Manpower MAN 2010 Q1 Earnings

Manpower recently reported 2010 Q1 earnings.

Manpower beat the estimates as an analyst from S&P raised their estimates. While Manpower lowered their estimates for the next quarter to set the bar lower ahead of it's acquisition of COMSYS.

The problem with the the increase is primarily the continued weak profitability in Manpower's numbers.

Operating margins in all regions experienced flat to slightly negative operating margins.

With the increase in revenue growth all MAN managed was sub two million in profits. If there is any downturn, and a majority of the analysts have not priced in what a Greece, and PIIGS default would cause to Manpower's underlying business with a bulk of their revenue coming from the European nations. Out of all the majorly traded staffing firms on the NYSE, MAN has the most underlying risk with such a sizable stake of it's business from Europe.

France has a large stake of its bonds in Greece, with over 700+ billion. If Greece were to continue to find itself in limbo, France may find it's own economic growth in jeopardy.

Manpower Q4 2009 / Year Earnings

Manpower released their earnings this morning. They beat their 4th quarter earnings with an EPS of .48 vs .24. Revenue also beat with revenues coming it at 4.412 Billion vs. estimates of 4.160 Billion.

Estimates beat and revenue Delcine have narrowed, although still down.

Q1 2010 guidance of -.05 to -.15 vs. estimates of -.06.

After looking at today's news on Manpower it seems to be a mixed bag. I'm fairly favorable to their new acquisition of COMSYS IT Partners, Inc. The acquisition will allow MAN to jump start their sales growth. However this will come at the cost of their already ballooning debt levels. As long as MAN can improve on this cash flow then their debt will be manageable. Any downturn and MAN will continue to face challenges to its debt levels as Moody's had suggested a number of months ago.

In terms of their earnings which may be muted due to flat to slightly positive growth in their European markets. There are lots of risk involved in their European markets, especially if the PIIGS creates currency instablity for Europe. One risk that underlines this issue is a possible bailout by the IMF, or by France (Manpower's largest market) and Germany. If this situation comes to roost then the European economy may face significant hurdles. And cap privatization growth in France and Germany (Europe largest industrialized nations). While US markets continue to face challenges as taxation and reform will continue to put pressure on hiring. Slack demand has lessen any likelihood of a V shaped recovery.

Valuations will be the next topic of concern for Manpower's, even as revenue dropped less than expected year over year.

Earnings 4Q 2009

A number of large US employment and temporary employment agencies report.

Kelly Services (KELYA) Feb 5 2010 4th quarter and full year 2009
Manpower (MAN) Feb 2 2010 4th quarter and full year 2009
Monster Worldwide (MWW) Feb 3 2010 4th quarter and full year 2009
Robert Half International (RHI) Jan 28 2010 4th quarter 2009

It will be an interesting earnings period for these four companies. I'm sure a number of them may surprise to the upside and beat consensus, however growth remains very much muted in the overall US economy. Emerging markets may face hurdles as their recovery starts to overheat and may need to take the foot off of the petal with their stimulus policies.

Manpower Robert Half Valuation

• For the past week there has been bullish sentiment again in the human resource, temp space.

Robert Half International (RHI) received upgrades and revisions to their expectations.

While Manpower (MAN) received an upgrade from Banc of America ML.

I'm a bit more cautious on the space especially with the run up for this past year. Although there has been an improvement in jobs lost; there continues to be an underlying problem in the global economy.

This growth has been fueled by government stimulus and not so much private sector demand. And the growth has been muted by recovery standards. The US for example revised their GDP growth for the 3Q down to 2.2%.

While employment survey after survey still speak to weak to flat growth for Q1 of 2010.

• Valuation alone I would avoid the space till there is more clarity that there will not be a double dip recession. With commercial mortgage and ARMS, debt, and continued restrained spending by the consumer, and depressed wage growth there will be significant challenges abound to job creation.

• Higher taxes in 2010 will be a certainty in the US. And that will depress consumer demand. The risk that this will further depress job creation with demand as slack as it is.

• Valuations have run up to the point where these human resource stocks must meet or blow out its numbers. Take for example Manpower (MAN). I have pointed out MAN due to its lofty valuations in comparison with its competitors.

1. Trading at close to 90x p/e, and on a normalized base close to 60x earnings. And this considering that they have had earnings that have declined with the growth implosion of 2007. I normally track the technology sector where growth is more attractive. Manpower is trading at multiple that are present for a technology company. Unfortunate the last growth that MAN has seen was back in 2007.

Administaff ASF 3Q 2009 Earnings

For the third quarter 2009, the company reported net income of $5.8 million, or $0.23 earnings per diluted share. For the nine months ended September 30, 2009, the company reported net income of $19.4 million and earnings per diluted share of $0.77

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Administaff beat EPS by .01, while revenues were light of consensus. Administaff is in a bad segment of the economy. With credit continued to be constrained and health costs continues to pressure employers, Administaff will have to pray that the economy can right itself in a positive direction.

I remain cautious on the business services sector till there is a defined upturn in employment demand.

Robert Half International Q3 09

Robert Half International reported .02 better than First Call consensus of .04 estimate. Revenue fell year o/ year 37.4% to 725.9 million which was light of the $729.3 million consensus.

