Manpower 2Q Earnings Beat

Zacks

Effective cost management facilitated the global leader in the employment services industry, ManpowerGroup Inc. (MAN), to come up with better-than-expected second-quarter 2013 results. The company’s adjusted quarterly earnings came in at $1.05 per share, substantially surpassing the Zacks Consensus Estimate of 89 cents and rising 38% year over year.

However, including one time items, earnings came in at 87 cents a share compared with 51 cents in the prior year quarter. Manpower stated that earnings per share were negatively impacted by a penny on account of foreign currency fluctuations.

Revenue & Margins

Total revenue dropped 3.2% (2.9% in constant currency) year over year to $5,040.7 million as lingering macroeconomic woes in Europe continue to deter the company’s financials. However, the reported revenue came ahead of the Zacks Consensus Estimate of $4,999 million.

We observe that although cost of services decreased 3.2% to $4,204.3 million, gross profit fell 2.9% to $836.4 million due to a decline in the top line. The company’s gross profit margin remained flat at 16.6% during the quarter.

Manpower posted operating profit of $128.1 million, up 35.6% from the prior-year period, whereas operating margin expanded 70 basis points to 2.5%. Excluding restructuring charges, operating profit was $148 million.

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 1.9% to $748.5 million from the prior-year quarter. However, segment’s adjusted operating profit increased 40% to $34.4 million, reflecting better pricing and lower costs.

In Other Americas, revenues declined marginally (up 0.4% in constant currency) to $387.2 million, whereas segment operating profit increased 13.1% (11.7% in constant currency) to $11.9 million.

In France, revenues fell 7.5% (9.1% in constant currency) to $1,320.6 million, whereas segment’s adjusted operating profit increased 22% in constant currency to $42.9 million, benefiting from CICE payroll tax credits.

In Italy, revenues increased 1.6% (down 0.2% in constant currency) to $278.4 million, while segment’s adjusted operating profit increased 18% to $15.2 million.  

In Other Southern Europe, revenues increased 6.8% (3.7% in constant currency) to $203 million, whereas operating profit came in at $1.2 million, down 59.7% (62.6% in constant currency) from the prior-year quarter.

In Northern Europe, revenues slipped 1.2% (1.6% in constant currency) to $1,398.8 million, whereas adjusted operating profit increased 8% in constant currency to $42.5 million.

In APME (Asia-Pacific Middle East), revenues came in at $623.3 million, down 6% (up 1.9% in constant currency) from the prior-year quarter. Segment’s adjusted operating profit improved 4% in constant currency to $20.6 million.

Revenues from Right Management decreased 3.5% (2% in constant currency) year over year to $80.9 million. The company posted adjusted operating income of $10 million, up 39% in constant currency from the year-ago quarter.

Other Financial Details

Manpower ended the quarter with cash and cash equivalents of $280.9 million, total debt declined to $534.1 million from $751 million, while shareholders’ equity was $2,532.5 million, reflecting a debt-to-capitalization ratio of 17.4%. The company has no borrowings under its $800 million revolving credit facility. It incurred capital expenditures of $25 million during the first half of 2013.  

Guidance

Manpower now expects third-quarter 2013 earnings in the range of $1.02 – $1.10 per share. Management anticipates third-quarter total revenue to decline between 1% and 3% in constant currency from the prior-year quarter. Gross margin is expected to remain in the range of 16.5% – 16.7%.

With a well-established network 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 provides it 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).

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