MAN

Business Context and Reporting Period

Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2007
Business Overview: Manpower Inc. provides temporary staffing, permanent recruitment, and human resources consulting services globally. The company operates through segments including the United States, France, Other EMEA, Italy, Jefferson Wells, Right Management, and Other Operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 17.0% year-over-year. On a constant currency basis, revenue grew 9.6%, driven by increased demand in France, Other EMEA, Italy, and Other Operations. Permanent recruitment revenue grew 30.0% on a consolidated constant currency basis.
• Profitability: Operating profit surged 71.2% to $103.3 million. This was driven by cost control efforts and productivity gains, despite a slight decrease in gross profit margin (17.6% vs. 17.9%) due to a shift in service mix toward lower-margin temporary recruitment.
• Segment Performance:
  • United States: Revenues declined 5.2% due to lower staffing volumes, though permanent recruitment grew 63.3%.
  • France: Revenues increased 20.4% (10.4% constant currency) with improved operating unit profit margin.
  • Other EMEA & Italy: Both segments saw significant revenue growth (28.4% and 25.7% respectively) and margin improvements.
  • Jefferson Wells: Revenues decreased 14.9% due to the decline in Sarbanes-Oxley related services and lower staff utilization.
• Discontinued Operations: Q1 2006 included $23.1 million in income from discontinued operations (sale of a payroll business in Sweden), whereas Q1 2007 had no such income.

Guidance, Outlook, and Risks

• Outlook: Management expects to remain in compliance with debt covenants (Debt-to-EBITDA ratio of 1.26 to 1) throughout 2007. The company anticipates a favorable impact of approximately 1% on France operating unit profit margin due to a retroactive modification in French payroll tax calculations, expected to be recorded in Q2 2007.
• Capital Allocation: The company repurchased 991,900 shares for $72.7 million in Q1 2007. A cash dividend of $0.32 per share was declared, payable June 14, 2007. Approximately 4.0 million shares remain available for repurchase under the current authorization.
• Risks and Contingencies:
  • Tax Audits: The company is under audit in France, U.K., U.S., and Spain. Tax years 2002 through 2006 remain subject to examination in major jurisdictions.
  • Reorganization Costs: Remaining reserves for severance and office closure costs in the U.K., Right Management, and France total approximately $13.8 million, with the majority expected to be paid in 2007.
  • Foreign Currency: Results are significantly impacted by exchange rates; the weakening U.S. dollar positively impacted reported revenues and earnings.

Investor Verification Checklist

• Constant Currency Growth: Verify the 9.6% constant currency revenue growth rate to assess organic performance independent of currency fluctuations.
• U.S. Market Trends: Monitor the 5.2% revenue decline in the U.S. segment to determine if it signals a broader slowdown in the domestic temporary staffing market.
• Jefferson Wells Utilization: Review the decline in Jefferson Wells margins (1.2% vs. 6.0%) and the impact of lower professional staff utilization on future profitability.
• France Tax Impact: Confirm the timing and magnitude of the expected 1% profit margin benefit from the French payroll tax modification in Q2 2007.
• Debt Covenants: Verify the Debt-to-EBITDA ratio of 1.26 to 1 against the 3.25 to 1 covenant limit to ensure continued financial flexibility.