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MAN > SEC Filings for MAN > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for MANPOWERGROUP INC.

Form 10-Q for MANPOWERGROUP INC.


6-Aug-2014

Quarterly Report


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

See the financial measures section on pages 23 and 24 for further information on constant currency and organic constant currency.

Operating Results - Three Months Ended June 30, 2014 and 2013

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 as we saw in the second quarter of 2014, we are able to improve our profitability and operating leverage as our cost base can support some increase in business without a similar increase in selling and administrative expenses.

In the three months ended June 30, 2014, we experienced continued revenue growth in several of our markets as the global economy continued to stabilize. The improving economic conditions were seen in our consolidated revenue growth as we have maintained a steady trend of improvement each quarter over the past year, from a slight revenue decline of 0.3% in the third quarter of 2013 to a 3.7% increase for the second quarter of 2014 in constant currency. We saw this improving trend in many of our markets in the Americas and Europe; however, our APME segment continued to experience revenue declines. Our staffing/interim business increased in the quarter, along with a 4.3% constant currency increase in our permanent recruitment business and 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, while revenues from our talent management services increased 5.6% in constant currency.

Our gross profit margin in the second quarter of 2014 compared to 2013 increased as our staffing/interim gross profit margin improved and was partially offset by declining demand for our higher-margin Right Management outplacement services. Our staffing/interim gross profit margin improvement in the second quarter of 2014 compared to 2013 reflects strong price discipline, focused pricing initiatives, and additional payroll tax credits related to the Credit d'Impôt pour la Compétitivité et l'Emploi ("CICE") in France. 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.

Our profitability improved in the quarter, with operating profit up 46.3%, or 43.2% in constant currency, and operating profit margin up 100 basis points compared to the second quarter of 2013. Included in the second quarter of 2013 was $20.0 million of restructuring charges as a result of our simplification and cost recalibration plan that began in the fourth quarter of 2012. Excluding these charges, our operating profit was up 23.9% in constant currency and 60 basis points compared to the second quarter of 2013. Our simplification and cost recalibration plan initiatives have resulted in a lower cost basis for the company. We saw the benefit of this in the quarter, resulting in the improved operational leverage as we were able to support the higher revenue level without a similar increase in expenses.

The following table presents selected consolidated financial data for the three months ended June 30, 2014 as compared to 2013.

                                                                                       Constant Currency
(in millions, except per share data)         2014          2013         Variance           Variance
Revenues from services                     $ 5,321.7     $ 5,040.7            5.6 %             3.7 %
Cost of services                             4,424.4       4,204.3            5.2               3.3
  Gross profit                                 897.3         836.4            7.3               5.6
  Gross profit margin                           16.9 %        16.6 %
Selling and administrative expenses            709.9         708.3            0.2              (1.2 )
  Operating profit                             187.4         128.1           46.3              43.2
  Operating profit margin                        3.5 %         2.5 %
Interest and other expenses                      7.9          10.3          (24.0 )
  Earnings before income taxes                 179.5         117.8           52.5              48.7
Provision for income taxes                      69.7          49.6           40.8
Effective income tax rate                       38.8 %        42.1 %
  Net earnings                             $   109.8     $    68.2           61.0              57.4
Net earnings per share - diluted           $    1.35     $    0.87           55.2              51.7
Weighted average shares - diluted               81.4          78.6            3.5 %


The year-over-year increase in revenues from services of 5.6% (3.7% in constant currency and 3.1% 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 9.3% (4.2% in constant currency and 3.8% in organic constant currency) and 9.2% (4.6% in constant currency and 3.5% in organic constant currency), respectively. This included revenue increases in our larger markets of France and Italy of 6.9% (1.9% in constant currency) and 12.8% (7.5% in constant currency and 7.1% in organic constant currency), respectively, as we continued to experience stabilization in France and improving demand in Italy; and

· revenue increase in the United States of 3.7% primarily driven by growth in our larger national accounts and in the small/medium-sized business within our Manpower business, as well as solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business; partially offset by

· revenue decrease in APME of 4.7% (-1.8% in constant currency and -2.4% in organic constant currency) primarily due to a decrease in our staffing/interim business in Japan as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/services, and in China where legislative changes restricted the use of temporary employment; and

· decreased demand for outplacement services at Right Management, where these revenues decreased 3.8% (-5.1% in constant currency); and

· the unfavorable impact of 1.0% due to approximately one fewer billing day in the period.

The year-over-year 30 basis point (0.30%) increase in gross profit margin was primarily attributed to:

· a 40 basis point (0.40%) favorable impact from the improvement in our staffing/interim margin as increases in the Americas, Southern Europe and APME were offset by a decrease in Northern Europe. Overall, our Manpower business was up 50 basis points and Experis was up 40 basis points; partially offset by

† † a 10 basis point (-0.10%) unfavorable impact from a decreased demand in our higher-margin outplacement services at Right Management.

