Manpower Tops Estimates, Lifts Guidance

Jul.22.10 | About: ManpowerGroup Inc. (MAN)

Manpower Inc. (NYSE:MAN), the global leader in the employment services industry, recently posted better-than-expected second-quarter 2010 results that topped the Zacks expectation on the heels of revenue growth across all geographies due to improvement in the global job markets, and the acquisition of technology staffing firm COMSYS.

Manpower indicated Germany, Sweden, U.K., Canada, Mexico, France and Italy all witnessed robust revenue growth during the quarter. Despite the recent economic downturn, the company’s U.S. operations also registered revenue growth.

Quarterly Discussion

The quarterly earnings of 40 cents a share outpaced the Zacks Consensus Estimate of 22 cents and rose nearly twofold from 21 cents delivered in the prior-year quarter. The foreign currency fluctuation negatively impacted net earnings by 2 cents a share.

Milwaukee, Wisconsin based company, Manpower, said that total revenues for the quarter soared 20.9% year-over-year to $4,585.6 million, and 23.7% in constant currency.

Although cost of services climbed 22.2% to $3,788.6 million, gross profit rose 15.1% to $797 million driven by top-line growth. However, gross margin contracted 90 basis points to 17.4% due to the decline in higher margin outplacement business that lowered the margin by 130 basis points.

Operating profit for the quarter came in at $79.1 million compared with $19 million achieved in the prior-year quarter.

Segment Details

By geographic segments, revenues from services in the Americas surged 66.7% to $992.1 million; and 63.9% in constant currency. COMSYS acquisition contributed $182 million to revenues. On an organic basis, the Americas revenues climbed 36%; and 33% in constant currency. Segment operating profit came in at $18.2 million compared to a loss of $1.9 million experienced in the prior-year quarter.

In France, revenues grew 14.2% to $1,255.9 million and 22.6% in constant currency whereas, segment operating profit soared 139.8% to $9.9 million; and 168.6% in constant currency. Manpower notified that the operating environment in France remains highly competitive.

In EMEA (Europe, Middle East and Africa excluding France), revenues rose 13.9% to $1,692.5 million and 18.4% in constant currency. However, segment operating profit surged to $43 million from a loss of $0.1 million in the year-ago quarter.

In Asia Pacific, revenues jumped 24.5% to $505.7 million and 15.4% in constant currency. Segment operating profit rose to $12 million from $3.5 million posted in the previous-year quarter.

Right Management and Jefferson Wells brands continue to struggle. Revenues from Right Management services plunged 37.5% to $98.8 million, whereas revenues from Jefferson Wells services tumbled 15.8% to $40.6 million.

Operating profit at Right Management plunged 81.5% to $7.8 million. Jefferson Wells registered an operating loss of $3.1 million in the quarter under review, reflecting a substantial improvement from a loss of $10.2 million in the prior-year quarter.

Third-Quarter 2010 Guidance

Riding on the back of robust results, Manpower now expects third-quarter 2010 earnings in the range of 41 cents to 51 cents a share, including a foreign currency headwind of 4 cents. The current Zacks Consensus Estimate of 45 cents dovetails with the company’s guidance range.

Management has forecasted a total revenue growth of 20% to 22% in constant currency for the second quarter.

By geographic segments, revenues are expected to rise in the mid-30s in the U.S.; mid-teens in France; and mid to upper teens in EMEA and Asia Pacific, all in constant currency.

Revenues from Right Management services are expected in the range of $85 million to $90 million and revenues from Jefferson Wells services are expected to show some seasonal growth but will be down compared with the prior-year quarter.

Financial Aspects

Manpower ended second-quarter 2010 with cash and cash equivalents of $552.5 million, total debt of $648 million and shareholders equity of $2,628.4 million.

Capital expenditures for the first-half of fiscal 2010 were approximately $27.9 million. The company did not repurchase shares in the quarter and generated a negative free cash flow of $43 million. The debt to total capitalization ratio at the end of the quarter was 20%.

With a well-established network of nearly 4,000 offices in 82 countries, Manpower currently offers its services to about 400,000 clients. We believe that the company is better positioned than its competitors for the economic recovery. The stock is poised to surge once the economy rebounds and demand in the labor market improves. However, increasing uncertainty in Europe on account of a double-dip recession remains a concern.