Kelly Services, Inc. (KELYA) Q4 2012 Earnings Report, Transcript and Summary

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 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&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 U.S. presidential election, uncertainty over the fiscal cliff, and persistent recessionary conditions across most 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 in 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 our 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 at 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 cost 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 3 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 the 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 are pleased that Kelly proved its commitment to control costs, secure a higher-margin business and create operational leverage in the year's 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 continue 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 in professional and technical recruiters, centralized operations 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 macroeconomic 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 the 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 remained well-controlled and were down more than 13% in constant currency for the quarter. We concluded the quarter slightly above breakeven 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 2 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 servicing 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 to 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 U.S. 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 reestimated 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 record 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 in -- which will be worth about $9.3 million or $0.24 per share in the fourth -- 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 year's workers comp in the U.S. which were not repeated at the same level 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 nonrecurrence 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 Tax Payer Relief Act of 2012, which included the retroactive reinstatement of work opportunity credit and the extension of them through 2013. Because the bill wasn't signed in -- until 2013, our 2012 results do not include the benefit of $9.3 million or $0.24 per share 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 operations 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, a specialty amount of U.S. bid 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 is 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 uncertainties, 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 U.S. unemployment rate is holding below 8%, overall job growth remains tepid and U.S. temp job growth is decelerating, trends that we believe are likely to continue in 2013. We expect that ongoing economic uncertainty in the U.S. fueled by the fiscal situation, will continue to constrain hiring in the near term. In the Eurozone, we don't anticipate any significant changes to the recessionary conditions that continue to take their toll on the labor markets. However, we are confident that Kelly's 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 outsourced 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 entered 2013 with realistic resolve, without acceleration in economic growth here in the U.S. and the continued recessionary conditions across EMEA, any earnings growth is likely to require a shift in business mix, sustained strong performance by our OCG segment and ongoing vigilance regarding costs control. By reaching our goal of 4% ROS, we'll require more vibrant economy growth than we anticipate seeing in 2013. We remain focused on achieving competitive returns and increase 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] And first in line, we have Jim Samford with Citigroup.

Just wanted to -- some of your competitors have talked about stabilization in the declining -- in the decline rate over in Europe. I'm just wondering, your comments there are fairly sort of showing not as optimistic as mentioned with competitors, I was wondering if it's just the fact that you're hedging on Europeans still being very weak. But are the trends getting worse or better at this point?

Now, 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 a -- 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's going to be required for the European markets to get back to where they were.

Yes, fair enough. I -- on the U.S. 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 sort of 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 the thinking about their staffing needs.

No. I would rephrase some things differently. So I'll start with employment regulation around the world gets difficult, and as it gets difficult, they turn the 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 movements. So I think that you'll see small companies continuing to increase the 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 #1 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 the -- 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's 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 2 to 3 years than a momentary blip as companies adjust to trying to size their employment base to fit or not fit within the ACA framework.

Our next question is from Tobey Sommer with SunTrust.

Carl, let me ask a follow-up to your response to that question previously. What would be the kind of the top 2 factors within ACA that you think would help stimulate in release this pent-up supply of labor that is looking for contingent opportunity?

Yes. I think, 2 things. I think, 1 is that, it makes it more possible for -- between exchanges in other program, it makes it more possible for various categories, a 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, but 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 efficiently, that will be one of the more significant mechanisms that make it possible.

That's helpful. And I wanted to ask kind of a broad question. Several of the -- your larger competitors are undertaking meaningful miracle cost cuts to their G&A, kind of recognizing that the growth environment, because of the 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 kind of 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 services. I'm not expecting, in this environment, a dramatic onetime reduction in expenses. But what I'm expecting it 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 work through making our base operations more productive.

And we'll go to Andrew Steinerman with JPMorgan.

