Sector Updates

With recent release of 2Q 2010 earnings, I've like to touch on a few points.

It was good to see that revenue ticked up for most of these corporations. Although, I'm still cautious with the early developments of austerity measures in Europe, and the looming regulations and tax regulations in the United States, revenue did improve for the staffing sector.

Profitability does leave something to be desired, until there robust action in terms of revenue that is sustained in a normalized recovery, I am cautiously optimistic on the sector.

Italy Facing Persistent Unemployment If Recovery

Bank of Italy governor Mario Draghi warned in a key speech Monday that unemployment in the country is likely to stay persistently high as economic recovery remains slow.

He said the financial crisis had weighed disproportionately on young people. Unemployment in Italy, for people between the ages of 20 and 34, reached an average of 13% in 2009, he said.

The national rate is 8.6% in March.

Starting-level salaries haven't changed much in 15 years, he added.

"A slow recovery increases the probability of persistent unemployment", Draghi said. "This condition, especially at the beginning of a professional career, tends to be associated with permanently lower salaries in the future".

Source: Dow Jones Newswire

Manpower (MAN) Staffing Updated Valuations March 2010

After pouring over some of the recent competitors and Manpower's latest earnings. Some of the metrics has changed, and some metrics still remain fairly cautious sign of the state of affairs with Manpower.

As Manpower has increased their earnings, valuations have come down. However risks are abound.

I'll provide some near term pros and cons of the stock, please do your own research, as this is not a recommend for the purchase or sale of the securities. I'm only providing my own research.

+ Near term improve in debt. Debt levels has narrowed to 757 Mil.
+ The pending acquisition of IT provider Comsys.

While there are some positive catalyst in places, risk still remains.

-While I am positive on the acquisition of Comsys, Manpower's ability to generate return on invested capital has been very limited. Manpower's return on invested capital is 0.92.
- Weak staffing levels in Europe, with risks associated with the Euro and the debt crisis which risks growth in the European Union. This remains a wild card as analysts from what I've read have not priced the risk of a currency implosion by the Euro. With the IMF, and non bipartisan support through the EU, Manpower's largest industrial partners France and Germany will be somehow affected longer term by the turmoil within the PIIGS. Risks either due to spending cuts, reduced spending by consumers, and increased debt obligations by specific countries.
- Continued pressure on valuations near term with MAN trading at 82.6x earnings, while the S&P500 trades at 11.7, historically MAN trades at a historical p/e of 29.0.
- PEG continues to trade well over one, and has risen back to 5.51.

Two worrisome metrics that continue to place MAN at risk, as business continue to face hurdles:
Historic trends of MAN receiving payment are at elevated levels:

- Days Sales Outstanding

Year

2000 67.2
2001 69.9
2002 71.1
2003 72.3
2004 71.4
2005 73.0
2006 73.2
2007 74.0
2008 68.7
TTM 83.8

- Days Inventory Payable Period

Year 2000 17.4
2001 17.9
2002 17.4
2003 18.2
2004 18.7
2005 19.1
2006 19.9
2007 20.9
2008 20.1
TTM 28.8

As stated there continues to be risk as MAN is having difficulty collecting payment compared to historic levels. I continue to be cautious as Manpower continues to face hurdles within its largest market (France), and pressure with labour regulations and unions in Europe.

The increasingly likely bailout of Greece, and possibly Portugal will have ramifications throughout the EU. The EU has historically been one of the slower growth areas in the global arena. With these spending and debt restructuring Manpower faces increased challenges, even as the global economy bounces from the bottom.

Spain unemployment hit 17.9% for 2Q 2009

The Spanish unemployment rate hit 17.9% at the end of the Q2 2009, according to Spain’s National Statistics Institute (INE), the highest level in the eurozone and well above the 8.9% average of the 27 EU member states. In fact, Spain makes up over half of the past year’s increase in eurozone unemployment, with over 30% of the eurozone’s jobless living in Spain. The Organization of Economic Cooperation and Development (OECD) predicts that Spain’s jobless will reach 20% of the workforce during 2010, gradually edging closer to the historic high of 24% recorded in 1994. Youth unemployment is particularly severe, with one in three workers under 25 years old facing a prolonged period out of work. At the end of the Q2 2009, Spain’s GDP was down 4.1% y/y with domestic consumption expected to fall 4.5% by the end of 2009.

The large number of unemployed not only presents obvious economic difficulties for Spain such as falling productivity and a heavy drag on demand but the social consequences are also being felt. Protests have erupted across Spain as citizens struggle to deal with the economic crisis. Jobs have become the primary concern for the electorate, overtaking terrorism at the start of the year. Every country across Europe has suffered from the economic contraction. Yet Spain’s catastrophic housing collapse and towering unemployment figures make its plight stand out. The downturn has been aggravated by Spain’s rigid, antiquated and embedded labor regulations. As Luis Garicano of the London School of Economics argues, “that the crisis has hit Spanish employment disproportionately is due to the catastrophic way the labor market works.” Unless action is taken to remedy the underlying causes of Spain’s unemployment crisis, the country faces a prolonged and dire recession.

Source: RGE

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.

Unemployment continues to reside at elevated levels

Spain is currently at 18.70%
Turkey at 14.90%
Ireland at 11.90%
Poland at 10.80%
France at 9.30%

All reside in Europe and have seen very little in terms of a turnaround. We might be one third in this financial credit crunch and face some near term challenges going forward. Once this near term equity bull market subsides employment may continue to find its balloon about to burst.