MANPOWERGROUP INC. See the financial measures section on pages 37-38 for further information on the Non-GAAP financial measures of constant currency and organic constant currency.
Forward-Looking Statements
Statements made in this quarterly report that are not statements of historical fact are forward-looking statements. In addition, from time to time, we and our representatives may make statements that are forward-looking. All forward-looking statements involve risks and uncertainties. The information in Item 1A. - Risk Factors in our annual report on Form 10-K for the year endedDecember 31, 2019 and in Part II, Item 1A. Risk Factors in our quarterly report on Form 10-Q for the quarter endedMarch 31, 2020 , which information is incorporated herein by reference, provide cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause our actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements can be identified by words such as "expect," "anticipate," "intend," "plan," "may," "believe," "seek," "estimate," and other similar expressions. Some or all of the factors identified in our annual report on Form 10-K and in Part II, Item 1A. - Risk Factors in our quarterly report on Form 10-Q for the quarter endedMarch 31, 2020 , may be beyond our control. Other risks and uncertainties include, but are not limited to, the following: the financial and operational impacts of the COVID-19 pandemic and related economic conditions and the Company's efforts to respond to such impacts, including the possibility that lockdown restrictions that were eased during the second quarter of 2020 in many countries may be reinstated if the spread of the coronavirus accelerates; changes in tax legislation in places we do business; challenges in operating our business in certain European markets; failure to implement strategic technology investments; and other factors that may be disclosed from time to time in ourSEC filings or otherwise. We caution that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.
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, 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, as we experienced in the third quarter of 2020 when compared to the prior year, 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. Our third quarter results were negatively impacted by the COVID-19 crisis, with revenues declining 12.7% during the quarter. The pandemic reduced demand for our services across almost all of our operations. We believe we have seen some signs of a global recovery as the third quarter progressed with our results reflecting a stronger market environment. At the beginning of the quarter, it appeared the impact of the COVID-19 crisis was stabilizing in many parts of the world, and economies slowly reopened. However, as the quarter came to a close a number of countries started to see increased cases of COVID-19 that are leading to the implementation of new restrictions in an effort to mitigate the spread. Unlike the lockdowns and restrictions experienced earlier in the year, we do not anticipate the same country-wide lockdowns, but more targeted and localized restrictions. Continued uncertainty remains as to the future impact of the pandemic on global and local economies. The ultimate impact may depend on multiple factors which cannot be predicted, including public health conditions and the possibility of local and national governments enforcing new restrictions on commerce, which could have an adverse impact on our business, or, conversely the prospect of additional fiscal stimulus packages, which could be beneficial. What started as a sudden and swift slowdown of the global economies and labor markets is expected to take longer to recover around the world than we had initially contemplated. We currently anticipate a two-tiered recovery with certain industries recovering quicker in the near term and other industries continuing to be impacted in the medium- to long-term. In addition to the impact from COVID-19 discussed above, results for the quarter were impacted by currency. During the third quarter of 2020,the United States dollar was weaker, on average, relative to the currencies in all of our markets, except in Other Americas, which therefore had a favorable impact on our reported results and generally may overstate the performance of our underlying 25 -------------------------------------------------------------------------------- business. The changes in the foreign currency exchange rates had a 1.8% favorable impact on revenues from services and no 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 three months endedSeptember 30, 2020 , our businesses experienced improvement in year-over-year revenue trends from the second quarter reflecting a stronger market environment and early signs of a global recovery. Our consolidated revenues were down 14.5% year-over-year in constant currency in the quarter, an improvement from the 28.0% year-over-year constant currency decrease in the second quarter of 2020. After adjusting for billing days, our organic constant currency revenue year-over-year decrease was 14.9% in the third quarter of 2020 compared to a 26.6% decrease in the second quarter of 2020. Although the most dramatic revenue declines occurred in the second quarter, as European governments imposed states of emergency and related lockdowns, we continued to experience revenue declines during the third quarter on a year-over-year basis as regional economies remained at reduced activity levels as a result of COVID-19. We experienced a gradual improvement in the rates of decline throughout the third quarter of 2020 with monthly year-over-year revenue declines of 18% in July, 16% in August, and 9% in September. The progressive improvement in the rate of year-over-year revenue decline during the quarter reflects the continued increase in activity levels since the reopening of economies largely in May as governments in some of our largest countries lifted lock-down requirements. We experienced a 25.1% decrease (-26.9% in constant currency and -27.0% in organic constant currency) in our permanent recruitment business in the third quarter of 2020 compared to 2019 as a result of the COVID-19 crisis. On an overall basis, our Talent Solutions business, which includes Recruitment Process Outsourcing (RPO),TAPFIN - Managed Service Provider (MSP) and our Right Management offerings, experienced a decline in the quarter, which was driven by RPO activity. We experienced a sharp reduction in RPO activity as many client programs continued their hiring freezes initiated in the second quarter due to the COVID-19 crisis, although we did see improvement in the rate of year-over-year revenue decline from the second quarter. Our MSP business has been resilient during the crisis and experienced growth during the quarter as we assisted more clients to develop customized