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ManpowerGroup (MAN) Q4 Earnings Beat, Revenues Miss Estimates

Zacks Equity Research

ManpowerGroup Inc. MAN posted mixed fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same.

Adjusted earnings per share came in at $2.44, which beat the consensus mark by 24 cents and rose 15.1% on a year-over-year basis.

Revenues of $5.39 billion lagged the consensus mark by $152 million and declined 4.3% year over year on a reported basis. The reported figure inched down 1% on a constant-currency basis. Weak revenues reflect softness in Europe, partially offset by strength in Asia Pacific & Middle East (APME), Latin America and Canada.

ManpowerGroup is trying to mitigate this revenue softness through strong pricing discipline and cost control. It continues to witness solid growth in the solutions business, especially in MSP and RPO solutions.

In a bid to increase productivity and efficiency, the company is making significant investments in technology.  It is implementing front office systems, cloud-based and mobile applications.

Factors such as skilled professionals, technological advancements, brand value and strong global network bode well for ManpowerGroup. Additionally, Trump administration’s business-friendly approach, a strong U.S. economy, robust manufacturing and non-manufacturing activity, and improvements in the labor market augur well for the company.

These tailwinds may lift the company’s share price ahead. In a year’s time, shares of ManpowerGroup have declined 35.5% against the industry’s 3.9% fall.

 

Let’s delve deeper in to the numbers.

Segmental Revenues

Revenues from America totaled $1.04 billion, down 2.6% year over year on a reported basis but up 2.1% on a constant-currency basis. Strong revenue growth at Other Americas’ sub group was partially offset by revenue decline in the United States. The segment contributed 19% to total revenues.

Revenues from Southern Europe were down 4.4% on a reported basis and 1.1% on a constant- currency basis to $2.29 billion. Revenue declined across France, Italy and Spain. The segment contributed 43% to total revenues.

Northern Europe revenues decreased 10.3% on a reported basis and 6.6% on a constant-currency basis to $1.27 billion. The decline was due to weakness in UK, Germany and the Netherlands. The segment accounted for 24% of total revenues in the reported quarter.

APME revenues totaled $732.3 million, up 5.3% on a reported basis and 8.9% on a constant-currency basis. The uptick was backed by growth in Japan, China, India, Thailand, Malaysia and Vietnam. The segment contributed 14% to total revenues.

Revenues from the Right Management business declined 6.3% year over year on a reported basis and 4% on constant-currency basis to $50.1 million. The downside can be attributed to reduced outplacement activity.The segment contributed 1% to total revenues.

Operating Performance

Gross profit in the fourth quarter was $880.3 million, down 5.8% year over year on a reported basis and 2.4% on a constant-currency basis. Gross profit margin came in at 16.3%, down 30 basis points (bps) year over year.

Operating profit of $217.9 million declined 8.2% year over year on a reported basis and 4.3% on a constant-currency basis. Operating profit margin came in at 4%, down 20 basis points year over year.

The America segment’s operating profit amounted to $53 million, down 7.9% year over year on a reported basis and 3.3% on a constant-currency basis. Operating profit from Southern Europe was $126.6 million, down 5.2% on a reported basis and 2% on a constant-currency basis.

APME registered an operating profit of $27.3 million, which declined 2.7% on a reported basis and 0.3% on a constant-currency basis. The Northern Europe segment’s operating profit declined 9.8% year over year on a reported basis and 6.2% on a constant-currency basis to $40.9 million.

The Right Management segment’s operating profit was $9.4 million, down 12.1% on a reported basis and 10.3% on a constant-currency basis.

ManpowerGroup Inc. Price, Consensus and EPS Surprise

 

ManpowerGroup Inc. Price, Consensus and EPS Surprise | ManpowerGroup Inc. Quote

Balance Sheet and Cash Flow

ManpowerGroup exited the fourth quarter with cash and cash equivalents’ balance of $591.9 million compared with $682.6 million in the prior quarter. Long-term debt at the end of the quarter was $1.03 billion compared with $1.04 billion in the preceding quarter.

The company generated $181.1 million of cash from operating activities and spent $24.9 million on capex in the quarter. It spent $201.5 million on share repurchase and $61.3 million in paying dividends.

First Quarter Outlook

ManpowerGroup anticipates first-quarter earnings per share in the range of $1.30-$1.38, below the Zacks Consensus Estimate of $1.43. The guidance includes a negative impact of 13 cents from foreign currency.

The company expects revenues to decline 3% to 5% on a constant-currency basis. Operating profit margin is expected to be down around 30 bps.

Zacks Rank & Stocks To Consider

ManpowerGroup currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Business Services sector are General Finance Corporation GFN, Omnicom Group Inc OMC and Paychex, Inc PAYX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for General Finance, Omnicom and Paychex is 11%, 6.9% and 8.8%, respectively.

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