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MAN > SEC Filings for MAN > Form 10-Q on 30-Apr-2014All Recent SEC Filings

Show all filings for MANPOWERGROUP INC.

Form 10-Q for MANPOWERGROUP INC.


30-Apr-2014

Quarterly Report


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

See the financial measures section on pages 18 and 19 for further information on constant currency and organic constant currency.

Operating Results - Three Months Ended March 31, 2014 and 2013

In the three months ended March 31, 2014, we experienced revenue growth in several of our markets as the global economy continued to stabilize. The improving economic conditions are seen in our consolidated revenue growth as we have maintained a steady trend of improvement each quarter over the past year, going from a 3% revenue decline in the second quarter of 2013 to a 3% increase in the first quarter of 2014. We have seen this improving trend in many of our markets in the Americas and Europe, however, our APME segment continues to experience revenue declines due to the soft demand for our staffing/interim services. Our staffing/interim business increased in our other segments, along with a 9% constant currency increase in our permanent recruitment business and solid growth in all our ManpowerGroup Solutions offerings. At Right Management, we continued to experience revenue declines as the demand for our outplacement services decreased due to the improving economic conditions in several of our markets and the counter-cyclical nature of these services.

Our gross profit margin in the first quarter of 2014 compared to 2013 increased slightly as the improvement in our staffing/interim gross profit margin and the increase in our permanent recruitment business was partially offset by decreased margins in our other offerings. Our staffing/interim gross profit margin improvement in the first quarter of 2014 compared to 2013 was aided by payroll tax credits related to the Credit d'Impôt pour la Compétitivité et l'Emploi ("CICE") in France, partially offset by margin declines in certain European and APME countries and territories due to continued pricing pressures. The CICE law provides credits based on a percentage of wages paid to employees receiving less than two-and-a-half times the French minimum wage, which we account for as a reduction of our cost of services in the period earned. The payroll tax credit increased to 6% of eligible wages in 2014 from 4% of eligible wages in 2013.

We recorded $34.8 million of restructuring charges in the first quarter of 2013 as a result of the simplification and cost recalibration plan that began in the fourth quarter of 2012. Excluding these restructuring charges, selling and administrative expenses decreased 1.4% in constant currency in the first quarter of 2014 compared to 2013 as we are seeing the benefits of the simplification and cost recalibration actions.

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. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. During these periods of increasing demand, we are able to improve our profitability and operating leverage as our current cost base can support some increase in business without a similar increase in selling and administrative expenses. In the first quarter of 2014, we improved our operating leverage as we utilized a lower cost base to support our revenue growth. This leverage was possible due to the efficiency benefits realized as part of our simplification and recalibration actions.

The following table presents selected consolidated financial data for the three months ended March 31, 2014 as compared to 2013.

                                                                                       Constant Currency
(in millions except per share data)          2014          2013         Variance            Variance
Revenues from services                     $ 4,904.0     $ 4,768.9            2.8 %            3.0 %

Cost of services                             4,087.5       3,978.8            2.7              2.9
 Gross profit                                  816.5         790.1            3.3              3.6
       Gross profit margin                      16.7 %        16.6 %

Selling and administrative expenses            689.6         735.7           (6.3 )           (6.1 )
 Operating profit                              126.9          54.4          133.4            134.6
       Operating profit margin                   2.6 %         1.1 %

Interest and other expenses                      9.2          11.5          (19.7 )
 Earnings before income taxes                  117.7          42.9          174.3            175.5

Provision for income taxes                      47.6          19.0          150.6
Effective income tax rate                       40.4 %        44.3 %
 Net earnings                              $    70.1     $    23.9          193.2            196.5
Net earnings per share - diluted           $    0.86     $    0.31          177.4            180.6
Weighted average shares - diluted               81.2          78.2            3.8 %


The year-over-year increase in revenues from services of 2.8% (3.0% in constant currency and 2.4% on an organic constant currency basis) was attributed to:

· increased demand for services in several of our markets within Southern Europe and Northern Europe, where revenues increased 7.9% (3.8% in constant currency and 3.4% in organic constant currency) and 6.8% (4.6% in constant currency and 3.3% in organic constant currency), respectively;