workforce solutions during the economic downturn. Our Right Management business experienced growth during the quarter driven by the increase demand for our career transition services. During the third quarter of 2020 compared to 2019, most of our markets experienced revenue declines due to the COVID-19 crisis. We experienced a revenue decrease inSouthern Europe , mainly driven by revenue declines inFrance andItaly due to the continued impact from the crisis. We experienced a revenue decrease inNorthern Europe due to the declines in all of our key markets as a result of the COVID-19 crisis. After adjusting for billing days, our organic constant currency decrease in theAmericas was 13.0% driven by a decrease inthe United States related to the COVID-19 crisis. After adjusting for billing days, revenues in constant currency decreased 5.4% in APME due to the COVID-19 crisis, partially offset by an increase inJapan due to an increase in demand for our staffing/interim revenues. Our gross profit margin in the third quarter of 2020 compared to 2019 decreased due to the decrease in our permanent recruitment business as a result of the COVID-19 crisis and the margin decrease in ourProservia managed services business. The decrease was also due the decline in our staffing/interim margins in theAmericas andNorthern Europe due to the higher mix of our lower-margin enterprise client business. The overall gross margin decrease was partially offset by the growth in our higher-margin career transition services within our Right Management business and increases in staffing/interim margins inSouthern Europe due to the favorable impact of a direct cost accrual adjustment inFrance related to a payroll tax audit recorded in the third quarter of 2020 and in APME primarily due to the improvement inJapan . We recorded$49.9 million of restructuring costs in the third quarter of 2020, comprised of$16.7 million in theAmericas ,$7.6 million inSouthern Europe ,$24.1 million inNorthern Europe , and$1.5 million in APME. The restructuring costs were primarily related to real estate optimization and streamlining our operations. We expect to recover the restructuring costs through cost savings over the next 12 months with full run-rate savings beginning in the first quarter of 2021. 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. 26 -------------------------------------------------------------------------------- Our operating profit decreased 71.6% in the third quarter of 2020 (-71.6% in constant currency; -71.9% in organic constant currency) while our operating profit margin decreased 280 basis points compared to the third quarter of 2019. Excluding the restructuring costs, the loss of$5.8 million from the disposition of ourSerbia ,Slovenia ,Bulgaria , andCroatia businesses incurred in the third quarter of 2020 and the$30.4 million gain related to the deconsolidation ofManpowerGroup Greater China Limited ("Deconsolidation") in the third quarter of 2019, our operating profit was down 38.4% in constant currency while operating profit margin was down 100 basis points compared to the third quarter of 2019. The decrease in operating profit margin reflects the material deleveraging that accompanied the decrease in revenues from the sustained impact of the COVID-19 crisis. We took significant actions in late March and early April, which allowed us to reduce selling and administrative expenses in our business. These reductions remained in place during the third quarter of 2020, which partially offset the revenue and gross profit declines during the third quarter. This included leveraging government unemployment related benefits, which allowed us to move unutilized staff and associates quickly onto these programs, with most of the benefits from these actions occurring in the second quarter. There were a few programs still in place, mostly inGermany andthe Netherlands , in the third quarter from which we were still benefitting. This also included the short-term action of cutting discretionary costs and scaling operations back. In addition to these implemented initiatives, we are prepared to take further cost actions to optimize our business structure through this economic downturn with the intention of simultaneously preserving our ability to rebound when market conditions improve. 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.
As we manage through this crisis and prepare our business for future opportunities we would also like to emphasize the following points:
• Many of our leaders have experience managing through economic downturns, and
many of our senior operational leaders previously managed parts of our
business during the economic downturn in 2008-2009. We believe this isvaluable experience for the current economic environment. Additionally, we
have enhanced our enterprise risk management framework in recent years, and
we have business continuity plans which have been executed at a global,
regional and country level.
• The technology investments we have been making for the last few years as
part of our transformational activities have facilitated a rapid response to
the COVID-19 crisis. As of
our full-time equivalent employees working remotely while mitigating
potential productivity losses. We have also extended our cyber and
information security capability to accelerate the ability for some of our
associates and consultants to work for our clients at home mitigating
potential operational or financial losses. Expectations of when our
full-time equivalent employees return to the workplace will depend on anumber of factors including the impact such a return would have on the
safety, health and well-being of our employees as well as the impact from
any government mandates or restrictions.
• Our business has benefitted from our diversification across geographies,
industries, and offerings, that we believe position us well to endure the
COVID-19 crisis. We believe this diversification may likewise position us to
take advantage of market opportunities that present themselves. For example,
during both the third quarter and first nine months of 2020 compared to
2019, we have seen smaller declines within our Experis business compared to
the Manpower business, and we are positioned with a large portion of our
business focused on providing professional services and Talent Solutions. We
believe our strategy to improve the diversification of our business through
the growth of Experis will facilitate growth following the crisis as
companies accelerate technology investments. Additionally, portions of our
Talent Solutions business are assisting our clients through this downturn
with customized solutions. Right Management has experienced increased demand
for career transition services and has historically been a counter-cyclical
business that helps offset the impact of an economic downturn.
