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
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MANPOWER INC WI (MAN): Free Stock Analysis
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ROBT HALF INTL (RHI): Free Stock Analysis
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