ManpowerGroup Inc. Form 10-Q Summary
Business Context and Reporting Period
ManpowerGroup provides staffing, permanent recruitment, workforce outsourcing, career management and workforce consulting services globally. This unaudited report covers the three and six months ended June 30, 2015, compared with the corresponding 2014 periods. Operations are reported across the Americas, Southern Europe, Northern Europe, APME and Right Management.
Financial Performance and Key Metrics
| Metric | Q2 2015 | Q2 2014 | Six Months 2015 | Six Months 2014 |
|---|---|---|---|---|
| Revenue | $4,861.3 million | $5,321.7 million | $9,403.5 million | $10,225.7 million |
| Gross profit | $830.6 million | $897.3 million | $1,592.6 million | $1,713.8 million |
| Gross margin | 17.1% | 16.9% | 16.9% | 16.8% |
| Operating profit | $178.7 million | $187.4 million | $301.5 million | $314.3 million |
| Operating margin | 3.7% | 3.5% | 3.2% | 3.1% |
| Net earnings | $105.7 million | $109.8 million | $171.4 million | $179.9 million |
| Diluted EPS | $1.33 | $1.35 | $2.16 | $2.21 |
- Reported Q2 revenue declined 8.7%, while constant-currency revenue increased 6.6%. Reported operating profit declined 4.7%, but increased 12.5% in constant currency.
- Reported six-month revenue declined 8.0%, while constant-currency revenue increased 6.6%. Operating profit declined 4.1% as reported and increased 14.1% in constant currency.
- Foreign currency translation reduced Q2 revenue by 15.3%, operating profit by 17.2% and diluted EPS by approximately $0.23. The six-month EPS impact was approximately $0.39.
- Cash provided by operating activities was $38.8 million in the first half of 2015, compared with cash used of $16.0 million in the prior-year period.
- Cash used in investing activities was $47.0 million, including $20.1 million of capital expenditures and $30.4 million for acquisitions. Cash used in financing activities was $211.2 million, including $168.7 million for settled share repurchases and $62.1 million of dividends.
- Cash and cash equivalents were $465.9 million at June 30, 2015, compared with $699.2 million at December 31, 2014. Net accounts receivable was $4,214.2 million.
- Total debt consisted of $39.5 million of short-term borrowings and current maturities and $390.7 million of long-term debt. The company had $599.1 million available under its $600.0 million revolving credit facility, subject to $0.9 million of outstanding letters of credit.
- Debt-to-EBITDA was 0.46 to 1 versus a covenant maximum of 3.5 to 1; fixed-charge coverage was 4.43 to 1 versus a minimum covenant of 1.5 to 1.
Material Changes Versus the Prior Comparable Period
- Currency movements masked underlying growth. Constant-currency revenue increased in Southern Europe, Northern Europe, APME and most other markets, while Right Management declined.
- Southern Europe revenue increased 10.6% in Q2 and 9.6% for the first half in constant currency, supported by stabilization in France, improving demand in Italy and growth in Spain.
- Northern Europe revenue increased 4.5% in Q2 and 6.0% for the first half in constant currency, although operating unit margins declined because of lower-margin business mix and pricing pressure.
- Americas revenue increased 3.5% in Q2 and 4.6% for the first half in constant currency. United States revenue declined 1.7% in Q2 and 0.6% for the first half, partly because of weaker demand in staffing, engineering and finance.
- Right Management revenue declined 1.5% in Q2 and 3.1% for the first half in constant currency as demand for counter-cyclical outplacement and talent management services softened.
- Gross margin improved by 20 basis points in Q2 and 10 basis points for the first half, aided by permanent recruitment growth and mix. Staffing margins were pressured by client and geographic mix and pricing pressure.
- Second-quarter and first-half selling and administrative expenses benefited from the absence of $9.0 million of U.S. legal costs recorded in 2014, partly offset by higher staffing, salary and incentive costs.
- Diluted weighted-average shares declined to 79.3 million in Q2 and 79.5 million for the first half, primarily due to share repurchases.
Guidance, Outlook, Risks and Unusual Items
- Management reported solid underlying demand and improving profitability but noted that economic conditions in Europe and certain major markets remained uneven and that recovery could be slow or volatile.
- Management currently expects an annual effective tax rate of approximately 38%, principally due to the French business tax, expected repatriations, valuation allowances and other permanent items.
- In June 2015, the company agreed to acquire 7S Group GmbH, a Germany-based specialized human resources provider, for approximately $144.9 million plus a potential earn-out. Closing was subject to German regulatory approval and was expected later in 2015.
- In July 2015, the company agreed to sell a portion of French payroll tax credits for net proceeds of approximately $130.0 million.
- The company expects to pay most of the remaining $8.1 million restructuring reserve by the end of 2015.
- The €350.0 million notes mature in June 2018. Management expects to use available cash, the revolving facility or replacement borrowing to repay or refinance them and does not currently anticipate difficulty accessing credit markets.
- Moody’s upgraded the company’s long-term debt rating to Baa1 from Baa2 in July 2015, with a stable outlook.
- Aggregate commitments for debt repayments, leases, severance, office closures and other commitments were $1.317 billion at June 30, 2015. Guarantees and standby letters of credit totaled approximately $188.0 million.
- Tax audits were ongoing in several jurisdictions, but management did not expect their resolution to materially affect earnings. Net unrecognized tax benefits were $30.8 million.
- The company disclosed foreign exchange risk, interest-rate risk, labor-market sensitivity, pricing pressure, economic volatility, acquisition integration risk and potential changes in demand for counter-cyclical services.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2015, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether constant-currency growth continues to translate into reported growth if the U.S. dollar remains strong.
- Progress in restoring staffing margins, particularly in Northern Europe and other lower-margin markets.
- Demand trends in the United States, Norway, Australia and Right Management’s outplacement and talent management businesses.
- Completion, purchase accounting and integration of the 7S Group acquisition and the timing and proceeds of the French payroll tax-credit sale.
- Cash conversion and working-capital requirements, particularly the high accounts-receivable balance relative to cash.
- Use of remaining share-repurchase authorization, dividend sustainability and the effect of repurchases on per-share results.
- Compliance with debt covenants and the company’s plan to address the €350.0 million notes due in 2018.
- Potential effects of tax audits, unrecognized tax benefits, restructuring payments and other disclosed commitments.