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Operating Results - Three Months Ended
The following table presents selected consolidated financial data for the three
months ended
Constant
Currency
(in millions, except per share data) 2020 2019 Variance Variance
Revenues from services $ 4,584.8 $ 5,248.9 (12.7 )% (14.5 )%
Cost of services 3,859.7 4,408.6 (12.5 )% (14.3 )%
Gross profit 725.1 840.3 (13.7 )% (15.4 )%
Gross profit margin 15.8 % 16.0 %
Selling and administrative expenses 663.5 623.3 6.5 % 4.1 %
Operating profit 61.6 217.0 (71.6 )% (71.6 )%
Operating profit margin 1.3 % 4.1 %
Interest and other expenses, net 6.0 12.2 (51.4 )%
Earnings before income taxes 55.6 204.8 (72.8 )% (72.7 )%
Provision for income taxes 45.3 58.7 (22.8 )%
Effective income tax rate 81.5 % 28.6 %
Net earnings $ 10.3 $ 146.1 (93.0 )% (92.9 )%
Net earnings per share - diluted $ 0.18 $ 2.42 (92.6 )% (92.6 )%
Weighted average shares - diluted 58.5 60.3 (3.0 )%
The year-over-year decrease in revenues from services of 12.7% (-14.5% in constant currency and -14.7% in organic constant currency) was attributed to:
• a revenue decrease in
currency). This included a revenue decrease in
constant currency), which was primarily due to a decrease in demand for our
Manpower staffing services and a 17.5% decrease (-21.6% in constant
currency) in the permanent recruitment business, both due to the impact of
the COVID-19 crisis. The decrease also includes a decrease in
(-11.3% in constant currency), which was primarily due to the decreased
demand for our Manpower staffing services and a 26.1% decrease (-29.7% in
constant currency) in the permanent recruitment business, both due to the
impact of the COVID-19 crisis, partially offset by the favorable impact of
approximately one more billing day;
• decreased demand for services in most of our markets within
where revenues decreased 18.8% (-21.6% in constant currency), primarily due
to reduced demand for our Manpower staffing services and a 32.9% decrease
(-35.9% in constant currency) in the permanent recruitment business, both
primarily due to the impact of the COVID-19 crisis. We experienced revenue
declines in the
-31.5%, -15.1%, -22.6%, and -29.1%, respectively, in constant currency);
• a revenue decrease in
basis) primarily driven by decreased demand for our staffing/interim
services and a decrease in our permanent recruitment business of 14.8%
(-15.2% on an organic basis), both due to the impacts of the COVID-19
crisis, partially offset by increased demand for our MSP offering and career
transition services; and
• a revenue decrease in APME of 5.4% (-6.0% in constant currency) due to the
decline in demand for our staffing/interim services and a decrease in our
permanent recruitment business of 15.8% (-18.2% in constant currency),
partially offset by an increase in revenues in Japan and an increase in
demand for our Talent-Based Outsourcing services within the Manpower
business; partially offset by
• a 1.8% increase due to the impact of changes in currency exchange rates.
The year-over-year 20 basis point decrease in gross profit margin was primarily attributed to:
• a 30 basis point unfavorable impact due to the decrease in our permanent
recruitment business of 25.1% (-26.9% in constant currency and -27.0% in
organic constant currency);
28
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• a 20 basis point unfavorable impact from declines in the staffing/interim
margins in the Americas and Northern Europe due to the higher mix of our
lower-margin enterprise client business; and
• a 10 basis point unfavorable impact from the decrease in margin in our
in
• a 20 basis point favorable impact from the growth in our higher-margin
career transition services within our Right Management business; and
• a 20 basis point favorable impact from staffing/interim margin increases in
the
adjustment in
quarter of 2020 and APME primarily due to the improvement in Japan .The 6.5% increase in selling and administrative expenses in the third quarter of 2020 (4.1% in constant currency; 3.9% in organic constant currency) was primarily attributed to:
• restructuring costs of
• the
of 2019;
• the
quarter of 2020;
• the additional recurring selling and administrative costs of
incurred as a result of the franchise acquisitions in
August and
• a 2.4% increase due to the impact of changes in currency exchange rates;
partially offset by
• a 6.4% decrease (-8.3% in constant currency and -8.6% in organic constant
currency) in personnel costs due to a reduction of salary-related costs as a
result of lower headcount and a decrease in variable incentive costs due to
a decline in profitability in most markets; and
• an 8.2% decrease (-10.2% in constant currency and -10.3% in organic constant
currency) in non-personnel related costs, excluding restructuring costs,
loss from the disposition of subsidiaries and gain related to the
Deconsolidation, due to cost management actions taken across all segments as
a result of revenue declines.
Selling and administrative expenses as a percent of revenues increased 260 basis points in the third quarter of 2020 compared to the third quarter of 2019 due primarily to:
• a 110 basis point unfavorable impact from restructuring costs in the third
quarter of 2020;
• a 70 basis point unfavorable impact from expense deleveraging, excluding
restructuring costs, the loss on the disposition of subsidiaries and the
gain related to the Deconsolidation, as we were unable to decrease selling
and administrative expenses at the same rate as our revenue decline;
• a 60 basis point unfavorable impact from the gain related to the
Deconsolidation in the third quarter of 2019;
• a 10 basis point unfavorable impact from the loss on disposition of
subsidiaries in the third quarter of 2020; and
• a 10 basis point unfavorable impact from changes in currency exchange rates.
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$6.0 million in the third quarter of 2020 compared to$12.2 million in the third quarter of 2019. Net interest expense decreased$3.6 million in the third quarter of 2020 to$7.7 million from$11.3 million in the third quarter of 2019 primarily due to an increase interest income as a result of higher cash balances. Miscellaneous income was$2.3 million in the third quarter of 2020 compared to$3.2 million in the third quarter of 2019. 29 -------------------------------------------------------------------------------- We recorded income tax expense at an effective rate of 81.5% for the three months endedSeptember 30, 2020 , as compared to an effective rate of 28.6% for the three months endedSeptember 30, 2019 . The 2020 rate was unfavorably impacted by the relatively low level and mix of pre-tax earnings, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, including the recognition of a discrete valuation allowance inGermany , and the French business tax. The French business tax had a more significant unfavorable impact in the quarter due to French pre-tax earnings decreasing at a greater rate than revenues, which is the primary basis for the tax calculation. The effective tax rate of 81.5% for the three months endedSeptember 30, 2020 was significantly higher than the United States Federal statutory rate of 21% primarily due to the factors noted above. The COVID-19 crisis has created uncertainty in predicting future earnings before income taxes and its impact to the third quarter of 2020 along with quarterly effective tax rates for future quarters may be material. Net earnings per share - diluted was$0.18 in the third quarter of 2020 compared to$2.42 in the third quarter of 2019. Restructuring costs recorded in the third quarter of 2020 negatively impacted net earnings per share - diluted by approximately$0.72 in the third quarter of 2020. The loss from the disposition of subsidiaries in the third quarter of 2020 negatively impacted net earnings per share - diluted by approximately$0.09 in the third quarter of 2020. The gain from the ManpowerGroup Greater China Limited IPO recorded in the third quarter of 2019 positively impacted net earnings per share - diluted by approximately$0.50 per share in the third quarter of 2019. Weighted average shares - diluted decreased to 58.5 million in the third quarter of 2020 from 60.3 million in the third quarter of 2019. This decrease was due to the impact of share repurchases completed since the third quarter of 2019 and the full weighting of the repurchases completed in the third quarter of 2019, partially offset by shares issued as a result of exercises and vesting of share-based awards since the third quarter of 2019.