Carl, I wanted to focus here on your comment that you expect U.S. temporary help to continue to decelerate. I'm pretty sure that's the wording that you said in the prepared remarks. The U.S. temporary help market has already decelerated from high single-digit to mid-single-digit growth. What sort of gave you the perspective that it will continue to decelerate? Is that what you're seeing in January in the U.S.? And are you sort of just 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 we see how -- Andrew, until I see how the fiscal debate finishes playing out and how the sequester plays out, I'm not -- 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, that's the best of probable outcome, and that drives a lot of the comments on the -- on a continued view of deceleration. And...

[indiscernible] Just, like, could you make more specific comments about what you saw in January in the U.S. 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 and we have a -- we work primarily, as you know, Andrew, in the larger customer set. And I will tell you their forward views are all on hold and without an anticipation of much growth in any -- in demand for any type of talent, be it permanent or nonpermanent. In fact, some of our customers who have been doing their earnings releases have been stating very explicitly, they're seeing 0 growth in demand for talent in the United States.

Right. And lastly, do you think that Kelly Services U.S. 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 U.S. flexible staffing?

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

Our next question is from Buzz Heidtke with MidSouth Investor Fund.

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

We have -- that tends -- where I tend to hear that discussion most is in what I would call minimum wage workers, lower -- 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 to, in any way, that you're deliberately trying to walk below the 30-hour limit, is identified as an abuse, and would be, 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.

Our next question, Gary Bragar with Nelson Hall.

I just have a question. I just wanted if I make sure if I had heard this right and a follow-up question. But was RPO revenue up 41% year-over-year in the quarter? And also, what is -- was full year RPO if you're able to say that? And anything you can comment on what's 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 our RPO, but if it had been in the high 40s, you probably would have heard about it.

Okay. 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 and permanent employees, that's what our RPO does, would be one of -- we'd be facing more pressures on its growth than other business units with inside the OCG space.

And next, we'll go to Allen Gittleman with Janney Montgomery Scott.

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

Yes. And again, so 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 a growth factor -- more of a growth factor ultimately for our industry than people trying to dodge the 30-hour limits. But almost certainly, every staffing firm with -- is going to see an increase in expenses at 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 systems. So that will be, as 2014 rolls through, will be a noticeable expense line, and then 2013, we will see and others will see expenses in making our systems capable of doing what needs to be done.

Just one other follow-up. Wouldn't this be a particular burden since in 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, is that 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 continue. And over the year, and, again, as the administrative burden comes up, yes, I would expect you would see some smallish 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 that.

[Operator Instructions] And we have a follow-up from Tobey Sommer.

With regards to your expectations for the U.S., 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? And just kind of what are you seeing from those industries that give you -- that mute your expectation?

We've -- I'm trying to think if we -- we are spread across most of the Fortune 500 fairly well. So we're not -- 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. I -- 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 -- as you know, more project-type of spending. Let's add, let's retool our whole business line. Let's change out a whole software system. And to the extent our customers can, they're are not looking at that type of projects spend. And that often fuels a lot of the mid-cycle growth and we're not -- it's just not there.

Okay. And then one follow up on OCG. I guess you got some real good growth from the BPO side, and perhaps slightly slower from the RPO side. But the 20% overall, it can -- should, can that trajectory continue based on some of the secular trends or is it likely to decelerate as the overall employment is restrained this year?

If you had an overall -- if you had a better overall employment market, I'd 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's 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. But 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 in 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 and 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.

And we do have a follow-up from James Samford.

Just a few follow-ups here. One of the areas is that this year characterizes having a concentration in is manufacturing. I was wondering if, any thoughts on sort of 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 I guess for Patricia, just a quick follow-up. How should we think about the taxes from a -- as the year progresses, it sounds like there's Q1 should have pretty sizable benefit, and then the overall tax rate, I think you said it 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 our revenue growth and employment growth, that'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 the manufacturing touches the lid business, you note that 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 it's not, 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's coming significantly is outpacing the growth in employment in the manufacturing space because what's -- 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 in manufacturing.

And Mr. Camden, no further questions in queue.

Thank you all. And thank you, John.

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