Manpower Tops Estimate

ManpowerGroup (MAN - Analyst Report), the global leader in the employment services industry, recently posted better-than-expected second-quarter 2011 results that topped the Zacks’ expectation on the heels of revenue growth across all regions with several European and emerging markets portraying robust trends. Better expense control also lent support to the bottom line. However, fall in demand for the counter-cyclical outplacement services continues to impact the results. The company also cautioned that certain markets softened at quarter end but remains optimistic about future prospects.

The company continues to register robust demand for Experis end solutions offerings. Experis, the professional resourcing brand, contributed 12% growth in global revenue, in constant currency. Manpower also witnessed a surge in permanent recruitment business, which rose 25%, in constant currency, from the prior-year quarter.

Quarterly Discussion

The quarterly earnings of 87 cents a share outpaced the Zacks Consensus Estimate of 79 cents and more than doubled from 40 cents in the prior-year quarter. The foreign currency fluctuation favorably impacted net earnings by 11 cents a share.

Net earnings for the quarter under review also surpassed management’s guidance range of 74 cents to 82 cents a share.

Milwaukee, Wisconsin based company, Manpower, said that total revenue for the quarter soared 23.6% to $5,667.3 million from the prior-year quarter, and 12% in constant currency. The quarterly revenue also came well ahead of the Zacks Consensus Estimate of $5,491 million.

We observe that although cost of services climbed 24.2% to $4,705.1 million, gross profit rose 20.7% to $962.2 million driven by top-line growth. However, gross margin contracted 40 basis points to 17%. Operating profit came in at $150.8 million compared with $79.1 million in the year-ago quarter, whereas operating profit margin expanded 100 basis points to 2.7%.

Segment Details

By geographic segments, revenue from services in the United States climbed 9% to $791.6 million from the prior-year quarter. Segment operating profit jumped 85% to $27.2 million.

In Other Americas, revenue rose 23.9% to $379.4 million and 18.5% in constant currency, whereas segment operating profit surged 42.3% to $12.3 million and 36.1% in constant currency.

In France, revenue grew 30.9% to $1,644 million and 15.5% in constant currency, whereas segment operating profit came in at $24.8 million compared with $9.9 million in the year-ago quarter.

In Italy, revenue climbed 33.3% to $344.9 million and 17.6% in constant currency, whereas segment operating profit soared 65.7% to $22.4 million and 45.8% in constant currency.

In Other Southern Europe, revenue grew by 14.9% to $193.7 million and 3% in constant currency, whereas operating profit came in at $2.7 million compared with $2.1 million in the prior-year quarter.

In Northern Europe, revenue increased 23.8% to $1,566.3 million and 9.4% in constant currency, whereas operating profit nearly doubled to $56.1 million and rose 72.3% in constant currency.

In APME (Asia-Pacific Middle East), revenue rose 31% to $662.8 million and 16.4% in constant currency. Segment operating profit jumped 58.9% to $18.9 million and 43.3% in constant currency.

Right Management continues to struggle due to a 32% fall in the counter-cyclical outplacement business. Revenue from Right Management services plunged 14.3% to $84.6 million and 19.9% in constant currency. The segment operating profit dropped 64.4% to $2.8 million and 64.5% in constant currency.

Financial Aspects

Manpower ended the quarter with cash and cash equivalents of $543.5 million, total debt of $758.8 million, reflecting a debt-to-capitalization ratio of 23%, and shareholders’ equity of $2,555.7 million.

Capital expenditures for the quarter were approximately $16.4 million. The company generated a negative free cash flow of $49 million. During the quarter, the company bought back 306,000 shares for $18.8 million and has an authorization to repurchase 2.9 million more shares.

Third-Quarter 2011 Guidance

Manpower now expects third-quarter 2011 earnings in the range of 90 cents to $1.00 per share, including a favorable impact of foreign currency translation of 10 cents. The current Zacks Consensus Estimate of 96 cents for third-quarter 2011 dovetails with management’s guidance range.

Management has projected a total revenue growth of 8% to 10% in constant currency for the quarter. On a segment basis, Manpower now expects mid-teens growth in APME. The company anticipates Right Management business to be down moderately between 9% and 11% from the year-ago quarter. Gross profit margin is expected to be in the range of 16.5% to 16.7% for the quarter, whereas operating profit margin is expected between 2.6% and 2.8%.

With a well-established network of nearly 3,900 offices in more than 80 countries, Manpower currently offers its services to approximately 400,000 clients. We believe that Manpower’s brand value, comprehensive range of services and a strong global network provide a competitive advantage and reinforce its dominant position in the market. Moreover, Manpower stands to benefit from growth prospects in under-penetrated staffing markets.

Currently, we have a long-term ‘Outperform’ rating on ManpowerGroup. Moreover, the company, which competes with Kelly Services Inc. (KELYA - Snapshot Report) and Robert Half International Inc. (RHI - Analyst Report), holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.

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