The 0.2% increase in selling and administrative expenses in the second quarter of 2014 (a decrease of -1.2% in constant currency and -2.2% in organic constant currency) was attributed to:

· a 4.9% increase in organic salary-related costs primarily from an increase in our variable incentive-based costs due to improved operating results;

· legal costs of $9.0 million recorded in the United States related to a settlement agreement (see the Employment-Related Items section of Management's Discussion and Analysis for additional information);

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

· a 1.0% increase due to the impact of currency exchange rates; partially offset by

· a decrease of restructuring costs from $20.0 million for the three months ended June 30, 2013, comprised of $4.4 million in the Americas, $3.3 million in Southern Europe, $9.3 million in Northern Europe, $0.4 million in APME, $2.6 million at Right Management to zero for the three months ended June 30, 2014;

· a property insurance recovery of $3.5 million recorded in corporate expenses;

· a 4.6% decrease in lease and office-related costs because we closed over 150 offices since the second quarter of 2013 as a result of office consolidations and delivery model changes; and

· a decrease in other non-personnel related costs, excluding the property insurance recovery and lease and office-related costs noted above, as a result of the simplification and cost recalibration actions taken.


Selling and administrative expenses as a percent of revenues decreased 80 basis points (-0.80%) in the second quarter of 2014 compared to 2013. The change in selling and administrative expense as a percent of revenues consisted of:

· a 60 basis point (-0.60%) favorable impact due to the decrease of non-personnel related costs: -20 basis points due to the decrease in our lease and office-related costs, -10 basis points favorable impact due to the property insurance recovery noted above, and the remaining -30 basis points was due to other non-personnel related costs as a result of the simplification and cost recalibration actions taken; and

· a 40 basis point (-0.40%) favorable impact due to the decrease of restructuring costs noted above; partially offset by

· a 20 basis point (0.20%) increase due to the United States legal costs noted above.

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 $7.9 million in the second quarter of 2014 compared to $10.3 million in the second quarter of 2013. Net interest expense decreased $1.2 million in the second quarter of 2014 to $8.2 million from $9.4 million in the second quarter of 2013 due to lower debt levels as we repaid our €200.0 million Notes in June 2013 with cash. Other income was $0.3 million in the second quarter of 2014 compared to other expenses of $0.9 million in the second quarter of 2013 due to translation gains recorded in the second quarter of 2014.

We recorded an income tax expense at an effective rate of 38.8% for the three months ended June 30, 2014, as compared to an effective rate of 42.1% for the three months ended June 30, 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 38.8% effective tax rate in the quarter was higher than the United States Federal statutory rate of 35%, and we currently expect a similar annual effective tax rate due primarily to the French business tax, repatriations, valuation allowances and other permanent items.

Net earnings per share - diluted was $1.35 for the three months ended June 30, 2014 compared to $0.87 for the three months ended June 30, 2013. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately $0.03 per share for the three months ended June 30, 2014.

Weighted average shares - diluted increased 3.5% to 81.4 million for the three months ended June 30, 2014 from 78.6 million for the three months ended June 30, 2013. This increase is due to shares issued as a result of exercises and vesting of share-based awards since the second quarter of 2013 and the dilutive effect of share-based awards because of the increase in our share price, partially offset by the impact of share repurchases completed in the first quarter of 2014.

Operating Results - Six Months Ended June 30, 2014 and 2013

The following table presents selected consolidated financial data for the six
months ended June 30, 2014 as compared to 2013.

                                                                                           Constant
                                                                                           Currency
(in millions, except per share data)          2014          2013         Variance          Variance
Revenues from services                     $ 10,225.7     $ 9,809.6            4.2 %             3.3 %
Cost of services                              8,511.9       8,183.1            4.0               3.1
  Gross profit                                1,713.8       1,626.5            5.4               4.6
  Gross profit margin                            16.8 %        16.6 %
Selling and administrative expenses           1,399.5       1,444.0           (3.1 )            (3.7 )
  Operating profit                              314.3         182.5           72.3              70.5
  Operating profit margin                         3.1 %         1.9 %
Interest and other expenses                      17.1          21.8          (21.7 )
  Earnings before income taxes                  297.2         160.7           85.0              82.6
Provision for income taxes                      117.3          68.6           71.2
Effective income tax rate                        39.5 %        42.7 %
  Net earnings                             $    179.9     $    92.1           95.3              93.5
Net earnings per share - diluted           $     2.21     $    1.17           88.9              87.2
Weighted average shares - diluted                81.4          78.6            3.6 %