"While the global business environment during the third quarter remained challenging, year-over-year revenue declines in our staffing operations continued to moderate and, on a sequential basis, we saw some improvement in revenues in September."

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My take on RHI is that they did a remarkable job of cost cutting, and continues to operate with what they got. They don't have any plans to add space, thus they have controlled their debt at remarkable levels. 

The take from the conference call is that they see business for the most part stabilizing. Although, it is too early to tell if this will be more then a mild up tick.

Margins have been affected mildly, while they are able to grow near their top line revenue.

Perm employment has also been better then expected, although this is a highly variable space.

I wouldn't invest in RHI till there is more stabilizing, although I do find that their business is mildly attractive due to the very low debt, and very good cost controls.

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.

Valuations

David Rosenberg in his latest piece stated the following:

"He wonders, moreover, whether the March 6 lows in the stock market were the real McCoy. Although, in contrast to us, Dave persists in keeping an open mind, he’s doubtful that they were. On March 6, he recounts, the market was trading at two times book, with a 13 times multiple on forward earnings and a P/E of 18 on trailing earnings, and a 3% dividend yield. Pretty rich valuations by all three measures of earnings, but pretty skimpy on yield, to rate as a true market low.

And today, after a 45% rise, the metrics, to dip into the Street cliché, are positively mind-boggling. The dividend yield on the S&P 500, Dave notes, is a meager 2¾%, and payouts so far this year have lagged some 32% behind last year’s not-exactly-torrid pace.

In a like astounding vein, he observes, the trailing P/E on operating earnings (adjusted, he explains, “to take out everything that is bad”) is now at 24 times, while — and if you have a queasy stomach you can skip this number — on trailing reported earnings, the multiple is a mere 760-plus!

“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ‘06.”

GDP First Quarter Revised Down

"U.S. Q1 GDP revised down 6.4% vs -5.5 prev est"

So this morning revision of the United States GDP confirms the drastic decline to the America economy. Consumer spending also was down more then expected during the Q1.

The initial GDP report of -1.0 for the Q2 seems more favorable then expected. However, if this gets revised again, it may not meet the -1.5% that was projected by most economist.

This recession will continue to be drawn out till demand comes back influx with the global economy. Continue to look at labour increasing only when projects, and demand warrant it. Earnings continue to be driven through cost cutting measures rather then revenue growth for most companies.

Randstad Earnings

"AMSTERDAM (AP) -- Randstad NV, the world's second-largest temporary staffing services company, said Tuesday second quarter profit fell 89 percent as many companies are looking to cut expenses and reduce staff during the downturn.

Net profit was euro10 million ($14.2 million), down from euro94.1 million a year ago. Sales fell 33 percent to euro2.99 billion.

The year-ago figures were reported as if Randstad had owned Vedior NV -- which it acquired for euro3.5 billion in May 2008 -- for the whole second quarter in both years.

The Vedior buy made Randstad the second largest staffing company behind Adecco SA of Switzerland and ahead of Manpower Inc. of the U.S.

"The U.S. staffing ... as well as our main European markets clearly show some stabilization" when compared with the first quarter of 2009, Chief Executive Ben Noteboom said in a statement.

But demand for high-cost professional workers was weak and "on balance it is too early to declare a beginning of recovery," he said."

Source: http://finance.yahoo.com/news/Randstad-profit-down-89-apf-2922398890.html?x=0&.v=2

Cost cutting continues to be profound. And as I said it is too early in prior earnings announcements by Randstad's competitors such as Manpower, and Adecco, and Robert Half International that a possible double bottom may be present in this economy. We may enter a period of stablization then another down cycle as this stimulus wears off. There has already been calls for another round of stimulus. This not only increases the risk of inflation, and further strain in governmental budgets.

So I continue to be bearish in employment till credit markets become more open to small businesses which generate most of the tax revenue for the economy. Thus creates additional spending and adds to the workforce. At this time there is a limited need for companies such as Randstad, Manpower and Adecco, and Robert Half International especially for higher end workforce.

S&P Earnings Fall Dramatically

From ChartOfTheDay:

"Today's chart provides some perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings are expected (38% of S&P 500 companies have reported for Q2 2009) to have declined over 98% since peaking in Q3 2007, making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative."

Source: http://www.chartoftheday.com/20090724.htm?T

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.

Manpower Upgrade?

So the Standard and Poor's recently upgraded Manpower to a HOLD from SELL due to a change in how they value the company. Instead of using P/E as a way to value the company they are using P/S instead.

- Yes, Manpower generates massive revenue due to its scale in the global markets. However, quarter on quarter on yearly comps they are performing horribly. There have been small up ticks in employment. But nothing to say that we are out of the woods in terms of employment.

- Another thing to take note. There is not a lot of barrier to entree to recruiting. In each market there are competitive players that are via'ing for that commission fee. Some will under bid in order to win that contract. This causes mischief in this already low margin market.

- Sales from the prior quarter was down dramatically. Unless they continue to cut cost, and reduce overhead through reduced hours, continued cuts in admin, I foresee Manpower's numbers to be fairly muted in the markets that they continued to be weak in. Earnings will be announced on Thursday and I like many will look forward to this. Adecco has slashed a couple hundred from its payroll. I have not seen this from Manpower in a press release. It may want to do that to retain its very expensive valuation.