ManpowerGroup Inc. — 2021 Q3 Form 10-Q Summary
Business context and reporting period
ManpowerGroup provides staffing and interim services, permanent recruitment, consulting, managed services, recruitment process outsourcing and career transition services. The filing covers the three and nine months ended September 30, 2021, with results reported across the Americas, Southern Europe, Northern Europe and Asia Pacific Middle East (APME).
Management reported continued economic recovery and stronger hiring demand, but noted slowing recovery in certain markets because of COVID-19 Delta variant concerns, labor shortages and supply-chain disruptions.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue from services | $5,140.6 million, up 12.1% | $15,342.1 million, up 18.5% |
| Gross profit | $853.0 million, up 17.6% | $2,481.2 million, up 22.5% |
| Gross profit margin | 16.6%, versus 15.8% | 16.2%, versus 15.6% |
| Operating profit | $150.5 million, versus $61.6 million | $418.8 million, versus $49.3 million |
| Operating profit margin | 2.9%, versus 1.3% | 2.7%, versus 0.4% |
| Net earnings | $97.7 million, versus $10.3 million | $271.3 million, versus a $52.4 million loss |
| Diluted earnings per share | $1.77, versus $0.18 | $4.90, versus a $0.90 loss |
| Effective tax rate | 32.9%, versus 81.5% | 33.1%, versus 407.4% |
Revenue growth in the third quarter was 11.0% on a constant-currency basis. Reported foreign exchange movements favorably affected revenue by 1.1% and diluted earnings per share by approximately $0.01. Permanent recruitment revenue increased 60.4% in the quarter, supporting the gross-margin improvement.
Nine-month cash provided by operating activities was $382.9 million, compared with $715.7 million in the prior-year period. The decline primarily reflected higher accounts receivable as business volumes recovered. Capital expenditures were $39.7 million, compared with $30.5 million.
Cash and cash equivalents were $1,612.6 million at September 30, 2021, including $722.7 million held by foreign subsidiaries. Accounts receivable were $5,091.4 million, and days sales outstanding increased to approximately 58 from 54 at December 31, 2020.
Current borrowings and current maturities of long-term debt were $482.9 million, and long-term debt was $582.6 million. The company’s €400.0 million notes, carried at $462.8 million as a net-investment-hedged instrument, mature in September 2022; its €500.0 million notes mature in June 2026. The company had $599.5 million available under its $600.0 million revolving credit facility at September 30, 2021, subject to $0.5 million of outstanding letters of credit.
The company reported a net debt-to-EBITDA ratio of negative 0.2-to-1 and a fixed-charge coverage ratio of 4.8-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
- Third-quarter revenue increased 12.1%, led by Northern Europe at 23.1%, Southern Europe at 12.8%, the Americas at 7.4% and APME at 2.6%.
- Nine-month revenue increased 18.5%, while operating profit rose to $418.8 million from $49.3 million.
- Results benefited from the absence of the $66.8 million goodwill impairment charge and other 2020 impairment charges, the reduction in restructuring costs to $5.3 million from $98.1 million, and the absence of the 2020 pension settlement and subsidiary-disposition losses.
- Third-quarter restructuring costs were $5.3 million, primarily related to Mexico operations. Acquisition transaction costs were $6.2 million.
- Gross-margin expansion reflected stronger permanent recruitment, consulting and managed-services mix and improved staffing margins, partly offset by a lower mix of higher-margin Right Management career-transition services.
- Diluted weighted-average shares declined to 55.2 million from 58.5 million in the quarter and to 55.4 million from 58.4 million for the nine months, primarily because of share repurchases.
- The company repurchased 1.5 million shares for $150.1 million during the first nine months and paid $68.3 million of dividends.
Guidance, outlook, commentary and risks
The filing does not provide a specific numerical earnings or revenue guidance range. Management expects continued recovery but cautions that the pace has slowed in several markets. Demand remains sensitive to labor-market conditions, economic cycles, COVID-19 developments, supply-chain constraints, labor shortages, labor and tax legislation, currency movements and the company’s technology investments.
New Mexican labor legislation restricting traditional temporary staffing materially reduced Mexico revenue; management expects significant revenue reductions over the next several quarters but believes the shift toward specialized staffing may improve margins over time.
In the third quarter, the company completed its annual goodwill impairment testing with no impairment recorded. The Netherlands reporting unit had only approximately 5.5% excess fair value over carrying value; its $114.2 million of goodwill could be exposed if operating targets are not met or macroeconomic conditions deteriorate. Further sustained COVID-19-related declines could also result in material impairment.
On October 1, 2021, after the reporting date, ManpowerGroup acquired ettain group for $930.9 million, funded with cash on hand and a $150.0 million revolving-credit draw. The acquisition will be included in the company’s financial statements beginning October 1, 2021. Management expects to repay the revolver draw over the following 12 months.
The company believes cash, operating cash flow and available credit facilities are sufficient for foreseeable needs and expects to remain in compliance with debt covenants for the next 12 months. Remaining restructuring reserves were $18.9 million, with the majority expected to be paid by year-end 2021. Guarantees and standby letters of credit totaled $845.9 million, although management does not expect significant payments under these arrangements.
Important facts for investors to verify
- Impact of the October 1, 2021 ettain acquisition on leverage, goodwill, intangible assets, revenue and earnings.
- Funding and refinancing plans for the €400.0 million notes maturing in September 2022.
- Whether operating cash flow improves as accounts receivable growth and days sales outstanding normalize.
- Progress in Mexico following the labor-law changes and the resulting effect on revenue and margins.
- Exposure of the Netherlands reporting unit and other goodwill balances to renewed impairment.
- Sustainability of permanent-recruitment, managed-services and consulting growth, as well as the reported gross-margin gains.
- Future effects of COVID-19 variants, labor shortages, supply-chain disruptions and foreign-currency movements.
- Execution and financing of share repurchases, dividends and the repayment of the $150.0 million acquisition-related revolver draw.