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MAN > SEC Filings for MAN > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for MANPOWER INC /WI/

Form 10-Q for MANPOWER INC /WI/


2-Nov-2012

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

See the financial measures section on pages 23 through 25 for further information on constant currency and organic constant currency.

Operating Results - Three Months Ended September 30, 2012 and 2011

In the three months ended September 30, 2012, we saw revenue continue to slow in several of our markets, which unfavorably impacted our operating leverage and profitability. The decline in revenues during the third quarter of 2012 from that seen in the prior-year period was due to the economic uncertainty in most countries and the impact of one less billing day in the third quarter of 2012 compared to 2011. We saw slowing during the quarter in our staffing/interim and our permanent recruitment business, with both showing a decline from the prior year. Our ManpowerGroup Solutions business slowed somewhat but continues to show solid growth over the prior year. At Right Management, we saw a decrease in demand for the talent management services, as clients have delayed their discretionary spending, but an increase in demand for our counter-cyclical outplacement services.

We saw stabilization of our gross profit margin with an increase for the three months ended September 30, 2012 compared to the prior-year period, mostly due to the growth in our higher-margin ManpowerGroup Solutions business and Right Management's outplacement services. We saw a deleveraging of our expenses as we did not decrease expenses as quickly as revenues declined during the current-year period. We anticipate further expense deleveraging in the fourth quarter of 2012 as revenues continue to contract and we expect to incur some reorganization charges to streamline and simplify our organization.

Client demand for workforce solutions and services is dependent on the overall strength of the labor market and secular trends toward greater workforce flexibility within each of the countries and territories in which we operate. Slowing economic growth or economic contraction typically results in decreasing demand for labor, resulting in less demand for our staffing services. This slowdown typically impacts our operating profit unfavorably as we may experience a deleveraging of our selling and administrative expense base as expenses may not change at the same pace as revenues.

The following table presents selected consolidated financial data for the three months ended September 30, 2012 as compared to 2011.

                                                                                        Constant Currency
(in millions, except per share data)         2012          2011         Variance             Variance
Revenues from services                     $ 5,172.3     $ 5,782.3          (10.5 )%           (3.8 )%
Cost of services                             4,316.1       4,831.0          (10.7 )            (3.7 )
  Gross profit                                 856.2         951.3          (10.0 )            (3.9 )
  Gross profit margin                           16.6 %        16.5 %
Selling and administrative expenses            737.6         793.3           (7.0 )            (0.9 )
  Operating profit                             118.6         158.0
  Operating profit margin                        2.3 %         2.7 %
Interest and other expenses                     10.1          11.0           (8.7 )
  Earnings before income taxes                 108.5         147.0
Provision for income taxes                      45.4          67.4
Effective income tax rate                       41.9 %        45.9 %
  Net earnings                             $    63.1     $    79.6
Net earnings per share - diluted           $    0.79     $    0.97
Weighted average shares - diluted               80.0          82.4           (2.9 )%

The year-over-year decrease in revenues from services of 10.5% (3.8% in constant currency and 4.4% on an organic constant currency basis) was attributed to:

decreased demand for services in several of our markets within Southern Europe and Northern Europe, where revenues decreased 6.0% (7.4% on an organic constant currency basis) and 3.5%, respectively, on a constant currency basis. Several of our larger markets such as France and Italy experienced revenue declines of 5.7% and 13.3%, respectively, on a constant currency basis due to the current economic environment in these countries and one less billing day in the third quarter of 2012 compared to 2011;


revenue decline in the United States of 8.2% primarily due to a decrease of our larger key account client revenues due to softening demand, stronger pricing discipline on new business opportunities, and the impact of one less billing day in the third quarter of 2012 compared to 2011;

decreased demand for talent management services at Right Management, where these revenues decreased 11.3% on a constant currency basis; and

a 6.7% decrease due to the impact of currency exchange rates; offset by

our acquisitions, primarily in Southern Europe of Proservia at the end of September 2011 and Damilo in April 2012, which combined to add 0.6% of revenue growth to our consolidated results;

revenue growth in Other Americas of 7.6% on an organic constant currency basis and growth in APME of 0.2% on a constant currency basis; and

increased demand for our outplacement services at Right Management, where these revenues increased 18.1% on a constant currency basis.

The year-over-year 10 basis point (0.10%) increase in gross profit margin was primarily attributed to:

a 20 basis point (0.20%) favorable impact from strong growth and improved margins in our higher-margin ManpowerGroup Solutions business and Right Management's outplacement services; and

a 10 basis point (0.10%) increase due to the impact of currency exchange rates; offset by

a 20 basis point (0.20%) decline from our staffing/interim business because of pricing pressures and business mix changes in our revenues as our lower-margin business grew faster than our higher-margin business.

