Good morning, ladies and gentlemen, and welcome to Kelly Services First 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. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to Kelly Services' 2012 First Quarter Earnings Report and Conference Call. With me on today's 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. Now let's move on to our first quarter results. First quarter is traditionally the weakest for the staffing industry, which feels the effects of seasonal and postholiday employment adjustments. Although January showed promise, the first quarter of 2012 did sputter and concluded with tepid job growth. The industry is definitely experiencing a slower than anticipated recovery. Nonetheless, we have positive news to report. Kelly's first quarter was a good one. As the first 3 months of the year played out, we leveraged our leaner cost structure, improved our gross profit margin and stayed focused on executing our strategy, and our first quarter results reflect those efforts. Revenue for the quarter was up 1%, at the low end of our internal projections. Kelly's earnings from continuing operations were $0.24 per share compared with last year's adjusted first quarter earnings of $0.14 per share. We achieved an operating profit of $14.7 million, a healthy improvement over the adjusted earnings of $5.6 million for the first quarter of 2011. Our gross profit rate increased to 16.5% during the quarter compared to 15.8% for the same period last year. Additionally, our quarterly performance was bolstered by steady progress we're making in our key strategic areas. Our higher…

Thank you, Carl. Revenue totaled $1.4 billion, an increase of 1% compared to the first quarter last year. On a sequential basis, revenue was down 3% compared to the fourth quarter. Our acquisition of Tradicao in Brazil late last year added about 1% to our first quarter revenue, leaving organic revenue flat year-over-year. Seasonally, the first quarter is always our weakest, and the sequential decline was expected. Overall, first quarter revenue came in at the low range of our expectation due to weakness in Europe. Worldwide, our fees were up 15% year-over-year, 16% on a constant currency basis. On a sequential basis, our fees were up 8%. Our gross profit rate was 16.5%, up 70 basis points compared to the first quarter last year. The improvement was due to continued growth in fee-based income as well as improvements in our temp GP rate. The overall improvement in our temp GP rate was due to lower benefit and workers compensation costs, some of which won't repeat next quarter. Expenses were up 2% year-over-year, excluding the restructuring costs that we took in the first quarter of 2011. Again, without Tradicao, expenses would have been flat compared to the first quarter last year. And on a sequential basis, expenses were down 1%. As I've mentioned before, we continue to focus on controlling expenses. We believe this is even more important in the current slow to flat growth period that we are experiencing, but we are still protecting investments in key areas such as OCG and PT. In the first quarter, our earnings from operations were $14.7 million compared to adjusted 2011 earnings of $5.6 million. That's good leverage on a small increase in revenue. The income tax rate in the first quarter was 35%. The tax rate came in somewhat better than expected,…

Thanks, Patricia. It's clear that 2012 will present its share of challenges. To be certain, the U.S. economy is recovering, but at a stubbornly slow pace. Weakening European economies have shaken confidence here in the U.S., business consumers and investors remain cautious, and large companies still aren't spending in adding jobs as quickly as would have been expected. Those are realities that can constrain our business. But they're balanced by the positive longer term trends that favor Kelly, among them shortages in a number of high skill disciplines and an aging workforce that will create opportunities, an ongoing secular shift towards flexible workforce models and a growing demand for the types of customized talent management solutions we provide through OCG. And so we see the glass is more than half full. Despite the economic headwinds and low revenue growth, we demonstrated our commitment to improved operational leverage, achieving solid first quarter results. We remain optimistic about 2012, but the second quarter will be tougher than originally expected given global economics. As we conclude this morning's report, let me affirm what we set out to do. We're committed to delivering competitive returns and increased value for our shareholders. Specifically, our sights remain on achieving a return on sales of 4% this cycle. To do that, we're focusing on growing PT, fee base and other higher margin offerings and maintaining our lower cost to service delivery, and we're making progress. But if we're going to achieve our goal, we need to see stronger economic growth and greater demand for labor. Regardless, we know that the strategy is sound and we'll continue to act with urgency as we execute our plan. We'll leverage our reputation for excellent service to capture new business, broaden customer relationships and generate profit. We'll respond to customers' needs for flexible, innovative solutions for managing their workforce, from traditional staffing to Professional and Technical specialties through outsourcing and consulting programs. And finally, we'll leverage our exceptional Kelly team to connect the world's top companies with talented, passionate free agents and suppliers equipping our clients with the flexible workforce that helps them execute their business goals in 2012 and beyond. 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] First from the line of James Samford with Citigroup.

Just wanted to just get a sense for -- things seem to be deteriorating here in Europe, certainly at least on the rhetoric level. Just wondering what you're hearing or what you've been seeing in the quarter so far, and particularly in maybe the Western European side?

So I'm not seeing any signs of a miraculous recovery in Europe, if that's what we're hoping for. I think the rhetoric is hard. Speaking not necessarily of the hours we're seeing, but talking of the customer sets in general, I see customers in all of the European areas being very cautious about starting anything new, very cautious about investing inside the European markets. I think there's insufficient certainty. And until there is some understanding of how the euro crisis, the debt situation is going to play out, I'm not expecting there to be any resolution of the certainty crisis in Europe, and we are not counting on a return to strong growth in Europe this year.