· revenue increases in our larger markets of France and Italy of 6.3% (2.3% in constant currency) and 6.5% (2.5% in constant currency and 2.1% in organic constant currency), respectively, as we continue to experience stabilization in these markets;

· revenue increase in the United States of 2.1% primarily driven by growth in the small/medium-sized business and in our national accounts within our Manpower business, as well as solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business; and

· the favorable impact of approximately 1.1% from one additional billing day in the period; partially offset by

· revenue decrease in APME of 9.3% (-1.1% in constant currency and -1.4% in organic constant currency) primarily due to a decrease in our staffing/interim business as a result of continued soft demand and legislative changes in China that restricted the use of temporary employment; and

· decreased demand for outplacement services at Right Management, where these revenues decreased 4.7% (-4.4% in constant currency).

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 the improvement in our staffing margin as increases in the Americas and Southern Europe, due mostly to the benefit of the CICE payroll tax credit, were offset by decreases in Northern Europe and APME;

· a 10 basis point (0.10%) favorable impact resulting from a 9.0% constant currency increase in our permanent recruitment business; partially offset by

· a 10 basis point (-0.10%) decline from our ManpowerGroup Solutions business, primarily a result of costs related to a contract termination.

The 6.3% decline in selling and administrative expenses in the first quarter of 2014 (-6.1% in constant currency and -6.8% in organic constant currency) was attributed to:

· restructuring costs for the three months ended March 31, 2013 of $34.8 million, comprised of $5.9 million in the Americas, $1.2 million in Southern Europe, $17.1 million in Northern Europe, $2.4 million in APME, $3.8 million at Right Management and $4.4 million in corporate expenses;

· a 9.1% decrease in lease costs because we closed over 200 offices since the first quarter of 2013 as a result of office consolidations and delivery model changes;

· a decrease in our organic salary-related costs, because of lower headcount; and

· a decrease in non-personnel related costs, excluding lease costs noted above, as a result of the simplification and cost recalibration actions taken; partially offset by

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

Selling and administrative expenses as a percent of revenues decreased 130 basis points (-1.30%) in the first quarter of 2014 compared to 2013. The change in selling and administrative expense as a percent of revenues consists of:

· a 70 basis point (-0.70%) favorable impact due to the restructuring costs of $34.8 million in the first quarter of 2013;

· a 50 basis point (-0.50%) favorable impact due to the decrease in our organic salary-related costs and lease costs; and

· a 10 basis point (-0.10%) favorable impact due to the decrease of non-personnel related costs, excluding lease costs noted above, as a result of the simplification and cost recalibration actions taken.


Interest and other expenses are comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses. Interest and other expenses were $9.2 million in the first quarter of 2014 compared to $11.5 million in the first quarter of 2013. Net interest expense decreased $2.1 million in the first quarter of 2014 to $7.7 million from $9.8 million in the first quarter of 2013 due to lower debt levels as we repaid our €200.0 million Notes in June 2013 with cash. Other expenses were $1.5 million in the first quarter of 2014 compared to $1.7 million in the first quarter of 2013.

We recorded an income tax expense at an effective rate of 40.4% for the three months ended March 31, 2014, as compared to an effective rate of 44.3% for the three months ended March 31, 2013. The 2014 rate was favorably impacted by a change in the overall mix of earnings, primarily an increase to non-U.S. income. The 40.4% effective tax rate in the quarter was higher than the United States Federal statutory rate of 35%, and we currently expect an annual effective tax rate of approximately 36% to 38%, due primarily to the French business tax, repatriations, valuation allowances and other permanent items.

Net earnings per share - diluted was $0.86 for the three months ended March 31, 2014 compared to $0.31 for the three months ended March 31, 2013. Foreign currency exchange rates unfavorably impacted net earnings per share - diluted by approximately $0.01 per share for the three months ended March 31, 2014.

Weighted average shares - diluted increased 3.8% to 81.2 million for the three months ended March 31, 2014 from 78.2 million for the three months ended March 31, 2013. This increase is the result of the dilutive effect of share-based awards due to the exercises since the first quarter of 2013 and the increase in our share price, partially offset by the impact of share repurchases completed in the first quarter of 2014.