The year-over-year increase in revenues from services of 4.2% (3.3% in constant currency and 2.8% 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 8.6% (4.0% in constant currency and 3.6% in organic constant currency) and 8.0% (4.6% in constant currency and 3.4% in organic constant currency), respectively. This included revenue increases in our larger markets of France and Italy of 6.6% (2.1% in constant currency) and 9.8% (5.1% in constant currency and 4.7% in organic constant currency), respectively, as we continued to experience stabilization in France and improving demand in Italy; and

· revenue increase in the United States of 2.9% primarily driven by growth in our larger national accounts and in the small/medium-sized business within our Manpower business as well as solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business; partially offset by

· revenue decrease in APME of 7.0% (-1.5% in constant currency and -1.9% in organic constant currency) primarily due to a decrease in our staffing/interim business in Japan as we were challenged to recruit candidates in a tight labor market even though we experienced gradual improvement in demand for our staffing/services, and in China where legislative changes restricted the use of temporary employment; and

· decreased demand for outplacement services at Right Management, where these revenues decreased 3.5% (-4.0% in constant currency).

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

· a 30 basis point (0.30%) favorable impact from the improvement in our staffing/interim margin as increases in the Americas and Southern Europe were partially offset by a decrease in Northern Europe while APME remained flat; and

· a 10 basis point (0.10%) favorable impact resulting from a 6.6% constant currency increase in our permanent recruitment business; partially offset by

† a 10 basis point (-0.10%) unfavorable impact from decreased demand for our higher-margin outplacement services at Right Management; and

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

The 3.1% decline in selling and administrative expenses for the six months ended June 30, 2014 (-3.7% in constant currency and -4.5% in organic constant currency) was attributed to:

· a decrease in restructuring costs from $54.8 million for the six months ended June 30, 2013, comprised of $10.3 million in the Americas, $4.5 million in Southern Europe, $26.4 million in Northern Europe, $2.8 million in APME, $6.4 million at Right Management and $4.4 million in corporate expenses to zero for the six months ended June 30, 2014;

· a property insurance recovery of $3.5 million recorded in corporate expenses;

· a 6.4% decrease in lease and office-related costs because we closed over 150 offices since the second quarter of 2013 as a result of office consolidations and delivery model changes; and

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

· legal costs of $9.0 million recorded in the United States related to a settlement agreement (see the Employment-Related Items section of Management's Discussion and Analysis for additional information);

· a 1.8% increase in organic salary-related costs primarily from an increase in our variable incentive-based costs due to improved operating results; and

· 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 100 basis points (-1.00%) for the six months ended June 30, 2014. The change in selling and administrative expense as a percent of revenues consisted of:

· a 60 basis point (-0.60%) favorable impact due to the decrease of restructuring costs noted above; and

· a 40 basis point (-0.40%) favorable impact due to the decrease of non-personnel related costs: -20 basis points due to the decrease in our lease and office-related costs and -20 basis points due to the decrease in other non-personnel related costs as a result of the simplification and cost recalibration actions taken.

Interest and other expenses were $17.1 million for the six months ended June 30, 2014 compared to $21.8 million for the six months ended June 30, 2013. Net interest expense decreased $3.3 million for the six months ended June 30, 2014 to $15.9 million from $19.2 million for the six months ended June 30, 2013 due to lower debt levels as we repaid our €200.0 million Notes in June 2013 with cash. Other expenses were $1.2 million for the six months ended June 30, 2014 compared to $2.6 million for the six months ended June 30, 2013 due to translation gains recorded in the first half of 2014.

We recorded an income tax expense at an effective rate of 39.5% for the six months ended June 30, 2014, as compared to an effective rate of 42.7% for the six months ended June 30, 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 39.5% effective tax rate for the six months ended June 30, 2014 was higher than the United States Federal statutory rate of 35% due primarily to the French business tax, repatriations, valuation allowances and other permanent items.

Net earnings per share - diluted was $2.21 for the six months ended June 30, 2014 compared to $1.17 for the six months ended June 30, 2013. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately $0.02 per share for the six months ended June 30, 2014.

Weighted average shares - diluted increased 3.6% to 81.4 million for the six months ended June 30, 2014 from 78.6 million for the six months ended June 30, 2013. This increase is due to shares issued as a result of exercises and vesting of share-based awards since the second quarter of 2013 and the dilutive effect of share-based awards because of 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 increased 1.4% (5.0% in constant currency) in the second quarter of 2014 compared to 2013. In the United States, revenues from services increased 3.7% in the second quarter of 2014 compared to 2013. The revenue increase in the United States was attributable to growth in our larger national accounts and in the small/medium-sized business within our Manpower business, specifically the industrial and light industrial sectors, and strong growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. These increases were partially offset by a decrease in revenue from our larger global accounts primarily due to stronger pricing discipline. In Other Americas, revenues from services declined 3.1% (7.7% increase in constant currency) in the second quarter of 2014 compared to 2013. We experienced constant currency revenue growth in Canada, Argentina due to inflation, Colombia and Brazil of 5.1%, 18.4%, 44.4% and 10.4%, respectively, offset by a 0.6% constant-currency decline in Mexico.