Operating Results - Nine months ended
Constant
Currency
(in millions, except per share data) 2020 2019 Variance Variance
Revenues from services $ 12,946.1 $ 15,666.9 (17.4 )% (16.4 )%
Cost of services 10,920.3 13,151.4 (17.0 )% (15.9 )%
Gross profit 2,025.8 2,515.5 (19.5 )% (18.6 )%
Gross profit margin 15.6 % 16.1 %
Selling and administrative expenses,
excluding goodwill impairment charges 1,909.7 1,998.2 (4.4 )% (3.6 )%
Goodwill impairment charges 66.8 64.0 4.2 % 4.6 %
Selling and administrative expenses 1,976.5 2,062.2 (4.2 )% (3.3 )%
Operating profit 49.3 453.3 (89.1 )% (88.4 )%
Operating profit margin 0.4 % 2.9 %
Interest and other expenses (income), net 32.3 (46.1 )
N/A
Earnings before income taxes 17.0 499.4 (96.6 )% (96.0 )% Provision for income taxes 69.4 172.5 (59.8 )% Effective income tax rate 407.4 % 34.5 % Net (loss) earnings$ (52.4 ) $ 326.9 N/A N/A
Net (loss) earnings per share - diluted
N/A N/A Weighted average shares - diluted 58.4 60.6 (3.6 )%
The year-over-year decrease in revenues from services of 17.4% (-16.4% in constant currency and -16.0% in organic constant currency) was attributed to:
• a revenue decrease in
-21.2% in organic constant currency). This included a revenue decrease in
decrease in our Manpower staffing services and a 25.5% decrease (-25.4% in
constant currency) in the permanent recruitment business, both due to the
impact of the COVID-19 crisis. The decrease also includes a decrease indecreased demand for our Manpower staffing services and a 34.2% decrease
(-34.0% in constant currency) in the permanent recruitment business, both
due to the impact of the COVID-19 crisis;
30
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• decreased demand for services in most of our markets within
where revenues decreased 19.1% (-17.9% in constant currency; -17.7% in
organic constant currency), primarily due to reduced demand for our Manpower
staffing services and a 32.1% decrease (-31.3% in constant currency) in the
permanent recruitment business as a result of the impact of the COVID-19
crisis. We experienced revenue declines in the
Nordics, the Netherlands and Belgium of 14.9%, 26.1%, 19.1%, 21.9% and
27.7%, respectively (-14.7%, -26.0%, -15.3%, -21.9%, and -27.8%,
respectively, in constant currency);
• a revenue decrease in
basis) primarily driven by a decline in demand for our Manpower staffing
services and a 13.8% (-14.3% on an organic basis) decrease in the permanent
recruitment business, both due to the impact of the COVID-19 crisis,
partially offset by an increase in our Talent Solutions business, primarily
within our MSP offering and career transition services;
• a revenue decrease in APME of 14.2% (-13.3% in constant currency; -2.8% in
organic constant currency) due to the Deconsolidation, partially offset by
an increase in revenues in Japan and an increase in demand for our
Talent-Based Outsourcing services within the Manpower business; and
• a 1.0% decrease due to the impact of changes in currency exchange rates.
The year-over-year 50 basis point decrease in gross profit margin was primarily attributed to:
• a 30 basis point unfavorable impact due to the decrease in our permanent
recruitment business of 28.1% (-27.2% in constant currency and -23.9% in
organic constant currency);
• a 20 basis point unfavorable impact due to the margin decrease in our
in Germany ; and
• a 10 basis point unfavorable impact from a deterioration in our
staffing/interim margin in the
and higher rates of sickness and absenteeism in certain countries and
increased direct costs associated with early termination of client contracts
during the COVID-19 crisis. These unfavorable impacts were partially offset
by reduced direct costs in certain countries due to government crisis
response programs, a direct cost accrual adjustment in
payroll tax audit recorded in the first nine months of 2020, our execution
of various bill/pay yield initiatives due to the COVID-19 crisis; partially
offset by
• a 10 basis point favorable impact by growth in our higher-margin MSP
offering and career transition services.
