The Adecco Group (ADEN:VTX) reported revenue today of €5.84 billion for the second quarter ended 30 June 2024. Revenue was down 2% on an organic and trading days adjusted (TDA) basis amid a challenging market, the company said.

Revenue was also down 1% on an organic basis and down 3% on a reported basis.

Gross profit fell 5% over the previous year on an organic basis. Gross margin stood at 19.4%, down 70 bps (basis points) over the year, reflecting the current business mix.

“The group gained a further +375 [basis points] market share in the second quarter, on top of the +775 [basis point] gain in the prior-year period,” Adecco Group CEO Denis Machuel said in a press release. “Revenues eased on an organic basis reflecting continued market challenges, although pricing remained firm. We delivered above-target G&A cost savings, supporting a robust EBITA margin, and importantly, delivered improved cash flow through good working capital management.

“Adecco outperformed its peers in a tough market, while Akkodis achieved healthy growth in Consulting & Solutions. Pontoon and EZRA grew strongly in LHH, while the performance of Career Transition remained strong. Our determination is to continue outperforming the sector and to gain further market share. Our strong positioning, rigorous cost management and proven capacity to execute will enable us to benefit swiftly when labour markets improve.”

Last week, rival Randstad, the largest global staffing firm, reported second-quarter revenue fell 8% on an organic basis.

Meanwhile, ManpowerGroup recently reported revenue fell 3.5% year over year in constant currency to $4.52 billion. The Adecco Group’s revenue of €5.84 billion was short of forecasts for €5.90 billion, when adjusted for currency movements, trading days and acquisitions, according to Reuters.

Good cost control helped to protect profitability, the company said. EBITA excluding one-offs was €179 million, stable versus the prior-year period in constant currency terms (3% lower on a reported basis).

SG&A expenses, excluding one-offs, were €969 million, 5% lower organically. As a percentage of revenue, SG&A excluding one-offs was 16.6%, an improvement of 50 basis points.

The average company-based full-time employees (FTEs) decreased by 6% to 35,089 and were 2% lower sequentially. G&A savings in the quarter relative to the 2022 baseline period were 19% lower, bringing G&A expenses to 3.4% of revenue.

The FESCO joint venture in China contributed €16 million income, from €5 million in the previous year period, reflecting favourable timing of the Industries Support Fund. The EBITA margin, excluding one-offs, was 3.1%, flat versus the previous year period. One-off costs were €45 million, from €39 million in the prior-year period, mainly reflecting restructuring charges taken to secure above-target G&A savings.

Operating income was down 3% on a constant currency basis while net income fell by 2% on a constant currency basis. The €58 million net income was below the €59 million expected by analysts in a company-provided consensus, Reuters stated.

Revenue by Segment

Unless otherwise noted, all growth rates in this section refer to the same period in the prior year, with revenues stated on an organic and trading days adjusted (TDA) basis and EBITA or EBITA margins stated, excluding one-offs.

At the global business unit level, on an organic, trading days adjusted basis, Adecco revenue was 2% lower (2% reported), Akkodis revenue was 2% lower (4% reported), and LHH revenue was 7% lower (5% reported).

The Adecco business unit reported solid performance in tough markets. The company claims to have taken further market share, with relative revenue growth of +220 basis points in the period, at a market-leading profitability level. Growth was described as strong in APAC, solid in Southern Europe & EEMENA (Eastern Europe, Middle East, North Africa) and robust in DACH. Northern Europe, France and the Americas faced challenging markets. Flexible placement and permanent placement revenues were both 2% lower organically, while outsourcing activities were up 15%. On a sector basis, growth was strong in retail and solid in logistics. However, demand was weak across the autos, manufacturing, and IT tech sectors.

In Adecco France, revenue was 8% lower in a challenging market. The decline was broad-based, with notable softness in manufacturing and logistics.

In Adecco Northern Europe, revenue was 12% lower in UK & Ireland and 13% lower in the Nordics, reflecting a challenging market environment. Revenue was up 1% in Belgium and Luxemburg. The region performed well compared to competitors. In sector terms, autos, consulting and manufacturing were subdued.

