ManpowerGroup Inc. 2022 Q2 Form 10-Q Summary
Business Context and Reporting Period
ManpowerGroup provides staffing and interim services, outcome-based solutions and consulting, permanent recruitment, and other workforce services through the Americas, Southern Europe, Northern Europe, and Asia Pacific Middle East (APME) segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30, 2022 | Year-over-Year Change | Six Months Ended June 30, 2022 | Year-over-Year Change |
|---|---|---|---|---|
| Revenue from services | $5,074.1 million | (3.8%); 5.7% constant currency | $10,217.4 million | 0.2%; 7.7% constant currency |
| Gross profit | $921.2 million | 7.1% | $1,818.3 million | 11.7% |
| Gross profit margin | 18.2% | Up 190 basis points | 17.8% | Up 180 basis points |
| Operating profit | $180.7 million | 6.3% | $319.4 million | 19.0% |
| Operating profit margin | 3.6% | Up 40 basis points | 3.1% | Up 50 basis points |
| Net earnings | $122.2 million | 9.5% | $213.8 million | 23.2% |
| Diluted earnings per share | $2.29 | 13.4% | $3.97 | 26.8% |
Higher-margin permanent recruitment, improved staffing margins, growth in consulting and managed service offerings, and the Experis acquisition contributed to margin expansion. Selling and administrative expenses increased 7.3% in the quarter and 10.2% year to date, reflecting higher headcount, compensation, variable incentives, technology investment, and Experis integration costs.
Cash provided by operating activities was $21.3 million in the first six months of 2022, down from $195.4 million in the prior-year period. Working capital changes used $273.5 million, primarily because of revenue growth, timing-related reductions in accounts payable, and the staffing industry’s practice of paying associates before collecting client receivables. Capital expenditures were $41.7 million, compared with $24.6 million in 2021.
Cash and cash equivalents were $886.2 million at June 30, 2022, compared with $847.8 million at December 31, 2021. Accounts receivable were $5,343.9 million, and days sales outstanding increased by three days to 58 days.
Short-term borrowings and current maturities of long-term debt were $481.0 million, and long-term debt was $942.2 million at June 30, 2022. The company reported a net debt-to-EBITDA ratio of 1.22 to 1 and a fixed-charge coverage ratio of 5.74 to 1, compared with maximum and minimum covenant thresholds of 3.5 to 1 and 1.5 to 1, respectively.
Material Changes Versus the Prior Comparable Period
- Reported second-quarter revenue declined 3.8% because the U.S. dollar strengthened significantly, particularly against the euro. Constant-currency revenue increased 5.7% and organic constant-currency revenue increased 2.5%.
- Americas revenue increased 20.9% in the quarter, driven primarily by the October 2021 acquisition of ettain group, now part of Experis, and stronger staffing and permanent recruitment demand. U.S. revenue increased 43.7%.
- Southern Europe revenue declined 9.1% and Northern Europe revenue declined 13.7% on a reported basis, largely because of currency effects. Constant-currency revenue increased 2.2% in Southern Europe and declined 2.4% in Northern Europe.
- APME revenue declined 2.6% on a reported basis but increased 9.7% in constant currency.
- Permanent recruitment revenue increased 34.4% in the second quarter, or 45.0% in constant currency, supporting gross margin expansion.
- Net earnings benefited from a lower effective tax rate: 29.8% in the quarter versus 33.2% in the prior-year quarter, and 31.0% for the first half versus 33.3%.
- Foreign exchange reduced second-quarter diluted EPS by approximately $0.25 and first-half diluted EPS by approximately $0.35.
- Diluted weighted-average shares declined to 53.4 million in the quarter and 53.8 million year to date, reflecting share repurchases.
Debt, Liquidity, Outlook, Risks, and Unusual Items
On May 27, 2022, the company entered into a new $600.0 million revolving credit facility maturing May 27, 2027. The facility uses SOFR rather than LIBOR. At June 30, $50.0 million was outstanding and $549.6 million was available, subject to applicable terms. The company also had $318.2 million of subsidiary credit lines, of which $301.0 million was unused, subject to borrowing limitations.
On June 30, 2022, the company issued €400.0 million of 3.50% notes due June 30, 2027. Proceeds were used in July 2022 to repay €400.0 million of 1.875% notes due September 2022. Management stated that it expects sufficient liquidity and capital resources to meet obligations and expects to remain in compliance with debt covenants for the next 12 months.
The company disposed of its Russia business on January 17, 2022, receiving $3.2 million of cash proceeds and recognizing a one-time net loss of $8.0 million. Experis acquisition integration costs were $2.7 million in the second quarter and $6.4 million for the first half, reducing first-half diluted EPS by approximately $0.09 after tax. The Russia disposition reduced first-half diluted EPS by approximately $0.15.
No formal earnings guidance is clearly provided in the filing. Management described demand as improving in the second quarter but emphasized that the business is cyclical and sensitive to labor-market conditions, economic activity, currency movements, supply-chain constraints, labor and tax legislation, and geopolitical developments, including the Russia-Ukraine war and related sanctions.
Goodwill totaled $1,669.9 million at June 30, 2022. The Netherlands reporting unit had only approximately 5.5% excess fair value over carrying value in the 2021 impairment test and held $103.5 million of goodwill at June 30, 2022. Management identified no triggering event during the second quarter but warned that failure to improve operating performance could result in a material impairment.
The company had $16.5 million remaining in restructuring reserves, expected to be paid largely by the end of 2023. It also reported $805.1 million of guarantees and standby letters of credit; management does not expect significant payments under these arrangements based on historical experience.
Important Facts for Investors to Verify
- Whether constant-currency and organic growth continues after separating the effects of the Experis acquisition and currency movements.
- The sustainability of gross margin gains from permanent recruitment, consulting, MSP, RPO, and Experis services.
- Working-capital trends, particularly days sales outstanding, accounts receivable collections, and operating cash conversion.
- Progress integrating ettain group and the effect of related costs on earnings and cash flow.
- Foreign exchange sensitivity, especially the effect of euro and other currency movements on reported revenue and EPS.
- Performance of the Netherlands reporting unit and the potential for goodwill impairment.
- Debt refinancing, interest-rate exposure, covenant compliance, and repayment of the remaining $50.0 million revolving-facility borrowing.
- Exposure to economic contraction, labor-market changes, supply-chain disruptions, geopolitical events, sanctions, and changes in labor or tax laws.
- Remaining repurchase authorization of approximately 3.5 million shares and the effect of continued buybacks on diluted EPS and liquidity.