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ManpowerGroup Beats Q3 Earnings, Revenues Miss Estimates

ManpowerGroup Inc. (MAN) posted third-quarter 2014 earnings per share of $1.61, which handily beat the Zacks Consensus Estimate of $1.49 and increased 36.4% year over year.

Manpower Inc - Earnings Surprise | FindTheBest

However, total revenues of $5,416 million fell short of the Zacks Consensus Estimate of $5,489 million but increased 4.4% (up 4.6% in constant currency) year over year. As a result, share price witnessed only a small gain of 2.1% on index.

Moving ahead, gross profit increased 6.1% (up 6.5% in constant currency) to $905.6 million due to higher revenues, partly offset by a rise in cost of services. Gross margin expanded 20 basis points (bps) to 16.7% driven by improved staffing and interim margins at Experis and Manpower businesses.

ManpowerGroup posted operating profit of $212.3 million, up 30.7% (up 30.6% in constant currency) while operating margin expanded nearly 70 bps to 3.9%.

Operating Groups

By geographic segments, revenues from the United States grew 5.1% year over year to $800.5 million. The segment’s operating profit increased 21.9% to $41.9 million from the prior-year quarter.

In Other Americas, revenues increased 1.7% (up 9.5% in constant currency) to $388.5 million, while operating profit rose 29.3% (up 34.8% in constant currency) to $14.6 million.

In France, revenues rose 2.4% year over year (up 2.2% in constant currency) to $1,454.3 million, whereas operating profit increased 44.2% (up 43.7% in constant currency) to $84.2 million.

In Italy, revenues increased 9% year over year (up 9% in constant currency) to $294.1 million. The segment’s operating profit rose 37.4% (up 37.3% in constant currency) to $14.7 million.

In Other Southern Europe, revenues increased 14.1% (up 13.8% in constant currency) to $259.9 million from the year-ago quarter. Operating profit rose 51.4% (up 50.6% in constant currency) to $6.1 million.

In Northern Europe, revenues rose 7.4% (up 6.2% in constant currency) to $1,554.6 million, while operating profit increased 18.4% (up 17.3% in constant currency) to $59.6 million, both on a year-over-year basis.

However, in APME (Asia Pacific Middle East), revenues came in at $592.5 million, down 1.5% (down 0.7% in constant currency) year over year. The segment’s operating profit came in at $21.6 million, up 12.5% (up 13.7% in constant currency) from the prior-year quarter.

Also, revenues from Right Management decreased 7.2% (down 8% in constant currency) year over year to $71.6 million. The company posted operating income of $6.3 million, up 40.1% (up 38.3% in constant currency) from the year-ago quarter.

Other Financial Details

ManpowerGroup, which competes with Korn/Ferry International (KFY), ended the quarter with cash and cash equivalents of $660.7 million, total long-term debt of $483.9 million, reflecting a debt-to-capitalization ratio of 13.7%, and shareholders’ equity of $3,039.9 million.

Moreover, ManpowerGroup incurred a capital expenditure of $32.8 million during the first nine months of the year, while generating free cash flow of $72 million. For the first nine months of 2014, Manpower bought $72.6 million worth of shares.

Guidance

Management stated that a choppy recovery in Europe is likely to hit services demand in some countries. In addition, unfavorable currency fluctuations are expected to impact revenue growth by 5%. As a result, the company expects revenue growth to decelerate from 1% to 3% in the fourth quarter.

Moreover, on constant currency basis, Management expects revenues to be lower compared with the third quarter. Revenue growth in the fourth quarter is expected be 2%-4% as against 4.6% registered in the third quarter.

Including an 8 cents negative forex impact, ManpowerGroup expects fourth-quarter 2014 earnings per share in the range of $1.39 to $1.47. The Zacks Consensus Estimate for fourth-quarter 2014 stands at $1.49.

Gross margin is expected to be 16.8%-17%, slightly up from the third quarter on account of seasonal factors.

Operating margin is expected to be in the range of 3.5%-3.7% slightly lower from the third quarter operating margin of 3.9%.

Zacks Rank

Management’s cautious stance on the European economic recovery and a weaker Euro, subdued outlook and tepid performance in APME and that of Right Management has raised our concerns. Europe remains a very big market but with a recovery so choppy, it will tend to run down the good performance in other regions, and in turn, will likely drag down both top and bottom lines. Tougher year-over-year comparisons will also add to the woes. All this is well reflected from ManpowerGroup’s Zacks Rank #5 (Strong Sell).

Stocks to Consider

Some better-ranked stocks in the same sector include CTPartners Executive Search Inc. (CTP) and Resources Connection Inc. (RECN). While CTPartners sports a Zacks Rank #1 (Strong Buy), Resources Connection has a Zacks Rank #2 (Buy).

Read the Full Research Report on MAN
Read the Full Research Report on KFY
Read the Full Research Report on CTP
Read the Full Research Report on RECN


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