ManpowerGroup 2012 Q1 SEC Filing Summary
Business Context and Reporting Period
Manpower Inc. (d/b/a ManpowerGroup) provides staffing, workforce solutions, talent management and outplacement services globally. This unaudited Form 10-Q covers the three months ended March 31, 2012, compared with the same period in 2011.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue from services | $5,096.4 million | $5,072.4 million | 0.5%; 3.0% constant currency |
| Gross profit | $847.4 million | $857.6 million | (1.2%) |
| Gross margin | 16.6% | 16.9% | Down 30 basis points |
| Selling and administrative expenses | $753.6 million | $772.0 million | (2.4%) |
| Operating profit | $93.8 million | $85.6 million | Up 9.5% |
| Operating margin | 1.8% | 1.7% | Up 10 basis points |
| Net earnings | $40.2 million | $35.7 million | Up 12.6% |
| Diluted EPS | $0.50 | $0.43 | Up $0.07 |
| Effective tax rate | 50.9% | 52.1% | Down 120 basis points |
| Cash used in operating activities | $(20.7) million | $(159.7) million | Improved by $139.0 million |
At March 31, 2012, cash and cash equivalents were $553.5 million, accounts receivable were $4,232.7 million and total assets were $6,973.3 million. Current liabilities were $3,726.9 million, including $454.2 million of short-term borrowings and current maturities of long-term debt. Long-term debt was $267.6 million. Total debt, including current maturities, was approximately $721.8 million.
Capital expenditures were $19.7 million and acquisition spending was $1.5 million. Cash used in investing activities was $21.1 million, while financing activities provided $0.2 million. Cash declined by $27.0 million during the quarter to $553.5 million.
The company had $798.4 million available under its $800.0 million revolving credit agreement, subject to covenants. Its Debt-to-EBITDA ratio was 0.86 to 1 versus a maximum of 3.5 to 1, and its fixed-charge coverage ratio was 3.17 to 1 versus a minimum of 1.5 to 1. Separate subsidiary credit lines totaled $392.7 million, of which $337.7 million was unused.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly on a reported basis, with 1.8% organic constant-currency growth. Currency translation reduced reported revenue growth by approximately 2.5%.
- Operating profit improved because cost-control measures, productivity initiatives and expense leverage more than offset the decline in gross profit.
- Gross margin declined because of unbillable bench time, business mix changes, pricing pressure in certain European markets and lower-margin acquired business in APME.
- Selling and administrative expenses declined 2.4% reported and 1.1% on an organic constant-currency basis.
- Diluted weighted-average shares declined to 80.9 million from 83.6 million, primarily due to share repurchases made after March 31, 2011.
- Operating cash outflow improved substantially because of better working-capital utilization, particularly accounts receivable.
- APME revenue rose 12.8% reported and 3.1% organically in constant currency, while Right Management revenue declined 2.6% reported and 2.0% in constant currency.
- Southern Europe revenue declined 3.5% reported, while Northern Europe revenue increased 2.6% in constant currency. U.S. revenue declined 2.0% in constant currency, partly because two large Experis contracts wound down.
Guidance, Outlook, Risks and Unusual Items
- Management described revenue growth as moderate and noted that growth slowed from the fourth quarter of 2011 because of a slowing global economy and stronger prior-year comparisons.
- Management expects a full-year effective tax rate in the low-to-mid-40% range, compared with 50.9% in the first quarter. The rate is affected by the mix of U.S. and non-U.S. earnings, valuation allowances, permanent items, repatriations and French Business Tax.
- Management believes available cash and credit facilities are sufficient for foreseeable needs and expects to remain compliant with credit covenants over the next 12 months.
- The €300.0 million notes mature in June 2012 and the €200.0 million notes mature in June 2013. The company planned to refinance the 2012 maturity through public debt markets or, if necessary, its revolving credit facility.
- Client demand remains dependent on labor-market conditions, economic growth and workforce-flexibility trends. A slowdown could reduce staffing demand and cause operating deleverage.
- Right Management experienced a 12.9% decline in talent-management demand because clients deferred discretionary spending; outplacement revenue increased approximately 3%.
- Net reorganization costs were $0.1 million in Q1 2012. The remaining reorganization reserve was $21.6 million, with most expected to be paid during 2012. Additional Right Management reorganization charges were expected in the second or third quarter.
- On April 26, 2012, the company announced the acquisition of French IT consulting firm Damilo Consulting, which generated €42.0 million of 2011 revenue. Purchase accounting was to be finalized in Q2 2012.
- Goodwill totaled $995.7 million. No interim impairment test was performed because management identified no significant impairment indicators at March 31, 2012.
- The company reported ongoing tax audits in several jurisdictions and $26.4 million of net unrecognized tax benefits. Management did not expect these matters to materially affect earnings.
- The company stated that litigation and other contingencies were not expected to have a material adverse effect, although outcomes cannot be predicted with certainty.
- The Board declared a semiannual cash dividend of $0.43 per share on May 2, 2012, payable June 15, 2012.
Most Important Facts for Investors to Verify
- Ability to refinance or repay the €300.0 million notes due June 2012 and the resulting interest expense and liquidity impact.
- Whether moderate revenue growth persists as global economic conditions weaken, particularly in the United States, France and Italy.
- Progress in restoring gross margins amid pricing pressure, unbillable labor and lower-margin acquired business.
- Execution and cash costs of the Right Management and broader reorganization programs.
- Performance and integration of acquisitions in APME, Southern Europe and the announced Damilo Consulting acquisition.
- Movement in accounts receivable and operating cash flow, given the company’s large working-capital requirements.
- Sustainability of the low-to-mid-40% annual tax-rate expectation and developments in tax audits or unrecognized tax benefits.
- Foreign-exchange effects, covenant compliance and continued access to public and bank debt markets.