Manpower Tops Estimate - Analyst Blog

Manpower Inc. (MAN), the global leader in the employment services industry, recently posted better-than-expected fourth-quarter 2010 results that topped Zacks' expectations on the heels of revenue growth across all geographies with Europe performing remarkably well.

Manpower also witnessed a surge in demand for information technology employees with a gradual recovery in the economy. The companies are reluctant to hire permanent staff until they witness complete recovery in the economy, and are still resorting to temporary workforce to guard against economic hiccups should they happen. 

Despite the recent economic downturn and unemployment rate hovering around 9%, the company's U.S. operations have registered revenue growth.

Quarterly Discussion

The quarterly earnings of 66 cents a share outpaced the Zacks Consensus Estimate of 61 cents and rose 40.4% from 47 cents earned in the prior-year quarter. The foreign currency fluctuation negatively impacted net earnings by 2 cents a share.

Net earnings for the quarter under review also surpassed management's guidance range of 54 cents to 62 cents a share.

On a reported basis, including one-time items, Manpower reported a quarterly loss of $4.29 per share compared with earnings of 37 cents in the year-ago quarter.

Milwaukee, Wisconsin-based Manpower said that total revenue for the quarter soared 18.1% to $5,209.6 million from the prior-year quarter, and 22.1% in constant currency. The quarterly revenue also came well ahead of the Zacks Consensus Estimate of $5,101 million.

We observe that although cost of services climbed 17.7% to $4,303.9 million, gross profit rose 19.8% to $905.7 million driven by top-line growth. Gross margin expanded 30 basis points to 17.4%.

Segment Details

By geographic segments, revenue from services in the Americas surged 47.5% to $1,124.9 million; and 46.3% in constant currency. On an organic basis, the Americas revenue climbed 18% in constant currency. Segment operating profit came in at $24.1 million compared with a loss of $1.8 million posted in the prior-year quarter.

Revenue for Jefferson Wells, which is now the part of U.S. professional business, rose 3% to $44 million.

In France, revenue grew 9.9% to $1,433.6 million and 19.5% in constant currency, whereas segment operating profit soared 138% to $12 million and 156.7% in constant currency.

In EMEA (Europe, Middle East and Africa excluding France), revenue rose 13.1% to $1,975.8 million and 19.1% in constant currency. Segment operating profit surged 116.5% to $81.6 million and 127.6% in constant currency.

In Asia Pacific, revenues jumped 25.5% to $588.3 million and 16.5% in constant currency. Segment operating profit rose 42% to $9.6 million and 32.4% in constant currency.

Right Management continues to struggle. Revenues from Right Management services plunged 32.9% to $87 million and 32.4% in constant currency. The segment reported an operating loss of $16.8 million compared with an operating profit of $20.8 million.

First-Quarter 2011 Guidance

Manpower now expects first-quarter 2011 earnings in the range of 26 cents to 34 cents a share. The current Zacks Consensus Estimate of 33 cents a share for first-quarter 2011 lies at the high-end of the company's guidance range.

Financial Aspects

Manpower ended fiscal 2010 with cash and cash equivalents of $772.6 million, long-term debt of $669.3 million, reflecting a debt-to-capitalization ratio of 21.8%, and shareholders' equity of $2,397.2 million.

Capital expenditures in fiscal 2010 were approximately $58.5 million. The company deployed $34.8 million for share repurchase and $60.8 million for dividend payment. The company generated free cash flow of $123.6 million during the year.

With a well-established network of nearly 4,000 offices in 82 countries, Manpower currently offers its services to about 400,000 clients. We believe that Manpower's brand value, comprehensive range of services and a strong global network provide a competitive advantage and reinforces its dominant position in the market. Moreover, Manpower stands to benefit from growth prospects in under-penetrated staffing markets.

Currently, we have a long-term Outperform rating on the stock. However, Manpower, which competes with Kelly Services Inc. (KELYA), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 
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