Manpower's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Manpower Inc. (MAN)

Q1 2012 Earnings Call

April 20, 2012 11:30 am ET


Jeffrey A. Joerres – Chairman, President and Chief Executive Officer

Mike Van Handel – Executive Vice President and Chief Financial Officer


Sara Gubins – Bank of America Merrill Lynch

Timothy Mchugh – William Blair & Company, L.L.C.

Andrew Steinerman – JPMorgan

Jeffrey Silber – BMO Capital Markets

Mark Marcon – Robert W. Baird & Co., Inc.

Paul Ginocchio – Deutsche Bank Securities

Thomas Allen – Morgan Stanley

Kevin McVeigh – Macquarie Research Equities

Gary Bisbee – Barclays Capital



Welcome, thank you very much for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions) Now, I’d like to turn the meeting over to Mr. Jeff Joerres. Sir, you may begin.

Jeffrey A. Joerres

Good morning and welcome to the First Quarter 2012 Conference Call. With me this morning is Mike Van Handel, our Chief Financial Officer. I’ll go through the high level results for the quarter. Mike will then spend time on the segment detail as well as the balance sheet and our outlook for the second quarter.

Before I move into the call, I’d like to have Mike read the Safe Harbor language.

Mike Van Handel

Hi, good morning, everyone. This conference call includes forward-looking statements, which are subject to risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements can be found in the company's Annual Report on Form 10-K and in the other Securities and Exchange Commission filings of the company, which information is incorporated herein by reference.

Jeffrey A. Joerres

Thanks Mike. The first quarter was much better than what we had anticipated. It was primarily driven by the higher than anticipated revenue line. Going into the quarter, we were seeing some crepitation, as we continue to, but it turned out to be much less than anticipated. We were anticipating constant currency revenue growth of zero to 2%, and we achieved 3% for the quarter.

Revenue growth in U.S. dollars was flat but also above expectation as our guidance called for a contraction between 1% and 3%. The higher than anticipated revenue was achieved across the board as the Americas, Southern Europe, Northern Europe, Asia-Pacific and Right Management, all exceeded expectations.

We expected to earn between $0.30 and $0.38 with a negative impact of $0.02 per currency. In fact, we earned $0.50 with a negative impact of $0.02 per currency. Given the choppy economic environment, our success in the first quarter attribute to the team as well as the lot of hard work that had taken place prior to the quarter. It’s also important to note, as you can see that, while our growth is below normal levels for this time of the recovery, we were able to achieve or leverage given even modest increase in revenue.

Our operating earnings increased 14% in constant currency with our earnings per share increasing 21% over the last year in constant currency. We were able to maintain a much better hold on gross margin and continued our path towards diversifying our business and differentiating ourselves within the brands under ManpowerGroup.

With that overview, I’d like to turn over to Mike to discuss the details.

Mike Van Handel

Okay, thanks Jeff. I will follow my typical format with some overall comments on the quarter followed by discussion of each of our operating segments, a review of our cash flow and balance sheet, and finally our outlook for the second quarter of 2012.

As Jeff mentioned, the first quarter was a strong start to the year. Revenue growth exceeded expectations up 3% in constant currency. Revenue benefited approximately 1% from acquisitions and about 1% due to an extra billing day compared to the prior year in some of our countries. Earnings per share of $0.50 exceeded the midpoint of our guidance by $0.16 per share, which was all driven by superior operational performance.

Our SG&A expense was in line with expectations despite the stronger revenue growth, and as a result the incremental gross profit and the additional revenue growth fell straight to the bottom line. This resulted in an operating profit margin of 1.8% which was 30 basis points better than expectations and 10 basis points better than prior year. Our reported tax rate of 51% was slightly below expectations, which was simply due to the fact that the French business tax component of our provision was not impacted by higher pretax earnings. The underlying effect of income tax rate excluding the French business tax was 38%, which was right in line with expectations.

The currency impact on the quarter was a negative $0.02 right in line with the expectations. While the year was slightly stronger than expected, the overall earnings per share impact fell in line with expectations as more euro based earnings were generated than anticipated.

Our gross profit margin came in above as expected at 16.6%. This is 30 basis points below the prior-year and primarily relates to a lower staffing gross profit margin impact of 20 basis points. Staffing gross margins are stable in most markets, but margins have been negatively impacted by slightly higher unbillable bench times and stronger growth from a few lower gross margin key accounts.

We have also experienced some price pressure in the contracting Italian and Dutch markets. Additionally, our gross margin was impacted about 10 basis points from our China acquisition last year, which will anniversary this month.

Growth in our permanent recruitment business remains positive in the quarter, up 5% over the prior-year in constant currency. We experienced strong growth in recruitment fees in the Americas and Southern Europe with modest contraction in Northern Europe and Asia-Pacific, Middle East segments. Permanent recruitment fees as a percent of overall gross profit expanded 60 basis points to 13.5%.

SG&A cost decreased from $772 million in the first quarter of last year to $754 million this year. Of this reduction, $60 million relates to the change in exchange rates between periods and $8 million related to cost savings from the reorganizational plan we put in place in the fourth quarter of last year. As we recall, we took a charge of $20.5 million in the fourth quarter, we are already exceeding the savings expected under that plan.

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