Nov. 8, 2021, 5:05 p.m. EST

10-Q: MANPOWERGROUP INC.

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(EDGAR Online via COMTEX) -- Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

See the financial measures section on pages 41-42 for further information on the Non-GAAP financial measures of constant currency and organic constant currency.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and

Business Overview

Our business is cyclical in nature and is sensitive to macroeconomic conditions generally. 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 segments where we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services while demand for our outplacement services typically declines. During periods of increased demand, as we experienced in the third quarter of 2021, we are generally 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. By contrast, during periods of decreased demand, our operating profit is generally impacted unfavorably as we experience a deleveraging of selling and administrative expenses, which may not decline at the same pace as revenues.

During the third quarter of 2021, we continued to see recovery in the majority of our markets as we began to anniversary the COVID-19 related declines in our results that occurred during the third quarter of 2020. Revenues increased 12.1% during the third quarter of 2021 compared to the year-earlier period. Our third quarter results reflect the continuing of the global economic recovery with strong hiring demand from our clients due to vaccine rollouts in many countries and the easing of pandemic-related restrictions in many countries resulting in increased demand for our services in most of our key markets. However, we have experienced some slowing in the rate of recovery, with some markets, particularly in Europe, continuing to experience labor shortage and COVID-19 related challenges. These challenges impacted client demand for our services and included supply chain issues and labor shortages as we believe certain parts of the workforce did not return to the labor market in many industries and markets over concerns about the COVID-19 Delta variant. Although, we experienced strengthening demand across most geographies and industries during the quarter compared to the prior year, uncertainty remains as to the future impact of the pandemic on global and local economies.

In addition to the impact from COVID-19 discussed above, results for the quarter were impacted by currency. During the third quarter of 2021, the United States dollar was weaker, on average, relative to the currencies in our European markets, which therefore had a favorable impact on our reported results and generally may overstate the performance of our underlying business. The changes in the foreign currency exchange rates had a 1.1% favorable impact on revenues from services and an approximately $0.01 per share favorable impact on net earnings per share - diluted in the quarter. Substantially all of our subsidiaries derive revenues from services and incur expenses within the same currency and generally do not have cross-currency transactions, and therefore, changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated. To understand the performance of our underlying business, we utilize constant currency or organic constant currency variances for our consolidated and segment results.

During the third quarter of 2021, our businesses experienced declines in year-over-year revenue trends from the second quarter reflecting a slowing in the rate of recovery in a number of key markets. Our consolidated revenues increased 12.1% year-over-year in the quarter, a decline from the 41.0% year-over-year increase in the second quarter of 2021.

During the third quarter of 2021 compared to 2020, most of our markets experienced revenue increases as the global recovery continued and as we anniversaried the revenue declines due to the COVID-19 crisis. We experienced a 12.8% revenue increase in Southern Europe, mainly driven by the increased demand in France and Italy. We experienced a 23.1% revenue increase in Northern Europe primarily due to the increased demand for our staffing/interim services, mostly in the United Kingdom and the Nordics. Revenues increased 7.4% in the Americas driven primarily by the increase in demand for our staffing/interim services and increased demand for our RPO and MSP offerings in the United States. We experienced a 2.6% revenue increase in APME primarily due to the increase in our Experis business.

From a brand perspective, we experienced revenue increases in all of our brands during the third quarter of 2021 compared to 2020. The revenue increase in our Manpower brand was primarily due to improved demand for our staffing services and an increase in our permanent recruitment business. In our Experis brand, the revenue increase was primarily due to the improved demand for our interim services, an increase in our permanent recruitment business and increased demand for our managed services, primarily in Southern Europe. On an overall basis, the revenue increase in our Talent Solutions brand, which includes Recruitment Process Outsourcing (RPO), TAPFIN - Managed Service Provider (MSP) and our Right Management offerings, was driven mostly by increased demand for our RPO and MSP services. As workplaces reopened across our geographies and workers returned in phased approaches, we saw increased client demand for our HR skills within our RPO business due to significant hiring activity. Our MSP business has remained resilient during the pandemic and we experienced growth during the quarter as we assisted more clients to develop customized workforce solutions.

