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World – ManpowerGroup still cautious but growing more optimistic

22 July 2013

Following the release of its Q2 2013 results on Friday, ManpowerGroup (MAN: NYSE) announced that its results, and the Q3 outlook, are materially better than expected. Hinting at possible green shoots of recovery, ManpowerGroup reported modest improvements in revenue trends and significantly greater than expected savings.

Revenue fell -3% to $5.04 billion, almost in line with analysts' expectations. Revenue from the Company’s biggest market segment, Southern Europe, fell -7% on a constant currency basis to $1.8 billion, while revenue from Northern Europe fell -2% on a constant currency basis to $1.4 billion. The ‘APME’ business (mostly Japan and Australia) was up +2% on a constant currency basis to $623 million.

Given difficult market conditions, ManpowerGroup’s goal was to achieve savings of USD 80 million in selling, general, and administrative expense (SG&A) during 2013, with an annualised run-rate, thereafter, of USD 125 million. However, in Q2 2013 savings of USD 99 million were achieved and the expectation now is for a saving of USD 180 million, on an annualised run-rate. 

The successful cost savings resulted in improved operating profit of $128m, +21% up on the prior year on a constant currency basis, excluding non-recurring items.

These successes are tempered by continuing declines in most markets, which are likely to continue in the near-term. The pace of decline has lessened in nearly every market and is suggestive of potential improvement in Europe. During Q2 every major country in Europe achieved better year-on-year revenue trends than in the first quarter. 

On a constant currency basis, performance varied across Europe with revenue down by -9% in France, -6% in Belgium, -5% in the Netherlands, and -4% in Spain. Italy and Germany were flat while the UK grew by +1%. Both of the Company’s main markets outside of North America and Europe declined. Japan was down -1% in constant currency while Australia was off by -4%.

ManpowerGroup has significant exposure to large economies where the staffing industry is still relatively immature but growing steadily, such as Italy. The company now derives a greater percentage of revenue from Italy and Northern Europe, than it does from France. Asia-Pacific and ‘Other Americas’ also outperformed the United States in terms of percentage of revenue. France and the United States have long been considered the primary markets of ManpowerGroup. Approximately 43% of ManpowerGroup’s placements are in emerging markets; such as China, Brazil, and India. As these are lower waged economies, they account, however, for only 13% of total revenue.

The Company states that the pricing environment has not materially worsened despite the difficult environment, but there are also no signs of improvement. This will likely limit potential growth, particularly in ManpowerGroup’s core markets, specifically Northern Europe. Declining revenue in nearly every market highlights the continuing weak demand.

ManpowerGroup recently disclosed that is was under investigation by the French Competition Authority and it has now become apparent that this relates to the use of ‘vendor neutral platforms’. ManpowerGroup is subject to this antitrust investigation alongside Randstad and Adecco. Additionally, several French clients have made claims against ManpowerGroup France regarding tax subsidies. The clients are requesting that ManpowerGroup pass along payroll tax subsidies received over several years related to temporary workers. ManpowerGroup stated that it believes the company is entitled to retain the subsidies and will defend  the claims.

The company’s shares closed at USD 65.69 on Friday, up 3.85% on the day and an increase of +100.14% compared with a year ago. Based on its current share price, the company has a market value of USD 5.06 billion.

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