Labor Ready Rolls Up Its Sleeves

The nation's largest provider of day laborers faces profit pressure as the construction boom slows

The day begins early at Labor Ready Inc. (LRW ). It's still dark at 5:30 when branch manager ­Yobani "Geo" Galvez swings open the security gates at the company's storefront on Hollywood Boulevard in Los Angeles. Soon a half-dozen men are waiting in the brightly lit room, drinking free coffee and gazing sleepily at a workplace safety video playing on a small TV. More men wander in as Galvez and his assistant sift through orders from the day before and answer phone calls from companies requesting part-time help.

The men in the waiting area--black, white, and Hispanic--have worked in construction, manufacturing, and restaurants. Steven Baker, 46, is just out of prison. "I'm trying to get back on my feet," he says. Soon he and 21-year-old José Castellon will join two other men doing home remodeling work in the Hollywood Hills. "That's what I like about Labor Ready," Castellon says. "They always send you out."

It's Labor Ready's motto: "We put people to work." Since its founding 17 years ago, the company has become the nation's largest provider of day laborers, cutting checks to more than 600,000 people a year. It charges employers about $13.50 an hour and pays its workers about $7.50, minus their share of taxes. Based in Tacoma, Wash., Labor Ready has 926 branches in the U.S., Britain, and Canada, with $1.2 billion in sales last year. Over the past three years, its net income has more than tripled, to $63 million, winning the firm a place in BusinessWeek's annual Hot Growth ranking.

Staying there will not be easy, though. Labor Ready has benefited mightily from the boom in home construction and remodeling, which accounts for about 40% of its business. In some markets, particularly Florida after last year's hurricanes, contractors had open orders for Labor Ready to send them every worker it could find. But new-home construction has fallen off sharply, and with it Labor Ready's near-term earnings prospects.

Chief Executive Steven C. Cooper has had to ratchet back Wall Street's earnings expectations to the low end of his guidance for the year. Profits are still expected to be up about 16% for 2006, to $71 million, but next year is cloudier, and the company's stock is down 35% since April. Because of the short-term focus of the work, Labor Ready's day workers "are the first people to get laid off if things start to slow," explains Michael D. Carney, an analyst at stock research firm Aperion Group. "They're looked at as a leading indicator."

Many of the jobs consist of unloading trucks, digging ditches, and cleaning up debris--or as Stacey Burke, communications vice-president, puts it: "Here's a sledgehammer, there's the wall." Job candidates are given a 20-minute quiz designed to weed out those who have problems with drugs, anger management, and other workplace hazards. And all must prove they're in the country legally. Red flags can lead to a drug test.

To diversify the company, the 44-year-old Cooper, a former executive at supermarket chain Albertson's Inc. (ABS ), has been acquiring slightly higher-end staffing companies. In the past two years, Labor Ready has purchased Spartan Staffing, which supplies temps for light industrial work out of Tampa, Florida, and CLP Resources Inc., which dispatches plumbers, electricians, and carpenters from Reno, Nevada. Since acquiring the two businesses, Labor Ready has added 40 new branches to their existing 59.

HOLLYWOOD STARS

Labor ready's big imperative, though, is to squeeze more revenue out of its existing stores. That's where people like Hollywood branch manager Galvez, 31, come in. An energetic former instructor at a computer school, Galvez has been with Labor Ready for five years. Having worked just a few months in the Hollywood store, Galvez has helped boost revenues there to an annualized rate of $1.4 million this year, up from $900,000 last year, and on a par now with the company average. Galvez is plenty motivated. Branch managers start at $36,000 a year but collect 10% of their branch's profits, which can push their total compensation into six figures at top-performing locations.

Galvez says he gets his best results from companies that are already customers, such as George C. Hopkins Construction Co., a contractor working on the Broadway Hollywood Lofts, a high-end residential project at the corner of Hollywood and Vine. He has hired out dozens of workers at similar construction sites in the slowly gentrifying neighborhood. "These guys are the real stars of Hollywood," he says of the workers. When making sales calls, Galvez doesn't mention that Labor Ready is traded on the New York Stock Exchange and has more than $1 billion in sales. "They'd think we're charging too much," says district manager Thomas Stonich.

On a recent October afternoon, Galvez appears in the office of Hollywood Lofts project manager David Lee with a big box of donuts in hand. He and superintendent Steve Turko joke about the tickets to a NASCAR race Labor Ready provided this past summer. Lee says his staffing demands fluctuate wildly. Some days he needs as many as 15 temps, some days none. "I can go down to Home Depot (HD ) and pick up people," he says, "but then I need cash to pay them. I need receipts. Labor Ready does all that for me."

Lee now has two former Labor Ready workers employed full-time on the site. One, 27-year-old Michael Brown, says he's hoping the experience will help him decide which construction trade he'll ultimately settle on as a profession. "Sure we're dependent on the economy, but we're in business to help businesses grow," Cooper says later. "That's not going to end."

By Christopher Palmeri

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