KELYA Kelly Services Inc

ManpowerGroup (MAN), the global leader in the employment services industry, recently posted first-quarter 2012 results that topped the Zacks’ expectations. The company’s strong performance came on the back of revenue growth with Asia-Pacific Middle East segment portraying robust performance. Better expense control also provided cushion to the bottom-line.

Manpower also witnessed a surge in permanent recruitment business, and its workforce solutions business sustained its growth momentum. The demand for the counter-cyclical outplacement services portrayed signs of steadiness.

However, Manpower hinted that given the current macro-economic environment it expects sluggish demand for its services, particularly in Europe, during the second quarter of 2012. To counter this, the company is now contemplating on exiting lower margin business and venturing into high margin business.

Let’s Unveil the Picture

The quarterly earnings of 50 cents a share beat the Zacks Consensus Estimate of 35 cents and increased 16.3% from 43 cents earned in the prior-year quarter. Net earnings for the quarter also exceeded management’s forecast of 30 cents to 38 cents a share.

Milwaukee, Wisconsin based company, Manpower, said that total revenue for the quarter rose 0.5% to $5,096.4 million from the prior-year quarter and 3% in constant currency, and also came ahead of the Zacks Consensus Estimate of $4,984 million. The results were far better than what management had expected. The company had earlier projected total revenue to be flat or marginally up in constant currency.

We observe that cost of services climbed 0.8% to $4,249 million, whereas gross profit fell 1.2% to $847.4 million. Gross profit margin shriveled 30 basis points to 16.6%.

Manpower posted operating profit of $93.8 million, up 9.5% from the prior-year period, whereas operating margin expanded 10 basis points to 1.8%.

Segment Details

By geographic segments, revenue from services in the United States edged down 2% to $735.8 million from the prior-year quarter. However, segment operating profit plunged 20.8% to $6.9 million.

In Other Americas, revenuerose 11.3% to $402.5 million and 16.1% in constant currency, whereas segment operating profit jumped 19.7% to $15.3 million and 26.2% in constant currency.

In France, revenue fell 4.6% to $1,291.8 million and 0.4% in constant currency, whereas segment operating profit plummeted 54.3% to $5.5 million and 51.4% in constant currency.

In Italy, revenue fell 6% to $267.5 million and 1.9% in constant currency, whereas segment operating profit grew 12.7% to $14.5 million and 18% in constant currency.

In Other Southern Europe, revenue grew 8.5% to $195.2 million and 13.7% in constant currency, whereas operating profit came in at $3.5 million, up 56% from the prior-year quarter, and 64.9% in constant currency.

In Northern Europe, revenue slipped 0.9% to $1,444 million but jumped 2.6% in constant currency, whereas operating profit grew 4.8% to $43.9 million and 8.3% in constant currency.

In APME (Asia-Pacific Middle East), revenue rose 12.8% to $680 million and 9.8% in constant currency. Segment operating profit jumped 18.5% to $19.6 million and 16.1% in constant currency.

Revenue from Right Management dropped 2.6% (or 2% in constant currency) to $79.6 million, reflecting substantial improvement from a decline of 8.2% experienced in the fourth quarter of 2011, as counter-cyclical outplacement business stabilizes rising 3% during the quarter, offset by a 13% fall witness across talent management revenue. Right Management posted an operating profit of $2.5 million, down 24.6% from the year-ago quarter, and 24.5% in constant currency.

Financial Aspects

Manpower ended the quarter with cash and cash equivalents of $553.5 million, total debt of $721.8 million, reflecting a debt-to-capitalization ratio of 22%, and shareholders’ equity of $2,568.5 million. The company has no borrowings under its $800 million revolving credit facility.

During the quarter, the company generated a negative free cash flow of approximately $40 million. Capital expenditures for the quarter were $19.7 million.

Strolling through Guidance

Manpower now expects second-quarter 2012 earnings in the range of 68 cents to 76 cents a share, including an unfavorable impact of foreign currency translation of 4 cents. The current Zacks Consensus Estimate for the quarter is 76 cents.

Management now projects second quarter total revenue to be flat or down 2% in constant currency, when compared with the prior-year quarter. On a segment basis, management forecasts low to mid-single digit growth in constant currency for the Americas, Asia Pacific and Right Management. Revenue for Southern Europe and Northern Europe is expected to fall in the low to mid-single digits in constant currency.

Management projects sequential improvement in the gross profit margin, and is expected to be somewhat in line with the prior year. Operating profit margin is projected to be in the range of 2.3% to 2.5%.

Closing Commentary

With a well-established network of nearly 3,800 offices in approximately 80 countries, Manpower currently offers its services to about 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.

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

 
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