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Why Is Manpower (MAN) Down 5.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for ManpowerGroup (MAN). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Manpower due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ManpowerGroup Beats Q2 Earnings Estimates, Revenues Lag

ManpowerGroup reported mixed second-quarter 2019 results wherein earnings beat the Zacks Consensus Estimate but revenues lagged the same.

Earnings per share (excluding restructuring charge) of $2.05 beat the Zacks Consensus Estimate by 6 cents but decreased 12.8% on a year-over-year basis. Revenues of $5.37 billion were behind the consensus mark by $55 million and declined 5% year over year on a reported basis and 0.1% a constant-currency basis. Challenging market environment in Europe continues to weigh on the company’s top line.

ManpowerGroup is trying to mitigate this revenue softness through strong pricing discipline and cost control. It continues to witness solid growth at its solutions business, especially in MSP and RPO solutions. The company purchased the remaining interest in its Switzerland Manpower franchise in the second quarter. It is now part of the Southern Europe region. Its Greater China JV completed Hong Kong public offering in July, resulting in the deconsolidation of the business. ManpowerGroup remains the largest shareholder.

Segmental Revenues

Revenues from America totaled $1.04 billion, down 0.9% year over year on a reported basis but up 2.5% on a constant-currency basis. In the United States, revenues came in $630.9 million, down 1.5% both on reported and constant-currency basis. In the Other Americas subgroup, revenues of $412.5 million increased 0.1% on a reported basis and 8.8% on a constant-currency basis. Americas contributed 19% to total revenues.

Revenues from Southern Europe were down 1.9% on a reported basis but up 3.7% on a constant-currency basis to $2.39 billion. Revenues in France came in at $1.42 billion, down 6.1% on a reported and 0.4% on a constant-currency basis. Revenues from Italy were $394 million, down 11.1% on a reported and 5.7% on a constant-currency basis. The Other Southern Europe subsegment generated revenues of $573 million, up 19.7% on a reported and 25.2% on a constant-currency basis. Southern Europe contributed 45% to total revenues.

Northern Europe revenues decreased 15.1% on a reported basis and 9.6% on a constant-currency basis to $1.18 billion. The decline was due to weakness in UK, Germany, Belgium and the Netherlands. The segment accounted for 22% of total revenues in the quarter.

APME revenues totaled $708.9 million, down 2.2% on a reported basis but up 1.3% on a constant-currency basis.  Revenues grew in Japan, India, Vietnam and Singapore and declined in Australia and New Zealand. The segment contributed 13% to total revenues.

Revenues from the Right Management business declined 3.9% year over year on a reported basis and 0.9% on constant-currency basis to $50.4 million. The segment contributed 1% to total revenues.

Operating Performance

Gross profit in the second quarter was $870.4 million, down 5.7% year over year on a reported basis and 1.1% on a constant-currency basis. Gross profit margin came in at 16.2%, down slightly year over year.

Operating profit of $130.8 million declined 37.2% year over year on a reported basis and 33.2% on a constant-currency basis. Operating profit margin came in at 2.4%, down 130 basis points (bps) year over year.

The America segment’s operating profit amounted to $49.5 million, down 12.8% year over year on a reported basis and 10.6% on a constant-currency basis. Operating profit from Southern Europe was $123.5 million, down 1.5% on a reported basis and 7.1% on a constant-currency basis.

APME registered an operating profit of $28.1 million, which declined 4.1% on a reported basis and 1.1% on a constant-currency basis. The Northern Europe segment’s operating profit declined 1.6% year over year on a reported basis but improved 4.7% on a constant-currency basis to $24.3 million.

The Right Management segment’s operating profit was $9 million, down 13.5% on a reported basis and 11.5% on a constant-currency basis.

Balance Sheet and Cash Flow

ManpowerGroup exited the second quarter with cash and cash equivalents’ balance of $770.4 million compared with $566.3 million in the prior quarter. Long-term debt at the end of the quarter was $1.03 billion, compared with $1 billion in the preceding quarter. The company generated $175.2 million of cash from operating activities and Capex was $14 million in the quarter.

Third-Quarter Outlook

ManpowerGroup anticipates earnings per share in the range of $1.88-$1.96. The guidance includes a negative impact of 4 cents from foreign currency, 5 cents from France tax change. The company’s revenue guidance range is between flat and 1% growth on a constant-currency basis. Further, it anticipates income tax rate in the third quarter to be around 35.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -9.02% due to these changes.

VGM Scores

At this time, Manpower has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Manpower has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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