The 7.0% decline (0.9% in constant currency or 1.8% in organic constant currency) in selling and administrative expenses for the current quarter was attributed to:

a decrease in our organic salary-related costs, due to lower head count and variable incentive-based costs;

a 6.1% decrease due to the impact of currency exchange rates; offset by

the additional recurring selling and administrative costs as a result of the acquisitions in Southern Europe and the Americas.

Selling and administrative expenses as a percent of revenues increased 60 basis points (0.60%) during the three months ended September 30, 2012 compared to 2011 due primarily to expense deleveraging (on a constant currency basis), as our 1.8% decrease in expenses in organic constant currency did not match the 4.4% organic constant currency revenue decline.

Interest and other expenses were $10.1 million for the three months ended September 30, 2012 compared to $11.0 million in 2011. Net Interest Expense decreased $0.4 million to $8.8 million in the three months ended September 30, 2012 from $9.2 million in 2011. Translation losses in the three months ended September 30, 2012 were $0.3 million compared to $1.7 million in the three months ended September 30, 2011. Miscellaneous expenses increased $0.9 million to $1.0 million in the three months ended September 30, 2012 from $0.1 million in 2011.

We recorded an income tax expense at an effective rate of 41.9% for the three months ended September 30, 2012, as compared to an effective rate of 45.9% for the three months ended September 30, 2011. The 2012 tax rate is lower than the 2011 rate due to the impact of tax benefits resulting from restructuring of operations. The 41.9% effective tax rate was higher than the U.S. Federal statutory rate of 35% and we currently expect the annual effective tax rate to be in the mid-forty percent range, due primarily to the impact of the mix of U.S. and non-U.S. earnings, valuation allowances, other permanent items and the French business tax. Excluding the impact of the French business tax, our tax rate for the three months ended September 30, 2012 and 2011 would have been approximately 30% and 36%, respectively. The 2012 tax rate, excluding the French business tax, is lower than the 2011 rate due to the impact of the tax benefits resulting from restructuring of operations.

Net earnings per share - diluted decreased to $0.79 in the three months ended September 30, 2012 compared to $0.97 in the three months ended September 30, 2011. Exchange rates had a negative impact of $0.06 on net earnings per share - diluted. Weighted average shares - diluted were 80.0 million for the three months ended September 30, 2012 as compared to 82.4 million in the three months ended September 30, 2011. This decrease was primarily a result of the repurchase of 2.9 million shares subsequent to September 30, 2011.


Operating Results - Nine Months Ended September 30, 2012 and 2011

The following table presents selected consolidated financial data for the nine
months ended September 30, 2012 as compared to 2011.

                                                                                            Constant
                                                                                            Currency
(in millions, except per share data)          2012           2011         Variance          Variance
Revenues from services                     $ 15,475.4     $ 16,522.0           (6.3 )%           (0.7 )%
Cost of services                             12,910.1       13,750.9           (6.1 )            (0.3 )
  Gross profit                                2,565.3        2,771.1           (7.4 )            (2.4 )
  Gross profit margin                            16.6 %         16.8 %
Selling and administrative expenses           2,258.5        2,376.7           (5.0 )            (0.1 )
  Operating profit                              306.8          394.4
  Operating profit margin                         2.0 %          2.4 %
Interest and other expenses                      33.2           33.9           (2.2 )
  Earnings before income taxes                  273.6          360.5
Provision for income taxes                      129.3          172.5
Effective income tax rate                        47.3 %         47.9 %
  Net earnings                             $    144.3     $    188.0
Net earnings per share - diluted           $     1.79     $     2.26
Weighted average shares - diluted                80.6           83.3           (3.2 )%

The year-over-year decrease in Revenues from services of 6.3% (0.7% in constant currency and 1.5% on an organic constant currency basis) was attributed to:

decreased demand for services in several of our markets within Southern Europe and Northern Europe, where revenues decreased 11.7% (2.9% in constant currency and 4.2% on an organic constant currency basis) and 7.2% (0.8% on a constant currency basis), respectively. Several of our larger markets such as France and Italy experienced revenue declines of 3.0% (4.8% on an organic constant currency basis) and 9.0%, respectively, on a constant currency basis due to the current economic environment in these countries;

revenue decline in the United States of 4.7% primarily due to a decrease of our larger key account client revenues due to softening demand as well as stronger pricing discipline on new business opportunities;

decreased demand for talent management services at Right Management, where these revenues decreased 11.9% on a constant currency basis;

a 5.6% decrease due to the impact of currency exchange rates; offset by

our acquisitions of three entities in APME during April 2011, two acquisitions in Southern Europe at the end of September 2011 and in April 2012, and one acquisition in the Americas during April 2012, which combined to add 0.8% of revenue growth to our consolidated results;

Other Americas and APME experienced revenue growth of 11.7% and 1.6%, respectively, on an organic constant currency basis; and

increased demand for our outplacement services at Right Management, where these revenues increased 10.9% on a constant currency basis.


