kforce missed Wall Street’s estimates and reported a rather uninspiring 6.2% year-on-year revenue decline, generating $330 million of revenue. Company management is currently guiding for a 5.7% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Kforce was profitable over the last five years but held back by its large cost base. Its average operating margin of 6% was weak for a business services business.

Looking at the trend in its profitability, Kforce’s operating margin decreased by 1.3 percentage points over the last five years. Kforce’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, Kforce generated an operating profit margin of 3.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Kforce, its EPS declined by 11.7% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

Diving into the nuances of Kforce’s earnings can give us a better understanding of its performance. As we mentioned earlier, Kforce’s operating margin was flat this quarter but declined by 1.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Kforce reported EPS at $0.45, down from $0.58 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Kforce’s full-year EPS of $2.55 to grow 4.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Kforce has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.4% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Kforce’s margin dropped by 4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Kforce burned through $3.9 million of cash in Q1, equivalent to a negative 1.2% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Kforce hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 35%, splendid for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Kforce’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Kforce reported $444,000 of cash and $65.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $85.88 million of EBITDA over the last 12 months, we view Kforce’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $876,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results as Kforce missed across all key metrics. Its quarterly revenue and EPS guidance also fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $42.76 immediately after reporting.

Updated: July 10, 2025 at 12:37 AM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Kforce doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Kforce’s P/E ratio based on the next 12 months is 17.4x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $50.25 on the company (compared to the current share price of $44.36).