Our gross profit margin improved in the third quarter of 2021 compared to 2020 primarily due to a favorable change in business mix as our higher-margin permanent recruitment business, which experienced a 60.4% increase (58.9% in constant currency and 61.4% in organic constant currency) during the quarter as a result of stronger hiring activity, represented a higher percentage of the revenues mix in our largest markets during the third quarter of 2021 compared to the third quarter of 2020. The increase was also due to the improvement in our Manpower staffing margins in the Americas and APME, margin improvement in our Experis managed services business in Europe, and a higher percentage of revenue mix coming from our higher-margin consulting and MSP services. These increases were partially offset a lower mix of revenues coming from our higher-margin Right Management career transition business, and lower favorable direct cost adjustments.

We recorded transaction costs of $6.2 million in the third quarter of 2021 relating to our acquisition of ettain group, which closed in the fourth quarter of 2021. We also recorded restructuring costs of $5.3 million in the third quarter of 2021 in the Americas related to our Mexico operations as we experienced a significant revenue decline in that market driven by new labor legislation.

Our operating profit margin increased 144.4% in the third quarter of 2021 while our operating profit margin increased 160 basis points compared to the third quarter of 2020. Excluding acquisition transaction costs incurred in the third quarter of 2021, restructuring costs incurred in the third quarter of 2021 and 2020, and a loss of $5.8 million from the disposition of subsidiaries incurred in the third quarter of 2020, our operating profit was up 38.1% while operating profit margin was up 60 basis points compared to the third quarter of 2020. The operating profit margin increased due to the improvement in our gross profit margin.

We continue to monitor expenses closely to ensure we maintain the benefit of our efforts to optimize our organizational and cost structures, while investing appropriately to support the ability of the business to grow in the future and enhance our productivity, technology and digital capabilities. We are focused on managing costs as efficiently as possible in the short-term while continuing to progress transformational actions aligned with our strategic priorities.







        Operating Results - Three Months Ended September 30, 2021 and 2020
        The following table presents selected consolidated financial data for the three
        months ended September 30, 2021 as compared to 2020.
                                                                                                Constant
                                                                                                Currency
        (in millions, except per share data)         2021          2020         Variance        Variance
        Revenues from services                     $ 5,140.6     $ 4,584.8           12.1 %          11.0 %
        Cost of services                             4,287.6       3,859.7           11.1 %          10.0 %
        Gross profit                                   853.0         725.1           17.6 %          16.8 %
        Gross profit margin                             16.6 %        15.8 %
        Selling and administrative expenses            702.5         663.5            5.9 %           5.0 %
        Operating profit (loss)                        150.5          61.6          144.4 %         143.7 %
        Operating profit (loss) margin                   2.9 %         1.3 %
        Interest and other expenses, net                 4.9           6.0          (17.9 )%
        Earnings (loss) before income taxes            145.6          55.6          161.8 %         160.8 %
        Provision for income taxes                      47.9          45.3            5.6 %
        Effective income tax rate                       32.9 %        81.5 %
        Net earnings (loss)                        $    97.7     $    10.3          848.9 %         845.3 %
        Net earnings (loss) per share - diluted    $    1.77     $    0.18          883.3 %         877.8 %
        Weighted average shares - diluted               55.2          58.5           (5.6 )%
        


The year-over-year increase in revenues from services of 12.1% (11.0% in constant currency and 11.3% in organic constant currency) was attributed to:

The year-over-year 80 basis point increase in gross profit margin was primarily attributed to:

The 5.9% increase in selling and administrative expenses in the third quarter of 2021 (5.0% in constant currency; 6.0% in organic constant currency) was primarily attributed to:

Selling and administrative expenses as a percent of revenues decreased 80 basis points in the third quarter of 2021 compared to the third quarter of 2020 due primarily to:

Interest and other expenses, net is comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses, including noncontrolling interests. Interest and other expenses, net was $4.9 million in the third quarter of 2021 compared to $6.0 million in the third quarter of 2020. Miscellaneous income increased to $3.2 million in the third quarter of 2021 from $2.3 million in the third quarter of 2020 primarily due to the increase in income from our equity investment in ManpowerGroup Greater China Limited.