The year-over-year 20 basis point (0.20%) decrease in gross profit margin was primarily attributed to:

a 40 basis point (0.40%) decline from our staffing/interim business primarily related to pricing pressures in the U.S. and most of our European markets; offset by

a 10 basis point (0.10%) favorable impact from strong growth and improved margins in Right Management's higher-margin outplacement services; and

a 10 basis point (0.10%) increase due to the impact of currency exchange rates.

The 5.0% decline in selling and administrative expenses for the nine months ended September 30, 2012 (0.1% in constant currency or 0.9% in organic constant currency) was attributed to:

a decrease in our organic salary-related costs, due to lower head count and variable incentive-based costs;

a 4.9% decrease due to the impact of currency exchange rates; offset by

reorganization costs of $18.7 million, comprised of $10.4 million at Right Management and $8.3 million in the Americas;

legal costs of $10.0 million in the U.S., primarily related to the entry into a settlement agreement in connection with a lawsuit involving allegations regarding the Company's vacation pay practices in Illinois; and

the additional recurring selling and administrative costs as a result of the acquisitions in Southern Europe, APME and the Americas.

Selling and administrative expenses as a percent of revenues increased 20 basis points (0.20%) during the nine months ended September 30, 2012 compared to 2011 due primarily to the reorganization costs (0.10%) and legal costs (0.10%) noted above.

Interest and other expenses were $33.2 million for the nine months ended September 30, 2012 compared to $33.9 million in 2011. Net interest expense decreased $1.1 million to $26.4 million in the nine months ended September 30, 2012 from $27.5 million in 2011. Translation losses in the nine months ended September 30, 2012 were $0.6 million, compared to $2.0 million in the nine months ended September 30, 2011. Miscellaneous expenses increased $1.8 million to $6.2 million in the nine months ended September 30, 2012 from $4.4 million in 2011.

We recorded an income tax expense at an effective rate of 47.3% for the nine months ended September 30, 2012, as compared to an effective rate of 47.9% for the nine months ended September 30, 2011. The 2012 tax rate is lower than the 2011 rate due to the impact of tax benefits resulting from restructuring of operations. The 47.3% effective tax rate was higher than the U.S. Federal statutory rate of 35% and we currently expect the annual effective tax rate to be in the mid-forty percent range, due primarily to the impact of the mix of U.S. and non-U.S. earnings, valuation allowances, other permanent items, discrete items, which relate to reorganization costs described further in Note 5 to the Consolidated Financial Statements, and the French business tax. Excluding the impact of the discrete items and the French business tax, our tax rate for the nine months ended September 30, 2012 and 2011 would have been approximately 34% and 37%, respectively. The 2012 tax rate, excluding the discrete items and French business tax, is lower than the 2011 rate due to the impact of the tax benefits resulting from restructuring of operations.

Net earnings per share - diluted decreased to $1.79 in the nine months ended September 30, 2012 compared to $2.26 in the nine months ended September 30, 2011. Exchange rates had a negative impact of $0.14 on net earnings per share - diluted. Weighted average shares - diluted were 80.6 million for the nine months ended September 30, 2012 as compared to 83.3 million in the nine months ended September 30, 2011. This decrease was primarily a result of the repurchase of 2.9 million shares subsequent to September 30, 2011.


Segment Operating Results

Americas

In the Americas, revenues from services decreased 5.0% (3.1% in constant currency and 3.2% in organic constant currency) for the third quarter of 2012 compared to 2011. In the United States (which represents 66% of the Americas' revenues), revenues from services declined 8.2% in the third quarter of 2012 compared to 2011. The revenue decline in the United States was attributable to the staffing/interim services within the Manpower and Experis business lines as the demand from our larger strategic accounts softened, we maintained stronger pricing discipline on new business opportunities, and there was one less billing day in the third quarter of 2012 compared to 2011. These declines were partially offset by an increase in overall United States permanent recruitment revenues of 6.5% in the third quarter of 2012 compared to 2011. In Other Americas, revenues from services improved 1.9% (8.1% in constant currency and 7.6% in organic constant currency) in the third quarter of 2012 compared to 2011, led by revenue growth in Canada, Mexico and Argentina of 22.9%, 8.6% and 2.8%, respectively, in constant currency (18.5% growth in Canada on an organic constant currency basis).