Segment Operating Results

Americas

In the Americas, revenues from services decreased 2.0% (2.6% increase in constant currency) in the first quarter of 2014 compared to 2013. In the United States, revenues from services increased 2.1% in the first quarter of 2014 compared to 2013. The revenue increase in the United States was attributable to growth in the small/medium-sized business and in our national accounts within our Manpower business, solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business, and approximately one additional billing day in the quarter. These increases were partially offset by severe weather conditions in certain areas of the United States that negatively impacted demand for our services in the first quarter of 2014. In Other Americas, revenues from services declined 9.4% (3.6% increase in constant currency) in the first quarter of 2014 compared to 2013, with revenue declines in Canada, Mexico, and Argentina of 8.5%, 4.3% and 26.0%, respectively (increases of 0.1%, 0.3% and 11.9%, respectively, in constant currency), due to the unfavorable impact of currency. Gross profit margin decreased in the first quarter of 2014 compared to 2013 due to the unfavorable impact from a decline in our Manpower staffing gross profit margin resulting from pricing pressures in our small/medium-sized business in the United States, partially offset by a 25% increase in our ManpowerGroup Solutions business, driven by solid growth in our MSP and RPO offerings, and improved Experis interim margins resulting from strong price discipline in selectively accepting new business opportunities.

In the first quarter of 2014, selling and administrative expenses decreased 8.0% (-5.0% in constant currency) due to the $5.9 million of restructuring costs in the first quarter of 2013 and the declines in salary-related costs and lease costs as a result of the simplification and cost recalibration actions taken in 2013.

Operating Unit Profit ("OUP") margin in the Americas was 2.4% and 1.5% for the first quarter of 2014 and 2013, respectively. In the United States, OUP margin was 1.9% in the first quarter of 2014 compared to 1.0% in 2013. The margin increase in the first quarter of 2014 in the United States was due to better operational leverage, as we were able to support an increase in revenues while expenses declined due to the restructuring costs in the prior year and declines in salary-related and lease costs as a result of the simplification and cost recalibration actions taken in 2013. Other Americas OUP margin was 3.6% in the first quarter of 2014 compared to 2.3% in the first quarter of 2013. The increase in the Other Americas OUP margin was due to declines in restructuring costs and in salary-related and lease costs as a result of the simplification and cost recalibration actions taken in 2013.

Southern Europe

In Southern Europe, which includes operations in France and Italy, revenues from services increased 7.9% (3.8% in constant currency and 3.4% in organic constant currency) in the first quarter of 2014 compared to 2013. In the first quarter of 2014 compared to 2013, revenues from services increased 2.3% in constant currency in France (which represents 71% of Southern Europe's revenues) and increased 2.1% in organic constant currency in Italy (which represents 16% of Southern Europe's revenues). The increase in France is due primarily to the continued stabilization of the French economic market. The increase in Italy is mostly due to the improvement in demand for our Manpower staffing services as clients opted for more flexible labor solutions during the current economic conditions and a 28.6% constant currency increase in the permanent recruitment business, partially offset by one fewer billing day in the first quarter. In Other Southern Europe, revenues from services increased 18.9% (14.7% in constant currency and 11.6% in organic constant currency) during the first quarter of 2014 compared to 2013 driven by the revenue increase in Spain due to improving economic conditions and clients acquired from a local competitor in July 2013.


Gross profit margin increased in the first quarter of 2014 compared to 2013 due primarily to the enhanced CICE payroll tax credits in France, which was partially offset by the continued pricing pressures in France and Italy that unfavorably impacted staffing/interim gross margins.

Selling and administrative expenses increased 3.5% (-0.3% decrease in constant currency and -0.5% in organic constant currency) during the first quarter of 2014 compared to 2013 primarily related to simplification and cost recalibration actions taken in 2013, offset by an increase in organic salary-related costs.

OUP margin in Southern Europe was 4.0% for the first quarter of 2014 compared to 2.7% for 2013. In France, the OUP margin was 4.2% for the first quarter of 2014 compared to 2.6% for 2013, due to the improvement in our gross profit margin as a result of the enhanced CICE payroll tax credits and improved operational leverage as we were able to support the higher revenue level with lower expenses. In Italy, the OUP margin was 4.6% for the first quarter of 2014 compared to 4.5% for 2013, as we were able to effectively manage selling and administrative expenses while revenues increased, partially offset by the decrease in our gross profit margin. Other Southern Europe's OUP margin increased to 2.0% for the first quarter of 2014 from 1.2% in 2013 as we were able to effectively manage selling and administrative expenses while revenues increased.

