ManpowerGroup
(MAN), the global leader in the employment services industry,
hinted that the current sluggish macroeconomic environment resulted
in soft demand for recruitment services, particularly in Europe,
and weighed upon its second-quarter 2012 results. Strong dollar
also acted as a deterrent.
To counter this, the company is now
contemplating on exiting its lower margin business and venturing
into high margin business. The company is also focusing on
controlling expense. The re-organization initiative undertaken by
management will results in annual savings of $20 million.
On the other hand, the
ManpowerGroup Solutions business sustained its growth momentum. The
demand for the counter-cyclical outplacement services portrayed
signs of steadiness.
Let’s Unveil the
Picture
The quarterly earnings of 76 cents
a share dropped 12.6% from 87 cents earned in the prior-year
quarter but surpassed the Zacks Consensus Estimate of 72 cents.
Unfavorable foreign currencies fluctuation undermined the earnings
by 7 cents. Net earnings per share came at the high-end of
management’s guidance of 68 cents to 76 cents.
On a reported basis, including
one-time items, earnings came in at 51 cents, down 41.4%.
Milwaukee, Wisconsin based Manpower
said that the quarter’s total revenue of $5,206.7 million fell 8.1%
from the prior-year quarter and 0.8% in constant currency. The
revenue also fell short of the Zacks Consensus Estimate of $5,224
million. The company had earlier projected total revenue of flat or
down 2% in constant currency.
We observe that although cost of
services decreased 7.7% to $4,345 million, gross profit fell 10.4%
to $861.7 million due to a decline in the top line. Gross profit
margin shriveled 50 basis points to 16.5% due to a fall in
permanent recruitment revenue and a soft temporary recruitment
gross margin in a few European countries.
Manpower posted operating profit of
$94.4 million, down 37.3% from the prior-year period, whereas
operating margin expanded 90 basis points to 1.8%.
Segment
Details
By geographic segments, revenue
from services in the United States edged down 3.6%
to $763.2 million from the prior-year quarter. Segment operating
profit plunged 71.6% to $7.7 million.
In Other Americas,
revenue rose 2.6% to $389.2 million and 12% in constant currency,
whereas segment operating profit fell 15% to $10.5 million and 8.3%
in constant currency.
In France, revenue
fell 13.2% to $1,427.6 million and 2.5% in constant currency,
whereas segment operating profit plummeted 37.4% to $15.5 million
and 29.3% in constant currency.
In Italy, revenue
fell 20.6% to $274 million and 10.8% in constant currency, whereas
segment operating profit tumbled 43.6% to $12.6 million and 36.6%
in constant currency.
In Other Southern
Europe, revenue dipped 1.9% to $190.1 million but
increased 9.8% in constant currency, whereas operating profit came
in at $3 million, up 12.8% from the prior-year quarter, and 26.3%
in constant currency.
In Northern
Europe, revenue slipped 9.6% to $1,415.8 million and 1.2%
in constant currency, whereas operating profit plunged 30.2% to
$39.2 million and 23.9% in constant currency.
In APME
(Asia-Pacific Middle East), revenue came in at $662.9 almost flat
with the prior-year quarter and rose 1.8% in constant currency.
Segment operating profit jumped 16% to $21.8 million and 17.6% in
constant currency.
Revenue from Right
Management dropped 0.9% year over year to $83.9 million
but jumped 2.9% in constant currency. The company posted operating
loss of $2.9 million compared with operating profit of $2.8 million
in the year-ago quarter.
Financial
Aspects
Manpower ended the quarter with
cash and cash equivalents of $454.6 million and total debt of
$755.1 million, reflecting a debt-to-capitalization ratio of 23%,
and shareholders’ equity of $2,510.9 million. The company has no
borrowings under its $800 million revolving credit facility.
During the quarter, the company
generated a negative free cash flow of approximately $33 million.
The company repurchased 879,000 shares for $32.6 million.
Strolling through
Guidance
Manpower now expects third-quarter
2012 earnings in the range of 64 cents to 72 cents a share,
including an unfavorable impact of foreign currency translation of
8 cents. The current Zacks Consensus Estimate for the quarter is 81
cents.
Management now projects third
quarter total revenue growth to be down in the range of 3% to 5% in
constant currency from the prior-year quarter. Including currency
exchange rates, it is expected to be down 11% to 13%.
On a segment basis, management
anticipates revenues to contract sequentially in constant currency
in the Americas, Southern Europe and Northern Europe. However, it
forecasts a low single-digit growth in Asia-Pacific Middle East and
Right Management.
Management projects gross profit
margin between 16.3% and 16.5%. Operating profit margin is
projected in the range of 2.1% to 2.3% compared with 2.7% in the
prior-year quarter.
Closing
Commentary
With a well-established network of
nearly 3,600 offices in approximately 80 countries, Manpower
currently offers its services to about 400,000 clients. We believe
that Manpower’s brand value, comprehensive range of services and a
strong global network provide a competitive advantage and reinforce
its dominant position in the market.
Currently, we have a long-term
‘Outperform’ recommendation on ManpowerGroup. However, the company,
which competes with Kelly Services Inc. (KELYA)
and Robert Half International Inc. (RHI), holds a
Zacks #4 Rank that translates into a short-term ‘Sell’ rating, and
well defines the company’s second quarter results as well as soft
third quarter outlook.
KELLY SVCS A (KELYA): Free Stock Analysis Report
MANPOWER INC WI (MAN): Free Stock Analysis Report
ROBT HALF INTL (RHI): Free Stock Analysis Report
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