The 4.2% decrease in selling and administrative expenses in the nine months
ended
• a 10.7% decrease (-9.8% in constant currency and -8.8% in organic constant
currency) in personnel costs due to a reduction of salary-related costs as a
result of lower headcount and a decrease in variable incentive costs due to
a decline in profitability in most markets, and the benefits related to the
transition of full-time equivalent employees onto government temporary
unemployment programs that mostly occurred in the second quarter of 2020;
• a 6.7% decrease (-5.8% in constant currency and -5.0% in organic constant
currency) in non-personnel related costs, excluding goodwill and other
impairment charges, restructuring costs, loss on disposition of
subsidiaries, and gain related to Deconsolidation, due to cost management
actions taken across all segments as a result of revenue declines;
• the reduction in recurring selling and administrative costs of
as a result of the Deconsolidation in
• a 0.9% decrease due to the impact of changes in currency exchange rates;
partially offset by
• an increase in restructuring costs to$98.1 million incurred in the nine months endedSeptember 30, 2020 from$39.8 million incurred in the nine months endedSeptember 30, 2019 ;
• the
ended September 30, 2019 ;
31
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• the additional recurring selling and administrative costs of
incurred as a result of the acquisition of Manpower Switzerland in Southern
2019;
• the increase in goodwill and other impairment charges to
the nine months ended September 30, 2020 from $65.6 million in the nine
months ended September 30, 2019 ; and
• the
ended
Selling and administrative expenses as a percent of revenues increased 210 basis points in the nine months endedSeptember 30, 2020 compared to the first nine months of 2019 due primarily to:
• a 120 basis point unfavorable impact from expense deleveraging, excluding
goodwill and other impairment charges, restructuring costs, loss on
disposition of subsidiaries, and gain related to Deconsolidation, as we were
unable to decrease selling and administrative expenses at the same rate as
our revenue decline;
• a 50 basis point unfavorable impact from the increase in restructuring costs
in the nine months ended September 30, 2020 compared to 2019;
• a 20 basis point unfavorable impact from the gain related to the
Deconsolidation in the nine months ended September 30, 2019 ;
• a 10 basis point unfavorable impact from the increase in goodwill and other
impairment charges; and
• a 10 basis point unfavorable impact from changes in currency exchange rates.
Interest and other expenses (income), 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 (income), net was expense of$32.3 million in the nine months endedSeptember 30, 2020 compared to income of$46.1 million in the nine months endedSeptember 30, 2019 . Net interest expense decreased$7.7 million in the nine months endedSeptember 30, 2020 to$22.4 million from$30.1 million in the nine months endedSeptember 30, 2019 primarily due to an increase in interest income as a result of higher cash balances. Miscellaneous expense (income), net was an expense$5.7 million in the nine months endedSeptember 30, 2020 compared to income of$82.7 million in the nine months endedSeptember 30, 2019 . The change is primarily due to the$80.4 million from the acquisition of Manpower Switzerland in the nine months endedSeptember 30, 2019 , the pension settlement expense of$10.2 million recorded in the nine months endedSeptember 30, 2020 and the decrease in noncontrolling interest expense as a result of a decrease in earnings in a joint venture inGermany . We recorded income tax expense at an effective rate of 407.4% for the nine months endedSeptember 30, 2020 , as compared to an effective rate of 34.5% for the nine months endedSeptember 30, 2019 . The 2020 rate was unfavorably impacted by the relatively low level and mix of pre-tax earnings, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, including the recognition of a discrete valuation allowance inGermany , the non-deductible goodwill impairment charge inGermany , and the French business tax. The effective tax rate of 407.4% for the nine months endedSeptember 30, 2020 was significantly higher thanthe United States Federal statutory rate of 21% primarily due to the factors noted above. Net (loss) earnings per share - diluted was a loss of$0.90 in the nine months endedSeptember 30, 2020 compared to earnings of$5.40 in the nine months endedSeptember 30, 2019 . Foreign currency exchange rates unfavorably impacted net (loss) earnings per share - diluted by approximately$0.01 per share in the nine months endedSeptember 30, 2020 . Restructuring costs recorded in the nine months endedSeptember 30, 2020 and 2019 negatively impacted net (loss) earnings per share - diluted by approximately$1.40 and$0.52 per share, net of tax, in the nine months endedSeptember 30, 2020 and 2019, respectively.Goodwill and other impairment charges recorded in the nine months endedSeptember 30, 2020 and 2019 negatively impacted net earnings per share - diluted by approximately$1.14 and$1.08 per share in the nine months endedSeptember 30, 2020 and 2019, respectively. The pension settlement expense recorded in the nine months endedSeptember 30, 2020 negatively impacted net loss per share - diluted by approximately$0.11 , net of tax, in the nine months endedSeptember 30, 2020 . The loss from the disposition of subsidiaries in the nine months endedSeptember 30, 2020 negatively impacted net earnings per share - diluted by approximately$0.09 , net of tax, in the nine months endedSeptember 30, 2020 . The gain from the acquisition of Manpower Switzerland recorded in the nine months endedSeptember 30, 2019 positively impacted net earnings per share - diluted by approximately$1.33 per share in the nine months ended 32 --------------------------------------------------------------------------------September 30, 2019 . The gain from the Deconsolidation recorded in the nine months endedSeptember 30, 2019 positively impacted net earnings per share - diluted by approximately$0.50 per share in the nine months endedSeptember 30, 2019 . Weighted average shares - diluted decreased to 58.4 million