ManpowerGroup Inc. 2021 Q2 Form 10-Q Summary
Business context and reporting period
ManpowerGroup provides staffing, workforce-management, recruitment, consulting and outplacement services through four geographic segments: Americas, Southern Europe, Northern Europe and APME. The filing covers the three and six months ended June 30, 2021; financial statements are unaudited.
Management reported a broad recovery in demand as markets began to anniversary the severe COVID-19-related declines of the second quarter of 2020. Recovery remained uneven, particularly in Europe, where localized restrictions continued to affect economic activity.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue from services | $5,277.1 million | $3,742.2 million | $10,201.5 million | $8,361.3 million |
| Gross profit | $860.1 million | $576.7 million | $1,628.2 million | $1,300.7 million |
| Gross margin | 16.3% | 15.4% | 16.0% | 15.6% |
| Operating profit (loss) | $169.9 million | $(50.0) million | $268.3 million | $(12.3) million |
| Operating margin | 3.2% | (1.3)% | 2.6% | (0.1)% |
| Net earnings (loss) | $111.6 million | $(64.4) million | $173.6 million | $(62.7) million |
| Diluted EPS | $2.02 | $(1.11) | $3.13 | $(1.07) |
| Operating cash flow | Not separately provided | Not separately provided | $195.4 million | $596.1 million |
Q2 revenue increased 41.0% year over year, or 31.3% in constant currency and 31.7% in organic constant currency. Six-month revenue increased 22.0%, or 14.4% in constant currency and 14.7% organically. Foreign exchange favorably affected Q2 revenue by 9.7% and diluted EPS by approximately $0.13; the six-month EPS benefit was approximately $0.20.
- Q2 revenue growth by segment was 64.7% in Southern Europe, 37.5% in Northern Europe, 24.8% in the Americas and 8.9% in APME.
- Higher-margin permanent recruitment revenue increased 79.1% in Q2, contributing to gross-margin expansion.
- Q2 selling and administrative expenses increased 10.1% reported, but declined 3.4% in constant currency excluding the prior-year impairment effect. The company recorded no goodwill impairment in 2021 versus $66.8 million in Q2 2020.
- No restructuring costs were recorded in the first half of 2021 versus $48.2 million in the prior-year period; $23.7 million remained in the restructuring reserve at June 30, 2021.
Balance sheet, debt and liquidity
| Balance-sheet item | June 30, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $1,461.4 million | $1,567.1 million |
| Accounts receivable | $5,203.3 million | $4,912.4 million |
| Current borrowings and maturities | $23.1 million | $20.4 million |
| Long-term debt | $1,070.2 million | $1,103.5 million |
| Total assets | $9,462.4 million | $9,328.2 million |
| Total shareholders’ equity | $2,396.7 million | $2,453.6 million |
Total debt was approximately $1.1 billion, resulting in cash exceeding debt by approximately $368 million. The company had $599.5 million available under its $600 million revolving credit facility and $269.5 million available under local credit lines. Its June 30 leverage ratio was 0.1-to-1 versus a 3.5-to-1 maximum, and its fixed-charge coverage ratio was 4.2-to-1 versus a 1.5-to-1 minimum.
Operating cash flow declined to $195.4 million from $596.1 million, primarily because stronger activity increased accounts receivable and working-capital requirements. Days sales outstanding increased to approximately 56 from 54 at year-end 2020. Capital expenditures were $24.6 million, acquisition payments were $13.3 million, share repurchases were $150.1 million and dividends paid were $68.3 million.
Material changes versus the prior comparable period
- The company moved from operating and net losses in Q2 2020 and the first half of 2020 to substantial profitability in the comparable 2021 periods.
- Gross margin improved by 90 basis points in Q2 and 40 basis points for the first six months, primarily due to business mix, staffing-margin improvement and stronger permanent recruitment activity.
- Prior-year results included $72.8 million of goodwill and other impairment charges in Q2 and the first half of 2020, including the $66.8 million goodwill impairment shown in the statements of operations. No comparable impairment was recorded in 2021.
- Weighted-average diluted shares declined 4.9% in Q2 and 5.1% in the first half, primarily because of share repurchases.
- Cash declined $105.7 million during the first half of 2021, compared with a $412.8 million increase in the prior-year period.
Guidance, outlook, commentary and risks
The filing does not provide formal numerical revenue or earnings guidance. Management expects continued recovery but emphasizes that the pace may be affected by COVID-19 restrictions, labor-market conditions and foreign exchange. The company expects to remain in compliance with its debt covenants over the next 12 months and believes existing cash, credit facilities and operating cash flows are sufficient for foreseeable needs.
- COVID-19 remains the principal uncertainty, including potential additional lockdowns or localized restrictions and adverse effects on demand, liquidity and future results.
- Management expects the majority of the remaining $23.7 million restructuring reserve to be paid by year-end 2021.
- Goodwill impairment risk remains concentrated in the Netherlands and United Kingdom reporting units, whose fair values exceeded carrying values by approximately 3.3% and 12%, respectively, in the 2020 annual test. Further deterioration could result in a material impairment.
- Mexico legislation effective July 23, 2021 prohibits traditional temporary staffing except for specialized services. Management estimates a 45% to 50% reduction in Mexico revenue during the second half of 2021; Mexico represented approximately 2.8% of 2020 consolidated revenue.
- The €400 million notes mature in September 2022 and the €500 million notes mature in June 2026. Management expects to use cash, revolver borrowings or replacement financing at maturity.
- Guarantees and standby letters of credit totaled $958.3 million. Management does not expect significant payments under these arrangements based on their nature and historical experience.
Investor verification points
- Confirm whether revenue recovery persists after the favorable comparison against the COVID-19-affected second quarter of 2020, particularly in Europe.
- Monitor organic constant-currency growth, permanent recruitment trends and gross-margin sustainability as business mix changes.
- Track accounts receivable, days sales outstanding and operating cash conversion as staffing demand expands.
- Assess the impact of Mexico’s staffing-law changes on second-half revenue and profitability.
- Review the Netherlands and United Kingdom goodwill headroom and potential impairment sensitivity.
- Verify the timing and funding plan for the September 2022 €400 million debt maturity.
- Consider the effect of continued share repurchases, including the August 2021 authorization for an additional 4.0 million shares, on leverage and per-share results.