ManpowerGroup Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
ManpowerGroup provides staffing and interim services, permanent recruitment, consulting, managed service provider, recruitment process outsourcing, and career transition services through the Americas, Southern Europe, Northern Europe, and Asia Pacific Middle East (APME) segments. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue from services | $5,143.3 million | $4,924.4 million | 4.4% reported; 9.8% constant currency |
| Gross profit | $897.1 million | $768.1 million | 16.8% |
| Gross profit margin | 17.4% | 15.6% | +180 basis points |
| Operating profit | $138.7 million | $98.4 million | 40.9% |
| Operating profit margin | 2.7% | 2.0% | +70 basis points |
| Net earnings | $91.6 million | $62.0 million | 47.8% |
| Diluted EPS | $1.68 | $1.11 | 51.4% |
| Cash provided by operating activities | $70.6 million | $140.9 million | Down $70.3 million |
Effective income tax rate was 32.6%, compared with 33.3% in the prior-year quarter. The company reported diluted weighted-average shares of 54.4 million, down from 55.7 million, primarily due to share repurchases.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $777.3 million at March 31, 2022, compared with $847.8 million at December 31, 2021. Foreign subsidiaries held $703.0 million of cash.
- Total debt consisted of $512.6 million of short-term borrowings and current maturities and $551.3 million of long-term debt.
- The $600.0 million revolving credit facility had $50.0 million drawn and $0.4 million of letters of credit outstanding, leaving $549.6 million available. The company repaid $25.0 million of revolving debt during the quarter.
- Net Debt-to-EBITDA was 0.92 to 1 and fixed-charge coverage was 5.56 to 1 at March 31, 2022, within the applicable covenant limits.
- The €400.0 million notes, carried at approximately $442.5 million, mature in September 2022 and management plans to refinance them. The €500.0 million notes mature in June 2026.
- The company repurchased 0.6 million shares for $59.9 million during the quarter. The Board declared a semiannual dividend of $1.36 per share on May 6, 2022.
Material changes versus the prior comparable period
- Revenue growth was led by the Americas, where revenue increased 24.8%, including the contribution from the October 2021 acquisition of ettain group, now part of Experis. United States revenue increased 46.1% reported and 15.2% organically.
- Southern Europe revenue increased 1.6% reported and 8.4% in constant currency. Northern Europe revenue declined 3.5% reported but increased 2.0% in constant currency. APME revenue declined 1.5% reported but increased 6.0% in constant currency.
- Permanent recruitment revenue increased 48.3% reported, supported by stronger hiring activity. Higher-margin permanent recruitment, consulting, MSP, and staffing offerings improved the gross margin.
- Selling and administrative expenses increased 13.2%, primarily due to higher personnel costs, additional recruiting and sales headcount, acquisition integration costs, and the Russia disposition loss.
- Foreign currency movements reduced reported revenue growth by 5.4% and reduced diluted EPS by approximately $0.10.
- Operating cash flow fell because working capital consumed cash, including a $96.9 million increase in accounts receivable-related cash usage and timing-related changes in accounts payable and other liabilities.
Guidance, outlook, commentary, and unusual items
- The filing does not provide clear formal quarterly or annual earnings guidance. Management expects available cash and existing credit facilities to be sufficient for foreseeable needs and expects to remain in compliance with debt covenants for the next 12 months.
- Management expects to repay the remaining $50.0 million of revolving borrowings over the six months following March 31, 2022 and plans to refinance the September 2022 euro notes.
- On January 17, 2022, the company sold its Russia business for $3.2 million of cash proceeds and recognized a one-time net loss of $8.0 million. The loss reduced diluted EPS by approximately $0.15.
- The company incurred $3.7 million of Experis acquisition integration costs, reducing diluted EPS by approximately $0.05 after tax.
- Management identified the Russia-Ukraine war, sanctions, supply-chain disruption, inflation, foreign-exchange volatility, COVID-19-related conditions, labor and tax legislation, and uncertain economic conditions as material risks, particularly for European operations.
- Goodwill totaled $1,710.0 million. The Netherlands reporting unit had only approximately 5.5% excess fair value over carrying value in the latest impairment test; its $109.2 million of goodwill could be subject to impairment if operating performance does not improve.
- A restructuring reserve of $20.1 million remained at March 31, 2022, with the majority expected to be paid by the end of 2022. No new restructuring costs were recorded in the quarter.
Important facts for investors to verify
- Execution and financing terms for refinancing the €400.0 million notes due in September 2022.
- Whether revenue and margin growth continues after excluding the ettain acquisition, the Russia disposition, and favorable permanent-recruitment trends.
- Operating cash conversion and the effect of higher staffing activity, accounts receivable, and days sales outstanding, which increased to 57 days.
- Potential effects of the Russia-Ukraine conflict, sanctions, inflation, supply-chain disruption, and foreign-exchange movements on European results.
- Progress and valuation sensitivity of the Netherlands reporting unit and other goodwill balances.
- Future share repurchases, dividends, and remaining restructuring and other contractual commitments, which totaled $2,061.7 million at March 31, 2022.