Manpower Beats, Profit Dips - Analyst Blog
ManpowerGroup ( MAN ), the global leader in the employment services industry, posted stronger-than-anticipated fourth-quarter 2012 results on the back of effective cost management and better gross margin that meet the upper-end of the company's guidance range. 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.
The quarterly earnings of 91 cents a share surpassed the Zacks Consensus Estimate of 77 cents but dropped 7.1% from 98 cents earned in the prior-year quarter. Unfavorable foreign currencies fluctuation hurt the earnings by a penny. Net earnings per share also came ahead of management's previously provided projection of 72 cents to 80 cents a share.
The results fared significantly better than one of its competitors, Robert Half International Inc. ( RHI ), which recently reported fourth-quarter 2012 earnings of 42 cents a share. Also, this came a penny ahead of the Zacks Consensus Estimate, and soared 40% from the prior-year quarter earnings of 30 cents.
Manpower is now contemplating on exiting 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 16% during the quarter. Canada, U.K., China and India, all contributed to the company's growth story. Manpower hinted at a mild recovery in the markets in 2013.
Let's Unveil Further
When comparing sequentially, the rate of decline in total revenue of Milwaukee, Wis. based Manpower has decelerated. After falling 10.5% year over year in the third quarter of 2012, total revenue dropped 5.1% to $5,202.6 million during the fourth quarter. In constant currency as well, rate of decline dropped to 3.5% in the quarter under review from 3.8% in the previous quarter. The soft top-line performance weighed upon the bottom line. However, total revenue that came ahead of the Zacks Consensus Estimate of $5,140 million, instilled confidence.
We observe that although cost of services decreased 4.9% to $4,325.9 million, gross profit fell 6.3% to $876.7 million due to a decline in the top line. On other hand, gross profit margin contracted 20 basis points year over year but improved 30 basis points sequentially to 16.9% that dovetailed with the high-end of management's expectation of 16.7% to 16.9%.
Manpower posted operating profit of $104.9 million, down 19.1% from the prior-year period, whereas operating margin contracted 40 basis points to 2%.
By geographic segments, revenues from services in the United States fell 2% to $750.7 million from the prior-year quarter. Segment operating profit plunged 16.9% to $21.7 million.
In Other Americas , revenues rose 4% to $405.4 million and 4.1% in constant currency, whereas segment operating profit climbed 13.9% to $13.9 million and 11.1% in constant currency.
In France , revenues fell 13% to $1,314.2 million and 9.5% in constant currency, whereas segment operating profit plummeted 12% to $18 million and 7.7% in constant currency.
In Italy , revenues fell 12% to $268.5 million and 8.5% in constant currency, whereas segment operating profit tumbled 54.9% to $8.9 million and 52% in constant currency.
In Other Southern Europe , revenues edged down 1.2% to $194 million but increased 2.2% in constant currency, whereas operating profit came in at $1.4 million, down 50.1% from the prior-year quarter, and 49.1% in constant currency.
In Northern Europe , revenues slipped 3.5% to $1,487.2 million and 2.8% in constant currency, whereas operating profit plunged 33.9% to $34.2 million and 33.6% in constant currency.
In APME (Asia-Pacific Middle East), revenues came in at $697.7, up 0.4% from the prior-year quarter and 1.4% in constant currency. Segment operating profit rose 31.2% to $28.5 million and 33% in constant currency.
Revenues from Right Management grew 6.3% year over year to $84.9 million, and 6.5% in constant currency. The company posted operating income of $8.2 million compared with operating loss of $5.6 million in the year-ago quarter.
Manpower ended 2012 with cash and cash equivalents of $648.1 million, total debt of $770.1 million, reflecting a debt-to-capitalization ratio of 24%, and shareholders' equity of $2,500.8 million. The company has no borrowings under its $800 million revolving credit facility. Capital expenditures during 2012 were $72 million.
During the year, the company generated free cash flow of approximately $260 million. It bought back 2 million and 3.6 million shares worth $77 million and $138 million during the quarter and in 2012, respectively. The company still had 8 million shares at its disposal at the end of the year under its share buyback program.
Strolling through Guidance
Manpower now expects first-quarter 2013 earnings in the range of 40 cents to 48 cents a share. The current Zacks Consensus Estimate for the quarter is 41 cents.
First quarter is seasonally tough for Manpower. Consequently, management anticipates first quarter total revenue to decline between 6% and 8% in the U.S. dollars, and at an equivalent rate in constant currency from the prior-year quarter. Management projects revenues in the Americas and APME to remain even or to improve marginally on an average daily basis, and expects to register low-single-digit growth at Right Management. Markets across Europe are expected to remain challenging. However, positive momentum is expected to sustain in the U.K. and Norway.
For the quarter, management projects gross profit margin between 16.6% and 16.8%, which reflects a slight year-over-year imporvement but marginally down sequentially. Manpower forecasts operating profit margin in the range of 1.4% to 1.6% compared with 1.8% in the prior-year period.
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 and reinforce its dominant position in the market. Currently, the stock holds a Zacks Rank #2 (Buy).
Other stocks in the business services sector that you could consider are Korn/Ferry International ( KFY ), holding Zacks Rank #1 (Strong Buy) and On Assignment Inc. ( ASGN ) carrying Zacks Rank #2 (Buy). Both are expected to continue with their upbeat performances and sustain their positive earnings surprise trend.
ON ASSIGNMENT (ASGN): 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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