ManpowerGroup
(MAN), the global leader in the employment services industry,
posted better-than-expected third-quarter 2012 results on the back
of increased gross margin and effective cost management. However,
earnings per share dropped year-over-year as the current sluggish
macroeconomic environment resulted in soft demand for recruitment
services, particularly in Europe, and weighed upon its results.
Strong dollar also acted as a deterrent.
The quarterly earnings of 79 cents
a share surpassed the Zacks Consensus Estimate of 68 cents but
dropped 18.6% from 97 cents earned in the prior-year quarter.
Unfavorable foreign currencies fluctuation undermined the earnings
by 6 cents. Net earnings per share also came ahead of management’s
previously provided guidance range of 64 cents to 72 cents a
share.
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. On the other hand, the ManpowerGroup Solutions
business sustained its growth momentum. The demand for the
counter-cyclical outplacement services portrayed signs of
steadiness, which increased 18% during the quarter.
Let’s Unveil
Further
When comparing sequentially, the
rate of decline in total revenue of Milwaukee, Wisconsin based
Manpower has accelerated. After falling 8.1% year-over-year in the
second quarter of 2012, total revenue dropped 10.5% to $5,172.3
million during the third quarter. In constant currency too rate of
decline increased to 3.8% in the quarter under review from 0.8% in
the previous quarter. The soft top line performance did weigh upon
the bottom line. However, one thing that instilled confidence was
that unlike the second quarter, total revenue in the third quarter
beat the Zacks Consensus Estimate of $5,106 million.
We observe that although cost of
services decreased 10.7% to $4,316.1 million, gross profit fell 10%
to $856.2 million due to a decline in the top line. However, gross
profit margin jumped 10 basis points to 16.6%, and exceeded
management’s expectation of gross profit margin expansion of 16.3%
to 16.5% buoyed by growth witnessed across ManpowerGroup Solutions
and Right Management outplacement services.
Manpower posted operating profit of
$118.6 million, down 25% from the prior-year period, whereas
operating margin contracted 40 basis points to 2.3% due to
deleverage in SG&A expense.
Segment
Details
By geographic segments, revenue
from services in the United States fell 8.2% to
$760.8 million from the prior-year quarter. Segment operating
profit plunged 23.7% to $24.5 million.
In Other Americas,
revenue rose 1.9% to $388.3 million and 8.1% in constant currency,
whereas segment operating profit climbed 3.3% to $10.9 million and
6.1% in constant currency.
In France, revenue
fell 16.7% to $1,392 million and 5.7% in constant currency, whereas
segment operating profit plummeted 36.7% to $17.7 million and 27.6%
in constant currency.
In Italy, revenue
fell 23.1% to $246.8 million and 13.3% in constant currency,
whereas segment operating profit tumbled 51% to $9.4 million and
45% in constant currency.
In Other Southern
Europe, revenue dipped 8.5% to $189.2 million but
increased 2.8% in constant currency, whereas operating profit came
in at $2.2 million, down 28.5% from the prior-year quarter, and 20%
in constant currency.
In Northern
Europe, revenue slipped 10.6% to $1,426.9 million and 3.5%
in constant currency, whereas operating profit plunged 32.3% to
$42.5 million and 27.6% in constant currency.
In APME
(Asia-Pacific Middle East), revenue came in at $688.2, down 1.8%
from the prior-year quarter but up 0.2% in constant currency.
Segment operating profit fell 4% to $20.8 million and 1.6% in
constant currency.
Revenue from Right
Management grew 3.4% year over year to $80.1 million, and
6.4% in constant currency. The company posted operating income of
$5.6 million compared with operating loss of $1.9 million in the
year-ago quarter.
Financial
Aspects
Manpower ended the quarter with
cash and cash equivalents of $444.6 million, total debt of $751
million, reflecting a debt-to-capitalization ratio of 23%, and
shareholders’ equity of $2,568.4 million. The company has no
borrowings under its $800 million revolving credit facility.
Capital expenditures for the nine month period were $49
million.
During the quarter, the company
generated free cash flow of approximately $10 million. The company
bought back 750,000 shares worth of $28 million during the quarter,
and still had 2 million shares at its disposal at the end of the
quarter under its share buyback program.
Strolling through
Guidance
Manpower, which competes with
Kelly Services Inc. (KELYA) and Robert
Half International Inc. (RHI), now expects fourth-quarter
2012 earnings in the range of 72 cents to 80 cents a share,
including an unfavorable impact of foreign currency translation of
1 cent. The current Zacks Consensus Estimate for the quarter is 75
cents.
Management now projects fourth
quarter total revenue to decline between 5% and 7% in the U.S.
dollars, or in the band of 3% to 5% in constant currency from the
prior-year quarter.
For the fourth quarter, management
projects gross profit margin between 16.7% and 16.9%, which is up
sequentially and forecasts operating profit margin in the range of
2.2% to 2.4% for the fourth quarter that dovetails with the third
quarter.
Closing
Commentary
We remain concerned about the
company’s dwindling top and bottom lines performances as well as
soft projections of the same for the fourth quarter. Currently, we
maintain our long-term “Underperform” recommendation on the
stock.
With a well-established network of
approximately 3,900 offices in about 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. As a result, the stock holds a
Zacks #3 Rank that translates into a short-term “Hold” rating.
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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