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ManpowerGroup (MAN - Analyst Report), the global leader in the employment services industry, recently posted fourth-quarter 2011 results that topped the Zacks’ expectations. The company’s strong performance came on the back of revenue growth with emerging markets portraying robust trends, particularly Asia. Better expense control also provided cushion to the bottom-line.
However, Manpower projects a cautious outlook for first-quarter 2012. The company warned that the softness in the current economic environment is likely to persist in 2012. Management alarmed that the ongoing turmoil in Europe could be a potential threat to creating new jobs.
To counter this, the company is contemplating on exiting lower margin business and venturing into high margin business in the coming quarters. Manpower also witnessed a surge in permanent recruitment business. The demand for the counter-cyclical outplacement services portrayed some signs of steadiness, but it continued to contract.
Let’s Unveil the Picture
The quarterly earnings of 98 cents a share beat the Zacks Consensus Estimate of 87 cents and soared 48.5% from 66 cents earned in the prior-year quarter. Net earnings for the quarter also exceeded management’s forecast of 85 cents to 95 cents a share.
On a reported basis, including one-time items, quarterly earnings came in at 78 cents, substantially higher from a loss of $4.29 per share delivered in the year-ago quarter.
The reported quarter’s earnings include a reorganization charge of 20 cents a share, associated to office consolidations and severance costs. Management hinted that the charges incurred will result in savings of over $30 million in 2012. On the other hand, the prior-year quarter includes a goodwill and intangible asset impairment charge of $4.70 and reorganization charge of 25 cents a share.
Milwaukee, Wisconsinbased company, Manpower, said that total revenue for the quarter rose 5.3% to $5,484 million from the prior-year quarter, and 5.8% in constant currency. However, the quarterly revenue fell short of the Zacks Consensus Estimate of $5,560 million. Revenue growth dovetails with management’s projection of 5% to 7% increase, in constant currency.
We observe that although cost of services climbed 5.7% to $4,548.8 million, gross profit rose 3.3% to $935.2 million driven by top-line growth. However, gross margin shriveled 30 basis points to 17.1%, principally due to a 30 basis points contraction in temporary recruitment gross margin and a 10 basis points decline in higher-margin outplacement business.
Manpower posted operating profit of $129.8 million compared with an operating loss of $342.6 in the prior-year period. However, excluding one-time items, adjusted operating income came in at $150.3 million, up 29% year-over-year, whereas operating margin expanded 50 basis points to 2.7%.
By geographic segments, revenue from services in the United States edged down 1.4% to $765.9 million from the prior-year quarter. However, segment operating profit surged 83.8% to $26.1 million.
In Other Americas, revenuerose 12.1% to $389.8 million and 18.3% in constant currency, whereas segment operating profit jumped 22.6% to $12.1 million and 30.9% in constant currency.
In France, revenue grew 5.4% to $1,511 million and 6.3% in constant currency, whereas segment operating profit jumped 71% to $20.5 million and 72.4% in constant currency.
In Italy, revenue climbed 3.8% to $305.3 million and 4.6% in constant currency, whereas segment operating profit soared 24.3% to $19.7 million and 25.4% in constant currency. The rate of growth in revenue subdued from third quarter’s increase of 14.4% in constant currency due to European sovereign debt crisis and local economic turbulence.
In Other Southern Europe, revenue grew 3.9% to $196.3 million and 6.5% in constant currency, whereas operating profit came in at $2.9 million, up 3.6% and 8.8% in constant currency.
In Northern Europe, revenue increased 3.2% to $1,540.9 million and 3.8% in constant currency, whereas operating profit fell 17.7% to $51.8 million and 17.8% in constant currency.
In APME (Asia-Pacific Middle East), revenue rose 18.2% to $695 million and 14.5% in constant currency. Segment operating profit came in at $21.7 million compared with $9.6 million in the prior-year quarter.
Right Managementcontinues to struggle due to an 8% (in constant currency) fall in the counter-cyclical outplacement business. Revenue from Right Management services dropped 8.2% to $79.8 million and 8.6% in constant currency. Right Management posted an operating loss of $5.6 million compared with a loss of $16.8 million in the year-ago period.
Manpower ended the quarter with cash and cash equivalents of $580.5 million, total debt of $700.2 million, reflecting a debt-to-capitalization ratio of 22%, and shareholders’ equity of $2,483.4 million.
During the quarter, the company generated a free cash flow of approximately $125 million and bought back 1.7 million shares for $62 million. In fiscal 2011, the company repurchased 2.6 million shares for $105 million. The company still has a remaining authorization to repurchase 3.6 million more shares.
Strolling through Guidance
Manpower now expects first-quarter 2012 earnings in the range of 30 cents to 38 cents a share, including an unfavorable impact of foreign currency translation of 2 cents. The current Zacks Consensus Estimate for the quarter is 33 cents.
Management now projects total revenue to be flat or marginally up in constant currency for the quarter. On a segment basis, Manpower expects revenue growth to remain flat or marginally up in the Americas and Northern Europe, and to be flat or marginally down in Southern Europe. Revenue growth across APME is expected between 7% and 9% in constant currency, gaining from growth in emerging markets and modest improvement in Japan.
The company anticipates Right Management business to be down between 7% and 9% in constant currency from the year-ago quarter. Gross profit margin is expected to be in the range of 16.6% to 16.8%, whereas operating profit margin is expected between 1.4% and 1.6%, reflecting a decline of 20 basis points from the year-ago quarter.
With a well-established network of nearly 3,800 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. However, looking into 2012, management remains cautious due to the current economic woes.
Currently, we have a long-term ‘Neutral’ 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 that translates into a short-term ‘Sell’ recommendation.
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