Business Context and Reporting Period
Company: Manpower Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2009
Business Overview: Manpower is a global leader in employment services, operating approximately 4,000 offices in 82 countries. The company provides staffing, workforce management, and career transition services. The reporting period reflects significant headwinds from the global economic downturn, resulting in reduced demand for staffing services, though counter-cyclical growth was observed in the Right Management (career transition) segment.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended Sep 30, 2009 | 9 Months Ended Sep 30, 2009 |
|---|---|---|
| Revenues from Services | $4,192.1 | $11,635.8 |
| Gross Profit | $706.6 | $2,071.8 |
| Gross Profit Margin | 16.9% | 17.8% |
| Operating Profit (Loss) | $(19.0) | $8.6 |
| Net Earnings (Loss) | $(50.4) | $(28.8) |
| Diluted EPS | $(0.64) | $(0.37) |
| Cash from Operating Activities | N/A | $411.9 |
| Cash and Cash Equivalents (End of Period) | $1,200.6 | $1,200.6 |
| Total Debt (Short-term + Long-term) | $908.9 | $908.9 |
Material Changes vs. Prior Comparable Period
- Revenue Decline: Revenues decreased 26.0% year-over-year for the quarter and 31.4% for the nine months. On a constant currency basis, the declines were 21.5% and 23.4%, respectively. This was driven by decreased demand in staffing markets across the Americas, France, EMEA, and Asia Pacific.
- Profitability Impact: Operating profit turned negative for the quarter ($(19.0) million) compared to $21.0 million in the prior year. For the nine months, operating profit dropped 97.6% to $8.6 million from $360.3 million.
- Impairment Charges: The company recorded a non-cash goodwill impairment charge of $61.0 million related to the Jefferson Wells reporting unit in Q3 2009. This compares to a $163.1 million charge related to Right Management in Q3 2008.
- Cost Reductions: Selling and administrative expenses decreased 27.9% for the quarter and 26.0% for the nine months, reflecting cost control measures including a 20% reduction in full-time equivalent employees and the closure of 456 branches since late 2008.
- Segment Performance: While staffing segments declined, Right Management revenues increased 29.2% on a constant currency basis for the quarter due to counter-cyclical demand for outplacement services.
Guidance, Outlook, and Risks
- Outlook: Management expects businesses to return to growth when underlying economies improve but states it is not possible to predict when revenue and earnings will return to prior levels. They anticipate stabilization in some markets but warn that further economic deterioration could necessitate additional cost reductions.
- Liquidity and Debt: Cash and cash equivalents increased to $1,200.6 million, driven by improved working capital management (reduced accounts receivable). On October 16, 2009, the company amended its revolving credit facility, reducing the size from $625.0 million to $400.0 million and repaid $146.4 million in outstanding borrowings. The company remains in compliance with debt covenants (Debt-to-EBITDA of 2.83 to 1).
- Legal Contingencies: The company paid a €42.0 million ($55.6 million) fine in April 2009 related to a French competition investigation and has appealed the decision. Management believes the resolution of ongoing tax audits will not have a material impact on earnings.
- Reorganization: $20.8 million in reorganization charges were recorded in the first nine months of 2009, primarily for severance and office closures. Approximately $13.3 million of remaining reserves are expected to be paid by the end of 2010.
Key Facts for Investor Verification
- Goodwill Impairment: Verify the assumptions used in the Jefferson Wells impairment test, specifically the 1% increase in equity risk premium and the projected revenue growth rates assuming a modest economic recovery in mid-2010.
- Working Capital Trends: Monitor the sustainability of the $275.4 million decrease in working capital needs, which was driven by lower business volumes and a reduction in Days Sales Outstanding (DSO) due to a new French law requiring 60-day invoice payments.
- Debt Covenants: Confirm ongoing compliance with the amended credit facility covenants, specifically the Debt-to-EBITDA ratio (max 3.25 to 1) and Fixed Charge Coverage ratio (min 1.50 to 1).
- Segment Mix: Assess the long-term viability of the Right Management segment's growth versus the continued contraction in core staffing businesses (Americas, France, EMEA).
- Legal Exposure: Track the status of the appeal regarding the French competition fine and any potential additional penalties or settlements.