In the Americas, revenues from services decreased 0.3% (3.8% increase in constant currency) in the first half of 2014 compared to 2013. In the United States, revenues from services increased 2.9% in the first half of 2014 compared to 2013. The revenue increase in the United States was attributable to growth in our larger national accounts and in the small/medium-sized business within our Manpower business and solid growth in our MSP and RPO offerings within the ManpowerGroup Solutions business. 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, as well as a decrease in revenue from our larger global accounts primarily due to stronger pricing discipline. In Other Americas, revenues from services declined 6.3% (5.7% increase in constant currency) in the first half of 2014 compared to 2013. We experienced constant currency revenue growth in Canada, Argentina due to inflation, Colombia and Brazil of 2.6%, 15.0%, 26.8%, and 12.6%, respectively, offset by a 0.2% constant-currency decline in Mexico.

Gross profit margin increased in the second quarter of 2014 compared to 2013 due to the favorable impact from improved Experis interim margins resulting from strong price discipline in selectively accepting new business opportunities and aggressively managing the pay bill gap with our clients. This increase was partially offset by a 3.9% decrease (-1.1% in constant currency) in our permanent recruitment business, business mix changes in our Manpower staffing revenue as growth came from some of our lower-margin business, and pricing pressures within the small/medium-sized business in the United States.

Gross profit margin was flat in the first half of 2014 compared to 2013 as the favorable impact from improved Experis interim margins resulting from strong price discipline in selectively accepting new business opportunities and aggressively managing the pay bill gap with our clients, was offset by business mix changes in our Manpower staffing revenue as growth came from some of our lower-margin business, and pricing pressures within the small/medium-sized business in the United States.


In the second quarter of 2014, selling and administrative expenses increased 1.4% (4.3% in constant currency) due to legal costs of $9.0 million recorded in the second quarter of 2014, partially offset by the $4.4 million of restructuring costs incurred in the second quarter of 2013 that we did not incur in the second quarter of 2014.

In the first half of 2014, selling and administrative expenses decreased 3.4% (-0.4% in constant currency) due to the $10.3 million of restructuring costs incurred in the first half of 2013 that we did not incur in the first half of 2014 and the declines in non-personnel related costs, excluding the legal costs noted above, as a result of the simplification and cost recalibration actions taken in 2013, partially offset by $9.0 million of legal costs recorded in the first half of 2014.

Operating Unit Profit ("OUP") margin in the Americas was 3.8% and 3.7% for the second quarter of 2014 and 2013, respectively. In the United States, OUP margin was 3.8% in the second quarter of 2014 compared to 4.1% in 2013. The margin decrease in the second quarter of 2014 in the United States was due to the legal costs noted above partially offset by a decrease in restructuring costs. Excluding the legal costs and restructuring costs, OUP margin increased due to higher gross profit margin and better operational leverage, as we were able to support an increase in revenues without a similar increase in expenses. Other Americas OUP margin was 3.7% in the second quarter of 2014 compared to 3.1% in the second 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, which were partially offset by the decline in the gross profit margin.

OUP margin in the Americas was 3.1% and 2.6% for the first half of 2014 and 2013, respectively. In the United States, OUP margin was 2.9% in the first half of 2014 compared to 2.6% in 2013. The margin increase in the first half of 2014 in the United States was due to better operational leverage, as we were able to support an increase in revenues while expenses remained relatively flat, partially offset by the legal costs noted above. Other Americas OUP margin was 3.7% in the first half of 2014 compared to 2.7% in the first half 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, partially offset by a decline in the gross profit margin.

Southern Europe

In Southern Europe, which includes operations in France and Italy, revenues from services increased 9.3% (4.2% in constant currency and 3.8% in organic constant currency) in the second quarter of 2014 compared to 2013. In the second quarter of 2014, revenues from services increased 1.9% in constant currency in France (which represents 72% of Southern Europe's revenues) and increased 7.1% 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 30.9% constant currency increase in the permanent recruitment business, partially offset by one fewer billing day in the second quarter. In Other Southern Europe, revenues from services increased 19.7% (14.9% in constant currency and 11.5% in organic constant currency) during the second 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.

Revenues from services increased 8.6% (4.0% in constant currency and 3.6% in organic constant currency) in the first half of 2014 compared to 2013. In the first half, revenues from services increased 2.1% in constant currency in France, and increased 4.7% in organic constant currency in Italy. 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 . . .

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