in the nine months endedSeptember 30, 2020 from 60.6 million in the nine months endedSeptember 30, 2019 . This decrease was due to the impact of share repurchases completed sinceSeptember 30, 2019 and the full weighting of the repurchases completed in the nine months endedSeptember 30, 2019 , partially offset by shares issued as a result of exercises and vesting of share-based awards sinceSeptember 30, 2019 . Segment Operating ResultsAmericas In theAmericas , revenues from services decreased 15.1% (-11.2% in constant currency; -12.5% in organic constant currency) in the third quarter of 2020 compared to 2019. Inthe United States , revenues from services decreased 13.1% (-15.2% on an organic basis) in the third quarter of 2020 compared to 2019, primarily driven by decreased demand for our staffing/interim services and a decrease in our permanent recruitment business of 14.8% (-15.2% on an organic basis), both due to the impacts of the COVID-19 crisis. These decreases inthe United States were partially offset by increased demand for our MSP offering as well as increased demand for career transition services, within our Right Management business. In Other Americas, revenues from services decreased 18.2% (-8.2% in constant currency) in the third quarter of 2020 compared to 2019 primarily due to the impacts of the COVID-19 crisis. This decline was driven by decreases inMexico ,Canada ,Peru ,Colombia andBrazil of 20.0%, 11.2%, 25.1%, 42.8%, and 12.2%, respectively (-9.1%, -10.4%, -20.6%, -36.1% and increase of 18.9%, respectively, in constant currency). These decreases were offset by an increase inArgentina of 7.9% (58.1% in constant currency) primarily due to inflation. In theAmericas , revenues from services decreased 13.0% (-9.0% in constant currency, -10.4% in organic constant currency) in the nine months endedSeptember 30, 2020 compared to 2019. Inthe United States , revenues from services decreased 12.2% (-14.5% on an organic basis) in the nine months endedSeptember 30, 2020 compared to 2019, primarily driven by decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 13.8% (-14.3% on an organic basis), both due to the impacts of the COVID-19 crisis. These decreases inthe United States were partially offset by increased demand for our MSP offering and career transition services. In OtherAmericas , revenues from services decreased 14.4% (-4.2% in constant currency) in the nine months endedSeptember 30, 2020 compared to 2019 primarily due to the impacts of the COVID-19 crisis. This decline was driven by decreases inMexico ,Canada ,Argentina ,Peru ,Colombia andBrazil of 16.6%, 4.4%, 2.9%, 16.3%, 34.0% and 21.5%, respectively (-6.6%, -2.7%, increase of 48.5%, -13.2%, -24.9% and increase of 1.9%, respectively, in constant currency). The constant currency increase inArgentina was primarily due to inflation. Gross profit margin increased in both the third quarter and the nine months endedSeptember 30, 2020 compared to 2019 primarily due to gross profit margin increases inthe United States from the increase in revenues from our higher-margin career transition services and MSP offering. This increase was partially offset by the decreases in our permanent recruitment business of 20.0% and 17.6%, respectively (-18.6% and -16.2%, respectively, in constant currency) and declines in the staffing/interim margin due to client mix changes, as a higher percentage of revenues came from our lower margin enterprise clients. In the third quarter of 2020, selling and administrative expenses increased 0.8% (3.4% in constant currency and 2.5% in organic constant currency), primarily due to the increase in restructuring costs to$16.7 million in the third quarter of 2020 compared to zero in the third quarter of 2019 and the additional recurring selling and administrative costs incurred as a result of the franchise acquisitions inthe United States in August andOctober 2019 . These increases were partially offset by the decrease in salary-related costs, because of lower headcount, and discretionary expenses. Selling and administrative expenses increased 0.3% (3.0% in constant currency and 1.9% in organic constant currency) in the nine months endedSeptember 30, 2020 compared to 2019, primarily due to the increase in restructuring costs to$29.5 million in the first nine months of 2020 compared to$9.8 million in the first nine months of 2019, the impairment charge of$6.0 million recorded inthe United States related to capitalized software in the first nine months of 2020, a bad debt expense and a state sales tax related charge incurred in the first nine months of 2020, and the additional recurring selling and administrative costs incurred as a result of the franchise acquisitions inthe United States . These increases were partially offset by decreases in salary-related costs, due to lower headcount, and discretionary expenses. Operating Unit Profit ("OUP") margin in theAmericas was 3.4% and 5.4% for the third quarter of 2020 and 2019, respectively. Inthe United States , OUP margin decreased to 3.3% in the third quarter of 2020 from 6.0% in 2019 primarily due to the increase in 33
-------------------------------------------------------------------------------- restructuring costs and expense deleveraging, as we were unable to decrease expenses at the same rate as the accelerated revenue decline due to the COVID-19 crisis, partially offset by the increase in the gross profit margin. Other Americas OUP margin decreased to 3.5% in the third quarter of 2020 from 4.6% in the third quarter of 2019 due primarily to the decrease in the gross profit margin, increase in restructuring costs and expense deleveraging. OUP margin in theAmericas was 2.4% and 4.6% for the nine months endedSeptember 30, 2020 and 2019, respectively. Inthe United States , OUP margin decreased to 1.8% for the nine months endedSeptember 30, 2020 from 4.8% in 2019 primarily due to the increase in restructuring costs, the software impairment charge and expense deleveraging. These decreases were partially offset by the increase in the gross profit margin. Other Americas OUP margin decreased to 3.5% for the nine months endedSeptember 30, 2020 from 4.2% in 2019 primarily due to a decline in the gross profit margin and expense deleveraging.
