ManpowerGroup Inc. 2019 Form 10-K Summary
Business context and reporting period
ManpowerGroup is a global workforce-solutions provider operating more than 2,500 offices in 75 countries and territories through Manpower, Experis, Right Management and ManpowerGroup Solutions. Services include staffing, permanent recruitment, professional resourcing, outsourcing, training, career management and consulting.
The filing covers the fiscal year ended December 31, 2019. The company’s Southern and Northern Europe segments represented approximately 66% of consolidated revenue, and approximately 88% of revenue was generated outside the United States.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue from services | $20,863.5 million | $21,991.2 million | Down 5.1%; down 0.9% in constant currency |
| Gross profit | $3,375.1 million | $3,579.0 million | Down 5.7% |
| Gross margin | 16.2% | 16.3% | Down 10 basis points |
| Operating profit | $644.9 million | $796.7 million | Down 19.1%; down 15.6% in constant currency |
| Operating margin | 3.1% | 3.6% | Down 50 basis points |
| Net earnings | $465.7 million | $556.7 million | Down 16.4% |
| Diluted earnings per share | $7.72 | $8.56 | Down 9.8% |
| Cash provided by operating activities | $814.4 million | $483.1 million | Up $331.3 million |
| Capital expenditures | $52.9 million | $64.7 million | Down $11.8 million |
Fourth-quarter 2019 revenue was $5,196.6 million, operating profit was $191.6 million, net earnings were $138.8 million and diluted EPS was $2.33. Fourth-quarter 2018 comparative figures were not separately provided for all metrics in the filing text, although quarterly revenue was $5,393.2 million, operating profit was $217.9 million and net earnings were $158.3 million.
At December 31, 2019, cash and cash equivalents were $1,025.8 million, accounts receivable were $5,273.1 million and total assets were $9,223.8 million. Total debt was $1,073.4 million, consisting primarily of $1,012.4 million of long-term debt and $61.0 million of short-term borrowings. Debt represented 28% of total capitalization. The company had $599.5 million available under its $600.0 million revolving credit facility and reported no borrowings under that facility.
Material changes versus the prior comparable period
- Reported revenue declined 5.1%, with currency translation producing a 4.2% unfavorable impact. Organic constant-currency revenue declined 1.0%.
- Northern Europe revenue decreased 12.6% and operating unit profit margin fell to 1.4% from 2.3%, primarily due to weaker manufacturing demand, trade uncertainty and expense deleveraging.
- Southern Europe revenue decreased 2.2% on a reported basis but increased 2.8% in constant currency. The Americas increased 3.6% in constant currency, while APME declined 7.2% in constant currency, partly because of the Greater China deconsolidation.
- Gross margin declined modestly due primarily to lower margins in the higher-margin ManpowerGroup Solutions business, especially Talent Based Outsourcing.
- Operating profit included $39.8 million of restructuring costs, compared with $39.3 million in 2018, and $64.0 million of goodwill impairment charges related to Germany and New Zealand.
- ManpowerGroup recognized a $30.4 million non-cash gain from the July 2019 deconsolidation of ManpowerGroup Greater China Limited after its Hong Kong IPO. The company retained a minority interest accounted for under the equity method.
- The company acquired the remaining controlling interest in Manpower Switzerland for aggregate cash consideration of $219.5 million and recognized an $80.4 million non-cash gain on its previously held interest.
- Share repurchases totaled $203.0 million for 2.4 million shares, compared with $500.7 million for 5.7 million shares in 2018. Dividends paid increased to $129.3 million from $127.3 million.
- The effective tax rate increased to 32.1% from 26.2%, primarily due to the replacement of the nontaxable French CICE program with taxable subsidies and a valuation allowance recognized in Germany.
Guidance, outlook, risks and unusual items
Management described 2019 as challenging, citing slowing global growth, European revenue declines, trade-related weakness in manufacturing and tight labor markets. Management expected labor markets to remain generally strong but uneven and stated that the outlook was stable for the coming several quarters if consumer confidence remained high and unemployment stayed low. The company expected its 2020 effective tax rate to increase to approximately 34% due mainly to the absence of a 2019 one-time tax benefit.
Beginning in January 2020, Right Management was combined with the respective country business units for segment reporting. Future segment results will be presented under the realigned structure, with prior periods restated.
- Principal risks include economic contraction, revenue sensitivity to staffing demand, European concentration, foreign-currency volatility, competitive pricing pressure and loss of large clients.
- Regulatory risks include restrictions on temporary staffing, pay-parity requirements, wage increases, licensing requirements, taxes and collective labor agreements, particularly in Europe.
- Cybersecurity and data-privacy risks are significant. The company disclosed that an external security assessment identified vulnerabilities and that remediation efforts were underway.
- Goodwill impairment remains sensitive to revenue forecasts, operating margins, discount rates and market conditions. Germany had remaining goodwill of $67.2 million at year-end after a $60.2 million impairment charge.
- Aggregate commitments for debt, leases, severance, office closures, transition tax and other items totaled $2,152.3 million. Guarantees and standby letters of credit totaled $845.0 million, although the company did not expect significant payments.
- The company adopted lease accounting under ASC 842 on January 1, 2019, recognizing $448.5 million of operating lease right-of-use assets and $458.8 million of operating lease liabilities at year-end.
Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Goodwill impairment for the Germany, United Kingdom, United States and Netherlands reporting units was identified as a critical audit matter.
Facts investors should verify
- Whether European staffing demand and manufacturing activity stabilize, particularly in Germany, the Netherlands, Sweden, France and Italy.
- Whether operating margins recover after restructuring, goodwill impairment and weaker ManpowerGroup Solutions margins.
- The sustainability of stronger operating cash flow, including the effects of collections, working-capital movements and French subsidy-related receivables.
- Progress in resolving identified cybersecurity vulnerabilities and compliance with GDPR, CCPA and other privacy requirements.
- The effect of the 2020 segment realignment and the integration and performance of Manpower Switzerland.
- Exposure to foreign-currency movements, especially the euro, given the company’s international revenue base and $1,073.4 million of debt.
- Future goodwill impairment risk, tax-rate changes, pension funding requirements and the scheduled maturity of approximately $454.5 million of debt in 2022.