2009 Unemployment Duration in the United States by State

From the NY Times, unemployment duration in the United States by state. Still a very difficult climate for hiring in the United States.

MAN Manpower Stock Valuations

So looking at the human resource/business services sector I'll put my opinion on the current valuations of Manpower. I picked Manpower because its valuation were the most out of line with its peer group.

With the recent business outlook survey, not all markets are created equally. I still believe that their larger markets will continue to face downside risk as employment remains choppy. A large portion of their revenue comes from the European market. The US market which is about 10% of Manpower's revenue's will be the first movers in the up tick in hiring. Still conditions in the US remain flat at best for hiring, with no robust outlook for the 4th quarter. Hiring continues to be muted till firms and small businesses find that there is a solid ground for this recovery. This recovery has been mostly stimulus funded. Private businesses which make the brunt of the jobs in the United States continue to face credit limitations and conditions that are less to their liking as the yesteryear. On a macro scale jobs continue to be scare. With an average of six applicants for every free opening, this also challenges the notion that temporary jobs are coming back with a vengeance. Temporary positions also continue to be scare and at a reduced hourly workload. With the average work week of permanent employees at 33.1 hours per week, what would the average temp worker get? These are some serious structural issues that everyone needs to ponder. Many of these jobs that were lost in this recession will not come back. And many workers will need to retrain and possess additional skills to find work.

The stock trades at a lofty valuation. At seventy-one times earnings, while the industry is a negative forty-six, and the S&P trading at eighteen times earnings, Manpower is very expensive compared to its industrial peers and to the S&P. While having very poor earnings and net income growth for the past two years. Unless you feel that valuations at this point merits the lofty valuations then you may look at taking a stake, however at its current valuations there are many other companies that offer significantly more upside and more consistent growth.

Some have said that they have changed the way they value MAN to Price to Book which places MAN at 1.6, while the industry at 2.62, and the S&P at 2.1. This looks historically cheaper then its average, however you also have to take into account how depressed Manpower's business is compared to historical levels. Unemployment around the world still continues to remain at elevated levels. Either way MAN is nearing the top if not the top of their valuations.

Book value is about thirty-two plus dollars a share. While intrinsic value is about forty-two dollars. Either way you are paying a significant premium compared to its peers. Earnings and growth usually lead to price appreciation in shares. Earnings and net income has continued to decline for this past year at alarming levels. At its current valuation you can make the case that MAN is overvalued.

Debt is another issue to be on the side of caution. Manpower has over 873+ million in debt. Manpower also has over 1.1 billion in cash. This all seems well and good, however if there is a protracted decline in their revenue, and net income this cash will continue to face pressure. In this environment there are plenty of companies that are operating at zero to minimal debt trading at much less of a premium compared to the market and its peer group. This includes many technology names with faster growth then say the highly competitive human resources sector. Technology will be the driver of innovation and expansion going forward, either through increases in demand, or through cost cutting. Hiring will remain flat or a tepid bounce from its bottom.

Please do your due diligence regarding your own research on MAN. The information that I provide is just a starter to your own research. The information is out there, and I am just providing a stepping stone for this research. It never hurts to research the holdings that you hold to make sound and educated decisions for long term appreciation.

U.S. unemployment rate jumps to 26-year high of 9.7%

"The U.S. unemployment rate jumped to a 26-year high of 9.7% in August as nonfarm payrolls fell by 216,000, the 20th consecutive monthly decline, the Labor Department estimated Friday."

"U.S. payrolls have dropped by 6.9 million to a total of 131.2 million since the recession began in December 2007, the government data showed. Unemployment has increased by 7.4 million during the recession to stand at 14.9 million. 

"Joblessness continues to mount, which will only make it harder for households to repay debt and build savings, thereby impeding a consumer-led recovery," wrote Sal Guatieri, senior economist for BMO Capital Markets."

Source: Marketwatch 

Adecco post lost second quarter

"Aug. 11 -- Adecco SA, the world’s largest supplier of temporary workers, reported a surprise second- quarter loss.

Adecco’s net loss was 147 million euros ($208 million), as it took 246 million euros in charges for impaired goodwill and job cuts, the Glattbrugg, Switzerland-based company said in a statement today. Analysts surveyed by Bloomberg had predicted net income of 32.8 million euros. Sales fell 31 percent to 3.6 billion euros in the quarter."

Source: Bloomberg

The numbers continue to be quite weak for the recruiting industry with no near term growth. Some pockets of strength and stablization, but that does not mean that growth is coming back. Especially, when many of these jobs are turning to in house recruiting.

Say for example the financial uptick in hiring. Although there is an uptick this does not mean that there is a continued longer term trend in hiring, just selective and longer term outlook for hiring.

Structural Unemployment Worsens.

The number of people who've been out of work longer than six months soared by a record 584,000 to 5 million, accounting for more than a third of all unemployment for the first time on record.

This is an interesting situation. The unemployment rate ticked down, but that is discounting a large number of job seekers removed from the overall data. This removed about .2% to the overall unemployment rate. So although there was slight improvement in job losses, there continues to be elavated state of job losses.

Another problem is the number of hours worked. The average reported on Thursday is 33.1, a tick up of 400,000+ jobs. However the United States is still running at very low historical hourly work rates. This will lead to reduced spending, and cause retailers to hire as few workers as needed. This continued slow pace of added jobs will limit the amount of hiring that the private sector will employ.