In the Americas, revenues from services decreased 1.5% (0.7% increase in constant currency and 0.6% increase in organic constant currency) in the first nine months of 2012 compared to 2011. In the United States, revenues from services declined 4.7% in the first nine months of 2012 compared to 2011. The revenue decline in the United States was attributable to staffing/interim services within the Manpower and Experis business lines as the demand from our larger strategic accounts softened in the first nine months of 2012 compared to 2011, and we maintained stronger pricing discipline on new business opportunities. These declines were partially offset by an increase in overall United States permanent recruitment revenues of 21.4% in the first nine months of 2012 compared to 2011. In Other Americas, revenues from services improved 5.1% (12.0% in constant currency and 11.7% in organic constant currency) in the first nine months of 2012 compared to 2011, led by revenue growth in Canada, Argentina and Mexico of 17.6%, 13.1% and 12.7%, respectively, in constant currency (15.2% growth in Canada on an organic constant currency basis).

Gross profit margin increased during the third quarter of 2012 compared to 2011 as the increase in our permanent recruitment business was offset by the decrease from pricing pressures in our interim services within our Experis business line. Gross profit margin increased slightly during the first nine months of 2012 compared to 2011 as the increase in our permanent recruitment business was partially offset by the pricing pressures, an increase in unbillable time and change in a client's rebates within our Experis business line.

Selling and administrative expenses increased during the third quarter of 2012 compared to 2011 due to an increase in bad debt expense in Other Americas as a result of some accounts receivable that we do not believe will be collected, along with the increase in salary-related costs due to the increase in headcount to support the strong growth in Canada, Brazil, and Mexico. Partially offsetting these increases was a decrease in variable incentive-based compensation and lower office lease costs in the United States. Selling and administrative expenses as a percent of revenues increased in the third quarter of 2012 compared to 2011 mostly due to the reasons noted above.

Selling and administrative expenses increased during the first nine months 2012 compared to 2011 due mostly to $8.3 million of reorganization costs and $10.0 million of legal costs incurred in the second quarter of 2012 as well as an increase in bad debt expense in Other Americas as a result of some accounts receivable that we do not believe will be collected. The increase was also due to additional headcount in Mexico, Canada and Brazil to meet the increased demand in those countries. Argentina also experienced an increase in selling and administrative expenses during the first nine months of 2012 due to their high inflation. Partially offsetting these increases was a decrease in the United States, excluding the reorganization and legal costs, due primarily to a decrease in variable incentive-based compensation and lower office lease costs. Selling and administrative expenses as a percent of revenues increased in the first nine months of 2012 compared to 2011 mostly due to the reorganization costs, legal costs, and an increase in bad debt expense in Other Americas noted above.

Operating unit profit ("OUP") margin in the Americas was 3.1% for the third quarter of 2012 compared to 3.5% for 2011. In the United States, OUP margin was 3.2% for the third quarter of 2012 compared to 3.9% for 2011. The margin decrease in the United States was due to expense deleveraging as we did not decrease expenses as quickly as revenues declined. Other Americas' OUP margin was 2.8% for both the third quarter of 2012 and 2011.

OUP margin in the Americas was 2.2% for the first nine months of 2012 compared to 3.0% for 2011. In the United States, OUP margin was 1.7% for the first nine months of 2012 compared to 2.9% for 2011. The margin decrease in the United States was due to the reorganization and legal costs noted above, as well as expense deleveraging as we did not decrease expenses as quickly as revenues declined. Other Americas' OUP margin was 3.1% for the first nine months of 2012 compared to 3.2% for 2011.


Southern Europe

In Southern Europe, which includes operations in France and Italy, revenues from services decreased 16.8% (6.0% in constant currency and 7.4% in organic constant currency) during the third quarter of 2012 compared to 2011 due primarily to softening demand in France and Italy in the staffing/interim business, a 19.1% decline in constant currency in our permanent recruitment business, mostly driven by France, and one less billing day in the third quarter of 2012 compared to 2011. In France and Italy (which represent 75% and 14%, respectively, of Southern Europe's revenues), revenues from services declined 16.7% (5.7% in constant currency and 7.6% in organic constant currency) and 23.1% (13.3% in constant currency), respectively, during the third quarter of 2012 compared to 2011. In Other Southern Europe, revenues from Services decreased 8.5% (an increase of 2.8% in constant currency) during the third quarter of 2012 compared to 2011 mostly driven by the 12% revenue decrease in Spain due to the weak economic conditions in that market.

