Business Context and Reporting Period
Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2007
Business Overview: Global leader in workforce solutions, providing temporary staffing, permanent recruitment, and HR consulting services across 73 countries.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended Sep 30, 2007 | 9 Months Ended Sep 30, 2007 | 3 Months Ended Sep 30, 2006 | 9 Months Ended Sep 30, 2006 |
|---|---|---|---|---|
| Revenues from Services | $5,295.4 | $14,865.4 | $4,590.0 | $12,851.8 |
| Gross Profit | $974.4 | $2,798.5 | $804.2 | $2,280.2 |
| Gross Profit Margin | 18.4% | 18.8% | 17.5% | 17.7% |
| Operating Profit | $221.9 | $602.2 | $163.9 | $362.3 |
| Operating Profit Margin | 4.2% | 4.1% | 3.6% | 2.8% |
| Net Earnings (Continuing Ops) | $131.7 | $351.6 | $97.0 | $206.1 |
| Diluted EPS (Continuing Ops) | $1.57 | $4.10 | $1.12 | $2.34 |
| Cash from Operating Activities | N/A | $299.2 | N/A | $226.1 |
| Cash and Equivalents (Sep 30, 2007) | $538.8 | |||
| Total Debt (Short-term + Long-term) | $905.5 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 15.4% in Q3 and 15.7% for the nine months ended September 30, 2007, compared to the prior year. On a constant currency basis, growth was 8.5% (Q3) and 8.9% (9 months). Organic constant currency growth was 8.1% (Q3) and 8.7% (9 months).
- Profitability: Operating profit surged 35.3% in Q3 and 66.2% for the nine months. Net earnings from continuing operations increased 35.8% in Q3 and 70.6% for the nine months.
- Segment Performance:
- France: Revenue up 13.1% (Q3) and 16.2% (9 months). Significant benefit from payroll tax modification.
- Other EMEA: Revenue up 28.6% (Q3) and 27.6% (9 months), driven by strong growth in Nordics, Germany, and Netherlands.
- United States: Revenue declined 7.4% (Q3) and 7.1% (9 months) due to decreased staffing volume, partially offset by permanent recruitment growth.
- Jefferson Wells: Revenue declined 8.9% (Q3) and 13.0% (9 months) due to reduced Sarbanes-Oxley related services.
- Balance Sheet: Total assets increased to $7,295.2 million from $6,514.1 million at year-end 2006. Accounts receivable rose to $4,537.3 million, reflecting higher business volumes and currency effects.
Guidance, Outlook, and Unusual Items
- Unusual Item - French Payroll Tax Modification: A significant non-recurring benefit impacted results. A modification to French social security legislation reduced payroll taxes retroactively to Jan 1, 2006.
- Q3 2007 Impact: $27.0 million net benefit ($16.1 million after-tax, $0.19 diluted EPS). This included a $30.4 million increase to Gross Profit and a $3.4 million increase to Selling and Administrative expenses.
- 9 Months 2007 Impact: $99.3 million net benefit recorded in Q2 and Q3. The legislation was amended in July 2007 to eliminate this benefit effective October 1, 2007. Future earnings will no longer include this favorable impact.
- Corporate Headquarters Move: Costs associated with moving the corporate headquarters increased Selling and Administrative expenses by $3.9 million in Q3.
- Share Repurchases: The company completed a $325.0 million repurchase authorization in Q3. In August 2007, a new authorization for 5.0 million shares (up to $400.0 million) was approved. As of Sep 30, 2007, $34.5 million had been spent under the new plan.
- Dividends: A quarterly dividend of $0.37 per share was declared on Oct 23, 2007, payable Dec 14, 2007.
- Outlook: Management estimates the 2007 annual effective tax rate at 38.3%, higher than the 2006 rate of 36.6% due to discrete tax items and higher foreign tax rates.
Investor Verification Checklist
- Sustainability of Margins: Verify the extent to which Q3 and YTD margin expansion is driven by the one-time French payroll tax benefit versus organic operational improvements.
- US Market Trends: Monitor the continued decline in US staffing volumes and the ability of the permanent recruitment business to offset this weakness.
- Working Capital: Assess the impact of the $430.1 million increase in accounts receivable on future cash flows and liquidity.
- Debt Covenants: Confirm continued compliance with the Debt-to-EBITDA ratio (currently 1.05:1) and fixed charge ratio (currently 3.76:1) under the $625.0 million revolving credit facility.
- Goodwill Impairment: Review the assumptions used in the annual goodwill impairment test, particularly regarding future revenue growth and OUP margins for acquired entities like Right Management and Jefferson Wells.