Manpower Earnings Q2 2009

Earnings came out. The earnings was fair considering the environment. Stablization in the US, Italy, and France. Weakness in Australia and some other European nations.

Manpower has done a fairly good job containing cost, and has been buoy by Right Management this quarter. However, although third quarter wise is suppose to be Manpower's strongest quarter; margins will come down due to Right Management seasonal decline.

From AP:

"Co issues in-line guidance for Q3, sees EPS of $0.07-0.21 vs. $0.18 consensus."

From Zacks:

"Management provided a cautious outlook for the third quarter of fiscal 2009. On a consolidated basis, it expects revenues to decline between 29% and 31% in reported dollars (24% to 26% in constant currency)."

So forward guidance is a bit iffy on the EPS front. I'm still a bit tepid with the valuations of Manpower when its peers are not receiving as much of a premium as MAN.

P/E excluding extraordinary items at 66x earnings as of July 24, 2009.

While the PEG is over 11x.
Net Profit Margin at 0.03%

Besides that as the chart presents that this stock is well overbought. When net income is down as much as it has the run up has not been justified. Even as they beat estimates this does not reflect a rebound in employment.

I find this extremely expensive vs. its peers. The stock is pricing in a recovery. If for some reason there is a "W" shaped recovery MAN is going to decline. Remember that employment is a lagging indicator to a recovery.

The New Joblessness

"The Federal Reserve now expects unemployment to surpass 10 percent (the postwar high was 10.8 percent in 1982). By almost every other measure, ours is already the worst job environment since the Great Depression. The economy has shed 6.5 million jobs — nearly 5 percent of the total, far outstripping the 3 percent that were lost in the early ’80s. Economists fear that even when the economy turns around, the job market will be stagnant. Keith Hall, the commissioner of the Bureau of Labor Statistics, sums it up as “an ugly picture out there.”

Not only are firms laying off redundant workers, but they seem to be cutting into the bone. Hall says the absence of hoarding means that firms do not expect business to pick up soon. This is supported by other evidence, like a doubling in the number of involuntary part-time workers (there are nine million of them) and the shrinking workweek, now 33 hours — the shortest ever recorded. Presumably, before companies start to rehire laid-off workers, they will ask their current employees to work more.

It’s hard to give a definitive explanation for this trend, but among the reasons are a decline in innovation in the aftermath of the tech boom, leading to fewer new businesses, and the aging of the population. More people have dropped out of the work force, and a smaller work force tends to dampen job totals. The percentage of adults who are working has fallen from 64 at the end of the Clinton era to only 59.5 now."

Source: http://www.nytimes.com/2009/07/26/magazine/26FOB-WWLN-t.html

Robert Half International Earnings Q2 2009

So from AP Robert Half announced earnings.

"second-quarter profit dropped 93 percent as unemployment jumped amid the recession"

"For the period ended June 30, the company posted net income after paying preferred dividends of $4.8 million, or 3 cents per share, compared with $72.3 million, or 47 cents per share, in the year-ago period.

Revenue fell 39 percent to $749.9 million from $1.22 billion.

Analysts polled by Thomson Reuters expected, on average, earnings of 3 cents per share on slightly higher revenue of $755.4 million."

"Robert Half's revenue comes mainly from fees it charges for staffing consulting and services."

"Messmer (chairman and CEO), though, said he was encouraged that "sequential declines (in employment numbers) were significantly less than those reported in the previous quarters.""

Quote to take from their Q & A session:

"Keith Waddell

I guess we would say, outside the US, in the UK and Canada, the pace of the declines has improved. Continental Europe and Asia, the pace of the declines is either the same or worse. When you put them all together, the sequential decline outside the US for this past quarter was about the same as it was the prior quarter, although the components were different.

So, clearly Continental Europe and Asia were later to the game. But that being said; they've clearly caught the same cold that the US had, and are later in the results they are reporting and their impact of the downturn. So, the stabilization trends, may frankly when we talk about eight weeks of stable, that is consolidated and US has actually improved a little bit to offset the decline outside the US."



Yet there is still a decline in revenue. This has not been any different from technology companies reporting a decline in their revenue. What is a catalyst for growth? The stimulus? Rebound in the capital markets?

The main problem is that consumer demand continues to decline. Those with jobs are reluctant to spend. Those without are saving their walnuts for another season or possibly year. There has been a fundamental shift in the consumer which is a large component of the United States economy, which other economies around the world also become affected. Just as companies are trying to save money and invest in R&D most companies still do not see an upturn in the near future. A jobless recovery happened after the dot.com implosion, how is this any different.

Revenues will continue to be light especially in the human resources sector. Besides consumer spending small business are indirectly affected by this downturn. Without the capital and the resources to grow their business so does the need for services from a large recruitment agency. Why pay X amount of dollars when X recruitment agency is able to undercut them with the same service offerings. This becomes a low margin business with human capital turning from an asset to a liability. Companies with scale such as Manpower needs to continue to contain cost through reduction in headcount, and invest more in technology.

Trends such as contracting seem to be growing through off base online vendors. Recruitment agencies have no control over this increase in independent contracting.

Tomorrow is MAN's earnings, lets wait and see if this becomes gloom and doom or is there a silver lining in the horizon.