In Southern Europe, revenues from services decreased 11.7% (2.9% in constant currency and 4.2% in organic constant currency) during the first nine months of 2012 compared to 2011 due primarily to a softening demand in France and Italy in the staffing/interim business as well as a 11.3% decline in constant currency in our permanent recruitment business, mostly driven by France. In France and Italy, revenues from services declined 11.9% (3.0% in constant currency and 4.8% in organic constant currency) and 17.1% (9.0% in constant currency), respectively, during the first nine months of 2012 compared to 2011. In Other Southern Europe, revenues from Services decreased 1.0% (an increase of 8.5% in constant currency) during the first nine months of 2012 compared to 2011.

Gross profit margin increased in the third quarter of 2012 compared to 2011 mostly from the improvement in France in our staffing/interim business due to pricing discipline and pricing initiatives implemented in the past few quarters, and the increase from the Proservia and Damilo acquisitions, offset by the pricing pressures in Italy that unfavorably impacted staffing/interim gross margins.

Gross profit margin decreased in the first nine months of 2012 compared to 2011 due to an increase in profit-sharing expenses in France, a decrease in our permanent recruitment business, including the further wind down of the Pole Emploi contract in France, and pricing pressures in Italy that unfavorably impacted staffing/interim gross margins.

Selling and administrative expenses increased in both the third quarter and the first nine months of 2012 compared to 2011 due to the additional costs from the Proservia and Damilo acquisitions, offset by the decrease in organic salary-related costs due to lower headcount. On an organic basis, expenses as a percentage of revenue increased compared to prior-year periods due to expense deleveraging, as we did not decrease selling and administrative expenses to the extent of the decrease in revenues.

OUP margin in Southern Europe was 1.6% for the third quarter of 2012 compared to 2.3% for 2011. In France, the OUP margin was 1.3% for the third quarter of 2012 compared to 1.7% for 2011, as the improvement in our gross profit margin did not fully compensate for the revenue decline and the increase in selling and administrative expenses. In Italy, the OUP margin was 3.8% for the third quarter of 2012 compared to 5.9% for 2011, due to the decrease in gross profit margin and deleveraging of expenses, as Italy did not decrease expenses at the rate of the decline in revenues. Other Southern Europe's OUP margin declined to 1.2% for the third quarter of 2012 from 1.5% in 2011 due to the decrease of the gross profit margin.

OUP margin in Southern Europe was 1.5% for the first nine months of 2012 compared to 2.0% for 2011. In France, the OUP margin was 0.9% for the first nine months of 2012 compared to 1.4% for 2011, as the slight increase in the gross profit margin did not fully compensate for the revenue decline and the increase in selling and administrative expenses. In Italy, the OUP margin was 4.6% for the first nine months of 2012 compared to 5.7% for 2011, due to the decrease in gross profit margin and deleveraging of expenses, as Italy did not decrease expenses at the rate of the decline in revenues. Offsetting these declines, Other Southern Europe improved its OUP margin to 1.5% for the first nine months of 2012 from 1.4% in 2011. The slight improvement in Other Southern Europe was mostly a result of controlling expenses as selling and administrative expenses increased less than the 8.5% revenue increase in constant currency.


Northern Europe

In Northern Europe, which includes operations in the United Kingdom, the Nordics, Germany and the Netherlands, revenues from services decreased 10.6% (3.5% in constant currency) during the third quarter of 2012 as compared to 2011. This decline in revenues was primarily attributable to declines in our Experis business line, which saw a continued softening demand in both our staffing/interim and permanent recruitment businesses, a decrease in our ManpowerGroup Solutions business, and one less billing day in the third quarter of 2012 compared to 2011.

In Northern Europe, revenues from services decreased 7.2% (0.8% in constant currency) during the first nine months of 2012 compared to 2011. The decrease in revenues was primarily attributable to declines in our Experis business line, which saw softening demand in both our staffing/interim and permanent recruitment businesses, and to a decline in our ManpowerGroup Solutions business. This decline was partially offset by growth in our Manpower business line, primarily in the United Kingdom, where we have seen steady growth through the year, including one large client that increased revenues significantly in the first quarter of 2012 as a result of a ramp up in demand starting in the second quarter of 2011.

Gross profit margin decreased for both the third quarter and the first nine months of 2012 compared to 2011 due to the business mix changes in our revenues, . . .

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