In Adecco DACH, revenue in Germany was up 1% and flat in Switzerland, reflecting a tougher market environment. The region strongly outperformed the market. Logistics, IT tech, and retail were strong, autos were broadly stable, while manufacturing was subdued.

In Adecco Southern Europe and EEMENA, revenue in Italy was flat, while Iberia was up 10% and EEMENA up 7%. The region performed well versus the market. 

Within Adecco Americas, Latin America revenue grew 13%, led by Colombia, Peru and Brazil. Retail and logistics were strong. In North America, revenue was 14% lower, reflecting continued market headwinds in flexible placement across large enterprises. On a sector basis, retail was strong, while IT tech and autos were notably weak.

Adecco told Reuters falling hiring volumes in the US tech sector had probably hit a trough, a day after investor concerns triggered a massive rout on the markets.

“We believe that at this moment we probably have a trough,” Adecco’s CEO Denis Machuel told Reuters. “But let’s be clear, we haven’t seen an inflection yet.”

A massive selloff in the tech stocks shook the markets on Monday due to fears of a global recession after weak US data, coupled with political uncertainty all over the world.

“We don’t think it’s going to get any worse,” Machuel added, referring to the US tech sector hiring volumes.

In Adecco APAC, revenue growth was strong, up 14%, and firmly ahead of the market. Japan was up 11%, Asia up 7%, and India up 13%. In Australia & New Zealand, revenue was 41% higher, boosted by the significant government contract that started in Q3 23. Public sector, retail and IT tech sectors advanced strongly.

Akkodis

Akkodis’ revenue was 2% lower (4% reported), challenged by the ongoing tech staffing market downturn. Consulting & Solutions revenue was up 4%, while Staffing revenue was 17% lower organically. Revenue totaled €898 million.

North EMEA revenue was 6% lower. Revenue in NXT (formerly DataRespons) was 7% lower, reflecting weak demand for software development expertise. Germany was 3% lower, due to tougher market conditions, particularly in autos.

South EMEA revenue was 5% higher. Revenue in France was 5% higher, with strength in autos, partly mitigated by soft activity in aerospace, financial services and telecoms. Spain and Italy were strong.

North America revenue was 14% lower, weighed by the continued downturn in tech staffing. Consulting & Solutions revenue rose 30% organically.

APAC revenues rose 9%, with Japan up 7%, led by tech staffing, and Australia up 9%, driven by a 34% organic expansion in consulting.

LHH

Revenue in LHH was 7% lower (5% reported) in the quarter to a total of €443 million.

Recruitment Solutions revenue was 13% lower, reflecting continued market headwinds. Gross profit was 13% lower, with US gross profits 17% lower, with both modestly improved sequentially.

Career Transition was described as healthy in the context of a strong comparison period, with revenue 10% lower, however, it is unusual to see career transition revenues declining at the same time as staffing revenues are also declining. The segment recorded good growth in Canada and France; it continues to take share and its pipeline is solid.

Learning & development revenue was 1% lower organically, with General Assembly and talent development challenged in their end markets. EZRA performed very well, growing revenue by 45% organically.

Pontoon’s revenue was 7% higher, led by growth in direct sourcing.

Revenue by Service Line

Revenue in the 2023 second quarter was restated to conform to the current-year presentation.

Outlook

The Adecco Group expects weak hiring trends to persist in the third quarter, it told Reuters. The group said revenue development in the 2024 third quarter is expected to be similar to the second quarter on a year-on-year organic TDA basis.

The group will focus on sustaining G&A savings, while continuing to position capacity to capture growth opportunities and market share. In Q3 2024, the group expects its gross margin to improve sequentially, in line with normal seasonality. The group expects a modest reduction in SG&A expenses excluding one-offs relative to the second quarter.

“Our determination is to continue outperforming the sector and to gain further market share,” Machuel said. “Our strong positioning, rigorous cost management and proven capacity to execute will enable us to benefit swiftly when labour markets improve.”

Share Price

The Adecco Group shares last traded at CHF 28.36 (€30.42), up 1.94% on the day and 3.96% above its 52-week low of CHF 27.28 (€29.26), set on 5 August 2024. The company has a market cap of CHF 4.68 billion (€5.02 billion).