We recorded income tax expense at an effective rate of 32.9% for the third quarter of 2021, as compared to an effective rate of 81.5% for the third quarter of 2020. The 2020 rate was unfavorably impacted by the relatively low level and mix of pre-tax earnings and a discrete valuation allowance in Germany. The 2021 rate was favorably impacted by the scheduled reduction in the French corporate tax rate to 27.5%, the enacted 50% reduction in the French business tax rate, and a higher level of pre-tax earnings. The 32.9% effective tax rate for the three months ended September 30, 2021 was higher than the United States Federal statutory rate of 21% primarily due to the French business tax, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the overall mix of earnings. The COVID-19 crisis is creating uncertainty around predicting future earnings, and that uncertainty could make it more difficult for us to accurately estimate tax rates into the future.

Net earnings per share - diluted was $1.77 in the third quarter of 2021 compared to $0.18 in the third quarter of 2020. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately $0.01 per share in the third quarter of 2021. Restructuring costs recorded in the third quarter of 2021 and 2020 negatively impacted net earnings per share - diluted by approximately $0.07 and $0.72, net of tax, in the third quarter of 2021 and 2020, respectively. The acquisition transaction costs in the third quarter of 2021 negatively impacted net earnings per share - diluted by approximately $0.09, net of tax, in the third quarter of 2021. The loss from the disposition of subsidiaries in the third quarter of 2020 negatively impacted net earnings per share - diluted by approximately $0.09, net of tax, in the third quarter of 2020.

Weighted average shares - diluted decreased to 55.2 million in the third quarter of 2021 from 58.5 million in the third quarter of 2020. This decrease was due to the impact of share repurchases completed since the third quarter of 2020, partially offset by shares issued as a result of exercises and vesting of share-based awards since the third quarter of 2020.







        Operating Results - Nine Months Ended September 30, 2021 and 2020
        The following table presents selected consolidated financial data for the nine
        months ended September 30, 2021 to 2020.
                                                                                                Constant
                                                                                                Currency
        (in millions, except per share data)          2021           2020        Variance       Variance
        Revenues from services                     $ 15,342.1     $ 12,946.1          18.5 %         13.2 %
        Cost of services                             12,860.9       10,920.3          17.8 %         12.4 %
        Gross profit                                  2,481.2        2,025.8          22.5 %         17.5 %
        Gross profit margin                              16.2 %         15.6 %
        Selling and administrative expenses,
        excluding goodwill impairment charge          2,062.4        1,909.7           8.0 %          3.7 %
        Goodwill impairment charge                          -           66.8           N/A            N/A
        Selling and administrative expenses           2,062.4        1,976.5           4.3 %          0.2 %
        Operating profit (loss)                         418.8           49.3         749.8 %        712.9 %
        Operating profit (loss) margin                    2.7 %          0.4 %
        Interest and other expenses, net                 13.1           32.3         (59.2 )%
        Earnings (loss) before income taxes             405.7           17.0        2281.0 %       2182.2 %
        Provision for income taxes                      134.4           69.4          93.5 %
        Effective income tax rate                        33.1 %        407.4 %
        Net earnings (loss)                        $    271.3     $    (52.4 )         N/A            N/A
        Net earnings (loss) per share - diluted    $     4.90     $    (0.90 )         N/A            N/A
        Weighted average shares - diluted                55.4           58.4          (5.1 )%
        


The year-over-year increase in revenues from services of 18.5% (13.2% in constant currency and 13.5% in organic constant currency) was attributed to:

The year-over-year 60 basis point increase in gross profit margin was primarily attributed to:

The 4.3% increase in selling and administrative expenses in the nine months ended September 30, 2021 (0.2% in constant currency; 0.6% in organic constant currency) was primarily attributed to:

Nov 08, 2021

COMTEX_396531433/2041/2021-11-08T17:04:33

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