ManpowerGroup Inc. 2014 Q1 SEC Filing Summary
Business Context and Reporting Period
Unaudited Form 10-Q for the three months ended March 31, 2014, compared with the three months ended March 31, 2013. ManpowerGroup provides staffing, workforce solutions, recruitment, talent management and outplacement services through the Americas, Southern Europe, Northern Europe, APME and Right Management segments.
Financial Performance and Position
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue from services | $4,904.0 million | $4,768.9 million | 2.8% reported; 3.0% constant currency |
| Gross profit | $816.5 million | $790.1 million | 3.3% |
| Gross profit margin | 16.7% | 16.6% | Up 10 basis points |
| Selling and administrative expenses | $689.6 million | $735.7 million | Down 6.3% |
| Operating profit | $126.9 million | $54.4 million | Up 133.4% |
| Operating margin | 2.6% | 1.1% | Up 150 basis points |
| Net earnings | $70.1 million | $23.9 million | Up 193.2% |
| Diluted earnings per share | $0.86 | $0.31 | Up 177.4% |
| Effective tax rate | 40.4% | 44.3% | Down 390 basis points |
- Operating performance benefited from revenue growth, cost reductions and operating leverage following simplification and cost-recalibration actions.
- Cash used in operating activities improved to $15.5 million from $62.3 million, but operating cash flow remained negative because working-capital changes consumed cash.
- Capital expenditures were $8.3 million, and acquisitions used $9.4 million of cash.
- Cash and cash equivalents were $696.5 million at March 31, 2014, down from $737.6 million at December 31, 2013.
- Total debt consisted of $45.4 million of short-term borrowings and current maturities plus $484.3 million of long-term debt. The €350 million notes are due in June 2018.
- The $600 million revolving credit facility had $599.1 million available, subject to covenant compliance. The company reported a debt-to-EBITDA ratio of 0.34 to 1 and fixed-charge coverage of 3.54 to 1, versus covenants of no more than 3.5 to 1 and no less than 1.5 to 1, respectively.
- Total assets were $7,280.0 million and shareholders’ equity was $2,975.8 million at March 31, 2014.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected improving demand in Southern and Northern Europe, growth in the United States and one additional billing day. Reported growth was partly offset by foreign-exchange effects.
- Southern Europe revenue increased 7.9%, Northern Europe increased 6.8%, while APME declined 9.3% and Right Management declined 4.3%.
- APME weakness reflected soft staffing demand in Japan and Australia and Chinese legislative changes restricting temporary employment. Right Management was affected by lower demand for counter-cyclical outplacement services.
- Selling and administrative expenses benefited from the absence of $34.8 million of restructuring charges recorded in Q1 2013, office closures, lower lease costs and lower salary-related expenses. More than 200 offices had been closed since Q1 2013.
- Interest and other expenses decreased to $9.2 million from $11.5 million, primarily because the company repaid its €200 million notes in June 2013.
- Foreign currency translation produced a $3.3 million loss in other comprehensive income in Q1 2014, compared with a $31.0 million loss in Q1 2013. Total comprehensive income was $70.0 million versus a $17.4 million loss.
- The company repurchased approximately 0.2 million shares for $16.7 million during the quarter; 7.8 million shares remained authorized for repurchase at March 31, 2014.
Guidance, Outlook, Risks and Unusual Items
- Management described global economic conditions as stabilizing and reported a steady improvement in consolidated revenue trends. It expects an annual effective tax rate of approximately 36% to 38%.
- Management expects available cash and existing credit facilities to cover cash needs for the foreseeable future and expects compliance with debt covenants over the next 12 months.
- Cash held by foreign subsidiaries totaled $510.2 million and was not available for domestic operations unless repatriated. Approximately $423.2 million of non-U.S. earnings had not been designated as permanently invested.
- The remaining restructuring reserve was $33.6 million at March 31, 2014, with most expected to be paid during 2014.
- The French Supreme Court ruled in March 2014 that payroll-tax subsidy benefits belonged to the direct employer of temporary associates. Management therefore does not expect significant losses from related claims.
- Key operating risks include labor-market weakness, pricing pressure, foreign-currency movements, regional staffing demand, regulatory changes, tax audits, contract termination costs and the counter-cyclical decline of outplacement services.
- Gross unrecognized tax benefits, including interest and penalties, were $32.8 million; management did not expect a significant change over the next 12 months and did not expect ongoing tax audits to have a material earnings impact.
- No interim goodwill or indefinite-lived intangible-asset impairment test was performed because management identified no significant impairment indicators at March 31, 2014. Goodwill included accumulated impairment losses of $513.4 million.
- The Board declared a semi-annual dividend of $0.49 per share on April 29, 2014, payable June 16, 2014.
Important Facts for Investors to Verify
- Whether revenue momentum and operating leverage continued after the one-time benefit of an additional billing day and the comparison against prior-year restructuring charges.
- The sustainability of European growth and the effect of pricing pressure, French payroll-tax credits and contract termination costs on gross margins.
- Whether APME staffing demand and Chinese regulatory restrictions continue to weigh on results.
- Conversion of earnings into operating cash flow, particularly working-capital requirements and the increase in the CICE receivable.
- Liquidity available after considering foreign-held cash, debt maturities, guarantees, letters of credit and the scheduled 2018 maturity of the €350 million notes.
- Progress in using the remaining restructuring reserve and the extent to which cost savings are recurring rather than comparison-related.
- Potential changes in tax rates, tax audits and the recognition of the $30.9 million net unrecognized tax benefit.