InSouthern Europe , which includes operations inFrance andItaly , revenues from services decreased 10.4% (-14.7% in constant currency) in the third quarter of 2020 compared to 2019. In the third quarter of 2020, revenues from services decreased 13.1% (-17.3% in constant currency) inFrance (which represents 57% ofSouthern Europe's revenues) and decreased 6.8% (-11.3% in constant currency) inItaly (which represents 17% ofSouthern Europe's revenues), with both experiencing improvement in the rate of revenue decline as the third quarter progressed. The decrease inFrance is primarily due to decreased demand for our Manpower staffing services and a 17.5% decrease (-21.6% in constant currency) in the permanent recruitment business, both due to the impact of the COVID-19 crisis. The decrease inItaly was primarily due to the decreased demand for our Manpower staffing services and a 26.1% decrease (-29.7% in constant currency) in the permanent recruitment business, both due to the impact of the COVID-19 crisis, partially offset by the favorable impact of approximately one more billing day. In Other Southern Europe, revenues from services decreased 6.5% (-10.7% in constant currency) during the third quarter of 2020 compared to 2019, due to decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 43.2% (-45.0% in constant currency), both due to the impact of the COVID-19 crisis. Revenues from services decreased 19.4% (-19.9% in constant currency) in the nine months endedSeptember 30, 2020 compared to 2019. In the nine months endedSeptember 30, 2020 , revenues from services decreased 26.3% (-26.6% in constant currency) inFrance and decreased 16.0% (-16.2% in constant currency) inItaly . The decrease inFrance is due to decreased demand for our Manpower staffing services and a 25.5% (-25.4% in constant currency) decrease in our permanent recruitment business, both due to the impact of the COVID-19 crisis. The decrease inItaly was primarily due to decreased demand for our Manpower staffing services and a 34.2% (-34.0% in constant currency) decrease in our permanent recruitment business, both due to the impact of the COVID-19 crisis. In Other Southern Europe, revenues from services decreased 4.3% (-5.3% in constant currency) during the nine months endedSeptember 30, 2020 compared to 2019, due to decreased demand for our Manpower staffing services and a decrease in our permanent recruitment business of 33.7% (-33.7% in constant currency), both due to the impact of the COVID-19 crisis. Gross profit margin decreased in both the third quarter and the first nine months of 2020 compared to 2019 primarily due to the decrease of 30.5% (-33.4% in constant currency) in the permanent recruitment business, partially offset by the increase in the staffing/interim gross profit margin due to a direct cost accrual adjustment inFrance related to a payroll tax audit recorded in the third quarter of 2020. Gross profit margin decreased in the first nine months of 2020 compared to 2019 primarily due to the decrease of 30.9% (-30.8% in constant currency) in the permanent recruitment business and a decrease in the staffing/interim gross profit margin inFrance ,Italy and certain countries within Other Southern Europe, partially offset by a direct cost accrual adjustment inFrance recorded in the first nine months of 2020. Selling and administrative expenses increased 2.0% (decrease -2.9% in constant currency) during the third quarter of 2020 compared to 2019 primarily due to an increase in restructuring costs to$7.6 million in the third quarter of 2020 compared to zero in the third quarter of 2019, the loss of$5.8 million from the disposition of ourSerbia ,Slovenia ,Bulgaria , andCroatia businesses, and the unfavorable impact of changes in currency exchange rates. These increases were partially offset by the reduction of our discretionary expenses, a decrease in personnel costs, as a result of a reduction in headcount, and a decrease in variable incentive costs due to a decline in profitability in most markets. Selling and administrative expenses decreased 5.7% (-6.2% in constant currency) in the nine months endedSeptember 30, 2020 compared to 2019. We took significant actions inFrance andItaly in March and April to reduce our costs to help offset the materially reduced revenues in the first nine months of 2020. In bothFrance andItaly , we transitioned full-time equivalent employees onto 34 -------------------------------------------------------------------------------- government temporary unemployment programs and other initiatives and eliminated a significant amount of discretionary spend to manage through the COVID-19 crisis. The decrease in selling and administrative expenses in the first nine months of 2020 was primarily due to the decreases in personnel costs, as a result of a reduction in headcount, a decrease in variable incentive costs due to a decline in profitability in most markets, and the benefits related to the transition of full-time equivalent employees onto government temporary unemployment programs in certain markets that mostly occurred in the second quarter of 2020. The decreases are also due to the reduction of our discretionary expenses. These decreases were offset by the increase in restructuring costs to$20.7 million in the first nine months of 2020 compared to$5.4 million in the first nine months of 2019, the loss on the disposition of subsidiaries and the additional recurring selling and administrative costs from our acquisition of the remaining interest in Manpower Switzerland. OUP margin inSouthern Europe was 3.4% for the third quarter of 2020 compared to 4.9% for 2019. InFrance , the OUP margin decreased to 4.3% for the third quarter of 2020 from 5.1% in 2019 primarily due to expense deleveraging partially offset by the increase in the gross profit margin. InItaly , the OUP margin decreased to 4.4% for the third quarter of 2020 from 6.2% for 2019 primarily due to the decline in the gross profit margin, the increase in restructuring costs to$1.8 million in the third quarter of 2020 compared to zero in the third quarter of 2019 and expense deleveraging. OtherSouthern Europe's OUP margin decreased to 0.9% for the third quarter of 2020 from 3.9% in 2019, due to the increase in restructuring costs to$5.8 million in the third quarter of 2020 compared to zero in the third quarter of 2019, the loss from the disposition of subsidiaries in the third quarter of 2020, decrease in the gross profit margin and expense deleveraging. OUP margin inSouthern Europe was 2.5% for the nine months endedSeptember 30, 2020 compared to 4.8% in 2019. InFrance , the OUP margin decreased to 2.9% in the nine months endedSeptember 30, 2020 compared to 4.9% in 2019. InItaly , the OUP margin decreased to 4.3% in the nine months endedSeptember 30, 2020 compared to 6.5% in 2019. The decreases inFrance andItaly were primarily due to the decline in the gross profit margin and expense deleveraging. OtherSouthern Europe's OUP margin decreased to 0.6% in the nine months endedSeptember 30, 2020 compared to 3.2% in 2019, due to the decrease in the gross profit margin, the increase in restructuring costs to$17.3 million in the first nine months of 2020 from$3.1 million in the first nine months of 2019, the loss from the disposition of subsidiaries in the first nine months of 2020 and expense deleveraging.