Yes, one of the segments, I guess, in Switzerland, you're still seeing some pretty nice growth there. And I think from the data, it looks like even Switzerland's temp data has gone negative. Is there a share gain going on there, do you think? Or is something particular in Switzerland that's going on?

If we're growing market and the overall data shows that it's losing, then you would argue that there is a share shift. I haven't seen the objective report to that effect, but that would be the only way the 2 numbers could be reconciled.

Fair enough. I guess switching to the U.S. really quickly, just any comment on trends you're seeing there between sort of your larger clients versus smaller client mix?

Well, there was more growth than -- as we talked about, there was more employment being created in the smaller customer set. But not -- the dynamics aren't such that it would've caused any appreciable shift in our overall balance yet. What I tend to look for as my signs that doom and gloom is coming is our customers talking about contingency plans for what happens if they need 10% less staff -- that's not really taking place. On the other hand, there's not a whole lot of conversations taking place about how we would ramp up rapidly, to add even 10% more. It's kind of a stable set of expectation. That's why we talk about very low single-digit type of growth for a bit here in the U.S.

Next question is from Tobey Sommer with SunTrust.

This is actually Frank here for Tobey. I wanted to ask about the expense control and SG&A. You talked about continued improvement there throughout 2012. You've done a good job so far. Can you give us any color on, additionally, where that's coming from?

Yes, we're basically keeping the same tight rein on what I'll call sort of staff and discretionary costs. In addition to that, we really are focused on making sure our field is as efficient as it can be. Where it's appropriate, we're centralizing functions, which also give us some efficiency. I'll also say that to a certain extent, we're -- the only negative in the whole picture is that we do have a fair amount of turnover in the U.S. as well as in Asia, so sometimes we wish we had a little bit more expense to have a few more recruiters to deck against our business. But that said, that's not a big worry, it's just one of the pieces that we need to keep managing.

Okay. Great. That's helpful. And can you talk a little bit about pricing in APAC Commercial? What are the trends you're seeing there?

Well, what you're seeing inside our own data is not a reflection per se of pricing, it was a reflection of restructuring our portfolio of business and removing the lower price points. Clearly, there are parts of the business that have been more than commoditized. They have been -- brought down to gross profit rates that are razor thin, and we're not going to play in those areas. At the upper end, we seem to be capable of moving up the skill sets both in Professional and Technical temp staffing as well as in the placement fees. The question as to the more macro pricing environment, I'm not really set to answer.

Okay. Great. And then in EMEA, I guess, France is a particularly large exposure there. We've had some, I guess, political results lately. Any thoughts about either regulatory changes or shifts that could occur in that region?

It's hard to imagine more regulation on this temporary staffing industry than already exists in France. It's a very regulated market, and it is a -- it has been a long and core part of the French approach to the labor markets. I suspect over time we might see various legislative initiatives that might impact the market in France, but I'm not expecting any -- it's not high on the legislative agenda. I'm not expecting any significant policy change within the next 18 months.

Okay. Great. And finally, in kind of looking at cash flow and balance sheet, can you talk a little bit about your view of acquisitions? What you see out there versus your balancing of repurchases and perhaps dividend?

There's never an end to the possible uses of cash. And we still have a tad more debt than I would like, and so that's obviously an area I keep focus on. There are, as we have now come out of the postrecession environment, there are people now beginning to place more staffing properties on the market. And we, like everybody else, would take a look at those. And if we've found one particularly interesting and useful to our strategy, we would probably participate. But it is not an explicit strategy to go purchase just for the sake of purchasing.

[Operator Instructions] We'll go next to Ty Govatos with CL King.

Sorry about making you go back over what you said, but I've missed some of the guidance points. Patricia, could you go through them again?

Sure. Well, we talked about revenue growth being flat, maybe up slightly on a year-over-year basis. It will grow a little bit sequentially. We said that we would expect the gross margin -- the gross profit margin to be up year-over-year in the second quarter, but not quite as much as you saw in the first. We would only have mid-single digits year-over-year expense growth. And then I talked about taxes, which I revised the numbers that I gave last quarter, where if we do have work opportunity credits, we'd be in the range of 25% to 30%, and if we don't we'd be in the range of 35% to 40%. Is that helpful?

To the tax rate, you said second Q would be higher than the first Q.

Yes, I did. We had work opportunity credit adjustments in the first quarter, which is typical. You know, those things take years to move their way through the state system and so we were -- we made some adjustments.

So we're talking a higher rate probably for the year then.

Yes, this was the low side. I should say that was the low side, assuming no work opportunity credits. Obviously, if we got work opportunity credits, our fourth quarter rate would be very low.

And, Mr. Camden, no additional questions in queue.

Great. Thank you all and look forward to talking with you over the next quarter. Bye.

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