(MAN) Manpower Beats on Bottom-Line

ManpowerGroup (MAN), the global leader in the employment services industry, recently posted better-than-expected third-quarter 2011 results that topped the Zacks’ expectation on the heels of revenue growth across all regions with 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 the softness in the current economic environment is likely to persist in 2012. To counter this, the company is contemplating exiting lower margin businesses and venturing into the high margin carrying business in the coming quarters.

The company continues to register robust demand for Experis end solutions offerings. Manpower also witnessed a surge in the permanent recruitment business.

Quarterly Discussion

The quarterly earnings of 97 cents a share beat the Zacks Consensus Estimate of 95 cents and soared 56.5% from 62 cents earned in the prior-year quarter. The foreign currency fluctuation favorably impacted net earnings by 8 cents a share.

Net earnings for the quarter under review dovetail with management’s guidance range of 90 cents to $1.00 per share.

Milwaukee, Wisconsin based company, Manpower, said that total revenue for the quarter soared 16.3% to $5,782.3 million from the prior-year quarter, and 8.8% in constant currency. However, the quarterly revenue fell short of the Zacks Consensus Estimate of $5,842 million.

We observe that although cost of services climbed 16.9% to $4,831 million, gross profit rose 13.1% to $951.3 million driven by top-line growth. However, gross margin contracted 40 basis points to 16.5%. Operating profit surged 45.1% to $158 million, whereas operating profit margin expanded 50 basis points to 2.7%.

Segment Details

By geographic segments, revenue from services in the United States climbed 4% to $828.9 million from the prior-year quarter. Segment operating profit jumped 24.5% to $32.1 million.

In Other Americas, revenue rose 20.2% to $381.1 million and 17.5% in constant currency, whereas segment operating profit surged 28% to $10.6 million and 24.6% in constant currency.

In France, revenue grew 18.3% to $1,670.3 million and 8.2% in constant currency, whereas segment operating profit came in at $27.9 million, up 11.5% from the prior-year quarter, and 2.4% in constant currency.

In Italy, revenue climbed 24.9% to $321 million and 14.4% in constant currency, whereas segment operating profit soared 68.6% to $19.1 million and 54.6% in constant currency.

In Other Southern Europe, revenue grew by 13% to $206.9 million and 5.2% in constant currency, whereas operating profit came in at $3 million compared with $3.2 million in the prior-year quarter.

In Northern Europe, revenue increased 16.9% to $1,595.6 million and 8.5% in constant currency, whereas operating profit grew 57.7% to $62.8 million and rose 47% in constant currency.

In APME (Asia-Pacific Middle East), revenue rose 26.2% to $701 million and 14.5% in constant currency. Segment operating profit jumped 64.4% to $21.7 million and 50.6% in constant currency.

Right Management continues to struggle due to a 22% (in constant currency) fall in the counter-cyclical outplacement business. Revenue from Right Management services plunged 9.5% to $77.5 million and 13.6% in constant currency. The third quarter is generally a seasonally slow quarter for Right Management, which posted an operating loss of $1.9 million.

Financial Aspects

Manpower ended the quarter with cash and cash equivalents of $563.5 million, total debt of $703.4 million, reflecting a debt-to-capitalization ratio of 22%, and shareholders’ equity of $2,526 million.

The company generated free cash flows of approximately $100 million. During the quarter, the company bought back 618,000 shares for $24 million and has a remaining authorization to repurchase 2.3 million more shares.

Management Guided

Manpower now expects fourth-quarter 2011 earnings in the range of 85 cents to 95 cents a share, including a favorable impact of foreign currency translation of 3 cents but excluding reorganization related charges of 15 cents to 20 cents. The current Zacks Consensus Estimate of 91 cents for the fourth quarter remains in sync with management’s guidance range.

Management has projected a total revenue growth of 5% to 7% in constant currency for the quarter. On a segment basis, Manpower now expects mid-single digits growth in the Americas and Europe, and a low double digits growth in APME.

The company anticipates the Right Management business to be up sequentially but down between 8% and 10% from the year-ago quarter. Gross profit margin is expected to be in the range of 16.9% to 17.1% for the quarter, whereas operating profit margin is expected between 2.5% and 2.7%.

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. However, looking at 2012, management projects low to mid single-digit growth in both revenue and gross profit, in the first quarter, given the current economic woes.

Currently, we have a long-term ‘Neutral’ rating on ManpowerGroup. Moreover, the company, which competes with Kelly Services Inc. (KELYA) and Robert Half International Inc. (RHI), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and correlates with our long-term view.

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