Business Context and Reporting Period
Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2010
Business Overview: Global provider of workforce solutions, including temporary staffing, permanent recruitment, and human capital consulting (Right Management, Jefferson Wells).
Key Financial Metrics
| Metric (in millions) | Q1 2010 | Q1 2009 (Restated) |
|---|---|---|
| Revenues from Services | $4,099.3 | $3,643.0 |
| Gross Profit | $701.5 | $665.7 |
| Gross Margin | 17.1% | 18.3% |
| Operating Profit | $32.6 | $1.4 |
| Operating Margin | 0.8% | 0.0% |
| Net Earnings | $2.8 | $(1.8) |
| Diluted EPS | $0.04 | $(0.02) |
| Cash from Operating Activities | $(43.0) | $249.8 |
| Cash and Equivalents (End of Period) | $943.8 | $1,001.0 |
| Total Debt (Short-term + Long-term) | $717.7 | $757.3 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12.5% year-over-year (5.1% on a constant currency basis). Growth was driven by increased demand in the Americas, France, EMEA, and Asia Pacific staffing businesses.
- Profitability Improvement: Operating profit surged from $1.4 million to $32.6 million, driven by operating leverage as fixed costs were maintained while revenues grew.
- Margin Compression: Gross profit margin declined 120 basis points to 17.1% due to pricing pressures in temporary staffing and a shift in mix away from higher-margin outplacement services (Right Management).
- Cash Flow Decline: Operating cash flow turned negative ($43.0 million used) compared to a positive $249.8 million in Q1 2009. This was primarily due to a $127.1 million increase in accounts receivable resulting from revenue growth.
- Segment Performance:
- Staffing Segments: Americas, France, EMEA, and Asia Pacific all reported revenue growth.
- Consulting Segments: Right Management revenues declined 24.0% (counter-cyclical outplacement demand dropped as the economy recovered). Jefferson Wells revenues declined 22.9% due to weak discretionary spending.
Guidance, Outlook, and Risks
- Outlook: Management notes stabilization and improvement in most markets but cautions that future growth depends on continued economic recovery. They do not predict a return to prior revenue/earnings levels.
- Tax Rate: The effective tax rate for Q1 2010 was 85.5%, significantly higher than the statutory rate due to a $13.7 million French Business Tax reclassification and valuation allowances. Management expects an annual effective tax rate of approximately 57%.
- Acquisition: Completed the acquisition of COMSYS IT Partners, Inc. on April 5, 2010, for a total enterprise value of $427.0 million (50% stock, 50% cash).
- Dividend: Declared a cash dividend of $0.37 per share, payable June 15, 2010.
- Risks & Contingencies:
- French Competition Fine: A €42.0 million fine was levied in 2009. The company's appeal was denied in January 2010, and a subsequent appeal is pending.
- Healthcare Legislation: The U.S. Patient Protection and Affordable Care Act (PPACA) is expected to increase employment costs, though the financial impact cannot yet be quantified.
- Restatement: Q1 2009 results were restated to defer $4.1 million of revenue related to a workforce solutions contract in the Other EMEA segment that was prematurely recognized.
Investor Verification Checklist
- Restatement Impact: Verify the full impact of the Q1 2009 revenue restatement on year-over-year comparisons.
- Working Capital Trends: Monitor the trajectory of accounts receivable and operating cash flow as revenue growth continues.
- Tax Rate Volatility: Assess the sustainability of the 57% projected annual tax rate, specifically the impact of the French Business Tax reclassification.
- COMSYS Integration: Review the financial impact and integration progress of the COMSYS acquisition in subsequent filings.
- Consulting Segment Recovery: Track the performance of Right Management and Jefferson Wells as economic conditions stabilize further.