Manpower's 1Q Earnings Beat, Rev Lags - Analyst Blog


Effective cost management and tax credits earned in France facilitated the global leader in the employment services industry, ManpowerGroup Inc. ( MAN ), to come up with better-than-expected first-quarter 2013 results.

The company's adjusted quarterly earnings came in at 63 cents a share, substantially surpassing the Zacks Consensus Estimate of 45 cents and jumping 26% year over year. However, including one time items, earnings came in at 31 cents a share. The company stated that earnings per share were negatively impacted by a penny on account of foreign currency fluctuations.

Revenue & Margins

Total revenue dropped 6.4% (5.8% in constant currency) year over year to $4,768.9 million and missed the Zacks Consensus Estimate of $4,774 million.

Lingering macroeconomic woes continue to deter the financials of the company. Sequentially, the demand for the counter-cyclical outplacement services moderated significantly during the quarter. Revenues at the company's outplacement business were up 1% year over year, marking a major decline from 16% growth witnessed during the fourth quarter of 2012. 

We observe that although cost of services decreased 6.4% to $3,978.8 million, gross profit fell 6.8% to $790.1 million due to a decline in the top line. However, the company's gross profit margin remained flat at 16.6% during the quarter.

Manpower posted operating profit of $54.4 million, down 42% from the prior-year period, whereas operating margin contracted 70 basis points to 1.1%.

Manpower is now contemplating on exiting lower margin business and venturing into high margin business. The ManpowerGroup Solutions, the company's high margin business, sustained its growth momentum during the quarter. Alongside, Manpower is focusing on abridging costs.

Operating Groups

By geographic segments, revenues from services in the United States fell 4% to $706.1 million from the prior-year quarter. However, segment operating profit increased 7.9% to $7.4 million, reflecting better pricing and lower employment tax cost.

In Other Americas , revenues declined 3.9% (1.4% in constant currency) to $386.9 million, whereas segment operating profit plunged 43.1% (43.6% in constant currency) to $8.7 million.

In France , revenues fell 11.3% (11.8% in constant currency) to $1,145.2 million, whereas segment operating profit nearly tripled to $14.3 million, benefiting from tax credits.

In Italy , revenues fell 3.6% (4.1% in constant currency) to $257.9 million, whereas segment operating profit tumbled 19.5% (19.9% in constant currency) to $11.7 million, reflecting competitive pricing.

In Other Southern Europe , revenues edged down 0.9% (1.9% in constant currency) to $193.4 million, whereas operating profit came in at $2.3 million, down 33.8% (35.4% in constant currency) from the prior-year quarter.

In Northern Europe , revenues slipped 5.1% (5.6% in constant currency) to $1,370.3 million, whereas operating profit plunged 75.8% (75.6% in constant currency) to $10.6 million, reflecting pricing pressure and decline in permanent recruitment.

In APME (Asia-Pacific Middle East), revenues came in at $632.5 million, down 7% (1.4% in constant currency) from the prior-year quarter. Segment operating profit decreased 25.2% (19.4% in constant currency) to $14.8 million.

Revenues from Right Management decreased 3.8% (2.5% in constant currency) year over year to $76.6 million. The company posted operating income of $2 million, down 18.4% (7.5% in constant currency) from the year-ago quarter.

Other Financial Details

Manpower ended the quarter with cash and cash equivalents of $583.4 million, total debt of $751 million and shareholders' equity of $2,501.1 million, reflecting a debt-to-capitalization ratio of 23.1%. The company has no borrowings under its $800 million revolving credit facility. It incurred capital expenditures of $13 million during the quarter.


Manpower now expects second-quarter 2013 earnings in the range of 84 cents - 92 cents per share. Management anticipates second-quarter total revenue to decline between 3% and 5% in constant currency and at an equivalent rate in U.S. dollars from the prior-year quarter.

Revenues in the Americas are expected to remain flat, while it is expected to decline in the range of 8% and 10% in Southern Europe. Northern Europe revenues are projected to decrease in the range of 1% - 3%. The company expects APME and Right Management segments to register a decline in the low-single-digit in revenues.

Going forward, Manpower expects to generate higher gross margin from the Americas and Southern Europe, which in turn is expected to boost the overall gross margins of the company. Operating margin is expected to improve during the second quarter and is projected to be in the range of 2.5% - 2.7%.

With a well-established network of approximately 3,500 offices in about 80 countries, Manpower currently offers its services to about 400,000 clients. We believe Manpower's brand value, comprehensive range of services and a strong global network provide a competitive advantage over its peers Robert Half International Inc . ( RHI ), Kelly Services, Inc . ( KELYA ) and Korn/Ferry International ( KFY ) and reinforces its dominant position in the market. Currently, the stock carries a Zacks Rank #3 (Hold).

KELLY SVCS A (KELYA): Free Stock Analysis Report

KORN/FERRY INTL (KFY): Free Stock Analysis Report

MANPOWER INC WI (MAN): Free Stock Analysis Report

ROBT HALF INTL (RHI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: KELYA , KFY , MAN , RHI

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