ManpowerGroup Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
ManpowerGroup provides staffing and interim services, talent solutions, consulting, permanent recruitment and related workforce services through the Americas, Southern Europe, Northern Europe and APME segments. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Results continued to be affected by COVID-19, although most markets showed recovery during the quarter. Europe remained particularly exposed to localized lockdowns and other restrictions. Reported results also benefited materially from favorable foreign currency translation.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue from services | $4,924.4 million | $4,619.1 million | 6.6% |
| Gross profit | $768.1 million | $724.0 million | 6.1% |
| Gross profit margin | 15.6% | 15.7% | Down 10 bps |
| Selling and administrative expenses | $669.7 million | $686.3 million | Down 2.4% |
| Operating profit | $98.4 million | $37.7 million | Up 160.9% |
| Operating profit margin | 2.0% | 0.8% | Up 120 bps |
| Net earnings | $62.0 million | $1.7 million | Up 3,562.0% |
| Diluted EPS | $1.11 | $0.03 | Up from $0.03 |
| Effective tax rate | 33.3% | 90.2% | Improved |
| Cash flow from operations | $140.9 million | $181.0 million | Down $40.1 million |
Foreign currency translation increased reported revenue by approximately 6.0% and diluted EPS by approximately $0.06. On a constant-currency basis, revenue increased 0.6%; organic constant-currency revenue increased 0.9%.
Cash and cash equivalents were $1,522.7 million at March 31, 2021, compared with $1,567.1 million at December 31, 2020. Accounts receivable was $4,892.7 million, and days sales outstanding increased to approximately 56 from approximately 54 at year-end.
Total debt consisted of $25.1 million of short-term borrowings and current maturities and $1,057.5 million of long-term debt. The principal Euro-denominated notes had a carrying value of $1,051.1 million and mature in September 2022 and June 2026.
The company had $599.5 million available under its $600.0 million revolving credit facility, plus $268.5 million available under local credit lines. Management reported a net debt-to-EBITDA ratio of negative 0.09 to 1 and a fixed-charge coverage ratio of 3.39 to 1, compared with covenant limits of no greater than 3.5 to 1 and no less than 1.5 to 1, respectively.
Material changes versus the prior comparable period
- Revenue growth reflected improving demand and comparison against COVID-19-related declines in the final weeks of Q1 2020. March revenue increased 22.5% year over year after declines in January and growth in February.
- Southern Europe revenue increased 11.1% and Northern Europe increased 6.1%, in each case substantially aided by currency. APME increased 5.5%. Americas revenue decreased 0.8%.
- Reported operating profit benefited from the absence of $48.2 million of restructuring costs recorded in Q1 2020. Excluding prior-year restructuring costs, operating profit increased 14.4% and operating margin increased 10 basis points.
- The prior-year period included a $10.2 million pension settlement loss. Interest and other expenses declined to $5.4 million from $20.5 million.
- Gross margin declined modestly because permanent recruitment represented a smaller portion of revenue and staffing margins declined in several regions due to a greater mix of lower-margin enterprise business. Growth in higher-margin MSP services partly offset these effects.
- Operating cash flow declined as stronger demand increased working-capital requirements, particularly accounts receivable. Capital expenditures increased to $12.7 million from $9.1 million, primarily due to technology investments and timing.
- The company repurchased 1.1 million shares for $100.1 million, compared with 0.9 million shares for $63.8 million in Q1 2020. Approximately 2.3 million shares remained authorized for repurchase at March 31, 2021.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a specific numerical earnings or revenue outlook in the filing. Management expects recovery to continue, supported by strengthening demand across geographies and industries, but expects continued targeted and localized COVID-19 restrictions and ongoing uncertainty regarding economic conditions.
- COVID-19 may continue to adversely affect demand, financial condition, liquidity and future operating results, particularly if additional lockdowns or restrictions occur.
- Foreign exchange movements materially affected reported results and may overstate underlying operating performance.
- On April 23, 2021, Mexico enacted legislation restricting traditional temporary staffing services and permitting outsourced assignments only for specialized services outside a client’s core business. The effective date is July 23, 2021. Management expects the law to reduce revenue and operating profit in Mexico, which represented approximately 2.8% of consolidated 2020 revenue.
- Goodwill at the Netherlands and United Kingdom reporting units was $114.6 million and $101.0 million, respectively. Their estimated fair values exceeded carrying values by approximately 3.3% and 12%, respectively, creating sensitivity to further declines in profitability or cash flow and potential impairment.
- The remaining restructuring reserve was $32.3 million at March 31, 2021, with the majority expected to be paid by year-end 2021.
- Aggregate commitments were $2,169.9 million. Guarantees and standby letters of credit totaled $897.0 million; management does not expect significant payments under these arrangements based on historical experience.
- Management expects to fund the 2022 and 2026 Euro note maturities with available cash, borrowings or replacement financing and currently anticipates continued access to credit markets.
Important facts for investors to verify
- Whether revenue recovery continues on an organic constant-currency basis rather than being driven primarily by foreign exchange and easy prior-year comparisons.
- The effect of COVID-19 restrictions on staffing demand, especially in Europe, and the pace of permanent recruitment recovery.
- The operational and financial impact of Mexico’s staffing legislation after its July 23, 2021 effective date.
- Whether working-capital needs and higher days sales outstanding reduce operating cash conversion as demand improves.
- The sensitivity of United Kingdom and Netherlands goodwill to further deterioration in operating results and macroeconomic conditions.
- The company’s ability to maintain covenant compliance and refinance or repay the September 2022 Euro-denominated notes.
- The sustainability of cost savings, margin improvement and share repurchases after the benefit of eliminating prior-year restructuring costs.