Northern Europe

In Northern Europe, which includes operations in the United Kingdom, the Nordics, Germany and the Netherlands (comprising 33%, 21%, 12%, and 10%, respectively, of Northern Europe's revenues), revenues from services increased 6.8% (4.6% in constant currency and 3.3% in organic constant currency) in the first quarter of 2014 as compared to 2013. The increase in revenues from services was primarily attributable to the increase in our staffing/interim business as a result of the improving economic conditions in most European countries, a 12.0% constant currency increase in our permanent recruitment business mostly due to the United Kingdom, Germany and the Netherlands, and one additional billing day in the quarter.

Gross profit margin decreased in the first quarter of 2014 compared to 2013 due to the decline in our staffing/interim margins as a result of business mix changes in our staffing/interim revenue, as growth came from our lower-margin countries, general pricing pressures in several markets and client contract termination costs recorded in the quarter, partially offset by an increase in our permanent recruitment business.

Selling and administrative expenses decreased 8.8% (-10.6% decrease in constant currency and -12.3% in organic constant currency) in the first quarter of 2014 compared to 2013. The decrease in selling and administrative expenses was due primarily to the $17.1 million of restructuring costs in the first quarter of 2013 and a decrease in lease costs as a result of the simplification and cost recalibration actions taken.

OUP margin for Northern Europe was 2.6% and 0.8% for the first quarter of 2014 and 2013, respectively. The increase in OUP margin was the result of better operational leverage, as we were able to support the higher revenue levels with lower expenses.

APME

In APME, revenues from services decreased 9.3% (-1.1% in constant currency and -1.4% in organic constant currency) in the first quarter of 2014 compared to 2013. In Japan (which represents 37% of APME's revenues), revenues from services decreased 2.3% in constant currency due to continued soft demand for our staffing/interim services, partially offset by increases of 23.9% and 8.7% in constant currency in the permanent recruitment and ManpowerGroup Solutions businesses, respectively. In Australia (which represents 23% of APME's revenues), revenues from services were down 14.7% (-1.3% in constant currency and -2.4% in organic constant currency) for the first quarter of 2014 compared to 2013 due to the decreased demand for interim services in our Experis business, partially offset by an increase in the permanent recruitment business and one additional billing day in the quarter. The remaining revenue decrease in APME is due to the staffing/interim revenue decline in China as a result of legislative changes that restricted the use of temporary employment.

Gross profit margin increased in the first quarter of 2014 compared to 2013 due to the 12.1% constant currency increase in our permanent recruitment business, partially offset by the decrease in our staffing/interim gross profit margin due to modest pricing pressures.

Selling and administrative expenses decreased 14.7% (-6.6% in constant currency and -7.3% in organic constant currency) in the first quarter of 2014 compared to 2013 related to reduced organic compensation-related expenses due to lower headcount and $2.4 million of restructuring costs in the first quarter of 2013.

OUP margin for APME was 3.5% in the first quarter of 2014 compared to 2.3% in 2013. OUP margin increased for the first quarter of 2014 compared to 2013 due to the increase in our gross profit margin as well as the decrease in salary-related expenses and restructuring costs.


Right Management

Revenues from services decreased 4.3% (-4.0% in constant currency) in the first quarter of 2014 compared to 2013 primarily due to the 4.7% decrease in our outplacement services as we experienced softer demand due to the stabilization of economic conditions in many of our markets and counter-cyclical nature of this business. Our talent management business decreased 2.9% in the first quarter of 2014 compared to 2013.

Gross profit margin decreased in the first quarter of 2014 compared to 2013 due to margin deterioration in the outplacement business and the change in business mix as the lower-margin talent management business represented a greater percentage of the revenue mix, partially offset by the increase in the talent management business gross profit margin.

Selling and administrative expenses decreased 18.7% (-18.2% in constant currency) in the first quarter of 2014 compared to 2013 due to the cost savings from the simplification and cost recalibration plan favorably impacting expense levels, as well as the $3.8 million of restructuring costs in the first quarter of 2013.

OUP margin for Right Management was 11.3% in the first quarter of 2014 compared to 2.7% in 2013. The OUP margin for the first quarter of 2014 improved due to the decrease in selling and administrative expenses as a result of the cost savings from the simplification and cost recalibration plan and the decrease in restructuring costs, partially offset by the decline in the gross profit margin.

Financial Measures

Constant Currency and Organic Constant Currency Reconciliation

Changes in our financial results include the impact of changes in foreign currency exchange rates. We provide "constant currency" and "organic constant currency" calculations in our quarterly report to remove the impact of these items. We express year-over-year variances that were calculated in constant currency and organic constant currency as a percentage.

When we use the term "constant currency," it means that we have translated financial data for a period into United States Dollars using the same foreign currency exchange rates that we used to translate financial data for the previous period. We believe that this calculation is a useful measure, indicating the actual growth of our operations. We use constant currency results in our analysis of subsidiary or segment performance. We also use constant currency when analyzing our performance against that of our competitors. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. Changes in foreign currency exchange rates primarily impact only reported earnings and not our actual cash flow or economic condition.

When we use the term "organic constant currency," it means that we have further removed the impact of acquisitions in the current period and dispositions from the prior period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth of our pre-existing business.

The constant currency and organic constant currency financial measures are used to supplement those measures that are in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate such financial results differently. These Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to measures presented in accordance with GAAP.


Reconciliation of these Non-GAAP percent variances to those calculated based on our GAAP financial results is provided below:

                                          3 Months Ended March 31, 2014 Compared to 2013
                                                                                  Impact of
                                                                   Variance     Acquisitions/    Organic
                                                                      in        Dispositions     Constant
                          Reported      Reported      Impact of    Constant     (In Constant     Currency
                          Amount(a)     Variance      Currency     Currency       Currency)      Variance
Revenues from
services:
Americas:
  United States          $     720.5          2.1 %           - %       2.1 %               - %       2.1 %
  Other Americas               350.6         (9.4 )       (13.0 )       3.6                 -         3.6
                             1,071.1         (2.0 )        (4.6 )       2.6                 -         2.6

Southern Europe:
  France                     1,217.3          6.3           4.0         2.3                 -         2.3
  Italy                        274.7          6.5           4.0         2.5               0.4         2.1
  Other Southern
Europe                         230.0         18.9           4.2        14.7               3.1        11.6
                             1,722.0          7.9           4.1         3.8               0.4         3.4

Northern Europe              1,463.9          6.8           2.2         4.6               1.3         3.3
APME                           573.7         (9.3 )        (8.2 )      (1.1 )             0.3        (1.4 )
Right Management                73.3         (4.3 )        (0.3 )      (4.0 )               -        (4.0 )
Consolidated             $   4,904.0          2.8          (0.2 )       3.0               0.6         2.4

Gross Profit             $     816.5          3.3          (0.3 )       3.6               1.0         2.6
Selling and
Administrative Expense   $     689.6         (6.3 )        (0.2 )      (6.1 )             0.7        (6.8 )
Operating Profit         $     126.9        133.4          (1.2 )     134.6               5.4       129.2

(a) In millions for the three months ended March 31, 2014.

Liquidity and Capital Resources

Cash used to fund our operations is primarily generated through operating activities and provided by our existing credit facilities. We believe that our available cash and our existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We assess and monitor our liquidity and capital resources globally. We use a global cash pooling arrangement, intercompany lending, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As of March 31, 2014, we had $510.2 million of cash held by foreign subsidiaries that was not available to fund domestic operations unless repatriated. We anticipate cash repatriations to the United States from certain foreign subsidiaries and have provided for deferred tax related to those foreign earnings not considered to be permanently invested. As of March 31, 2014, we have identified approximately $423.2 million of non-United States earnings that are not permanently invested. We may repatriate additional earnings in the future as cash needs arise.

Cash used in operating activities was $15.5 million during the first quarter of 2014 compared to $62.3 million during the first quarter of 2013. This decrease is primarily due to the higher operating earnings in 2014. Changes in operating assets and liabilities utilized $120.9 million of cash during the first quarter . . .

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