InNorthern Europe , which includes operations in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium (comprising 34%, 16%, 21%, 12%, and 8%, respectively, ofNorthern Europe's revenues), revenues from services decreased 18.8% (-21.6% in constant currency) in the third quarter of 2020 compared to 2019. We experienced revenue declines in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium of 18.3%, 28.0%, 13.2%, 18.6% and 25.3% (-22.0%, -31.5%, -15.1%, -22.6% and -29.1%, respectively, in constant currency). TheNorthern Europe revenue decrease is primarily due to reduced demand for our Manpower staffing services and a 32.9% decrease (-35.9% in constant currency) in the permanent recruitment business, both primarily due to the impact of the COVID-19 crisis. Revenues from services decreased 19.1% (-17.9% in constant currency) in the nine months endedSeptember 30, 2020 compared to 2019. We experienced revenue declines in theUnited Kingdom ,Germany , the Nordics,the Netherlands andBelgium of 14.9%, 26.1%, 19.1%, 21.9% and 27.7% (-14.7%, -26.0%, -15.3%, -21.9% and -27.8%, respectively, in constant currency). TheNorthern Europe revenue decrease is primarily due to reduced demand for our Manpower staffing services and a 32.1% decrease (-31.3% in constant currency) in the permanent recruitment business, both primarily due to the impact of the COVID-19 crisis. Gross profit margin decreased in both the third quarter and first nine months of 2020 compared to 2019 due to the decreases in our permanent recruitment business for the third quarter and nine months endedSeptember 30, 2020 compared to 2019, and the declines in the Experis interim margins due to client mix changes, as a higher percentage of revenues consisted of revenues from our lower-margin enterprise clients, and the margin decrease in ourProservia business primarily related to the lower utilization of consultants inGermany . Selling and administrative expenses increased 1.2% (decrease of -3.2% in constant currency) in the third quarter of 2020 compared to 2019 primarily due to the increase in restructuring costs to$24.1 million in the third quarter of 2020 from zero in the third quarter of 2019 and the unfavorable impact of changes in currency exchange rates. These increases were partially offset by the decrease in discretionary expenses and personnel costs, as a result of a reduction in headcount, a decrease in variable incentive costs due to declines in profitability in most markets, and the continued benefits related to the transition of full-time equivalent employees onto government temporary unemployment programs inGermany andthe Netherlands . 35 -------------------------------------------------------------------------------- Selling and administrative expenses decreased 9.7% (-8.9% in constant currency) in the nine months endedSeptember 30, 2020 compared to 2019 primarily due to the decrease in personnel costs, as a result of a reduction in headcount, a decrease in variable incentive costs due to declines in profitability in most markets, and the benefits related to the transition of full-time equivalent employees onto government temporary unemployment programs in certain markets, mostly in the second quarter of 2020. The decrease is also due to the decline in office-related expenses driven by a decrease in the number of offices, and a reduction of our discretionary expenses. These decreases were partially offset by increase of restructuring costs to$43.5 million in the first nine months of 2020 from$18.7 million in the first nine months of 2019 and the increase in the goodwill impairment charge inGermany of$66.8 million in the first nine months of 2020 compared to$60.2 million in the first nine months of 2019.Northern Europe experienced a decrease to an operating unit loss of 2.4% in the third quarter of 2020 from an OUP margin of 2.0% in the third quarter of 2019 and a decrease to an operating unit loss of 1.3% in the nine months endedSeptember 30, 2020 from an OUP margin of 1.4% in the nine months endedSeptember 30, 2019 . The decreases were primarily due to the declines in the gross profit margins, the increase in restructuring costs, and expense deleveraging. The decrease in the nine months endedSeptember 30, 2020 was also due increase in the goodwill impairment charge inGermany .
APME
Revenues from services decreased 5.4% (-6.0% in constant currency) in the third quarter of 2020 compared to 2019. InJapan (which represents 45% of APME's revenues), revenues from services increased 5.7% (4.5% in constant currency) due to the increased demand for our staffing/interim services, partially offset by a 13.0% decrease (-14.0% in constant currency) in our permanent recruitment business and the unfavorable impact of approximately one fewer billing day. InAustralia (which represents 17% of APME's revenues), revenues from services decreased 4.5% (-8.4% in constant currency) due to the decline in demand for our staffing/interim services and the 5.0% (-8.8% in constant currency) decrease in our permanent recruitment business, both due to the impact of the COVID-19 crisis, as well as the unfavorable impact of approximately one fewer billing day. The revenue decrease in the remaining markets in APME is due to the decline in demand for our staffing/interim services and the decrease in our permanent recruitment business, both due to the COVID-19 crisis, partially offset by the increase in demand for our Talent-Based Outsourcing services within our Manpower business. Revenues from services decreased 14.2% (-13.3% in constant currency and -2.8% in organic constant currency) in the nine months endedSeptember 30, 2020 compared to 2019. InJapan , revenues from services increased 8.8% (7.2% in constant currency) due to increased demand for our staffing/interim services, an increase in our Talent Solutions business and the favorable impact of approximately one additional billing days in the first nine months of 2020 compared to 2019. These increases were partially offset by a 5.1% decrease (-6.5% in constant currency) in our permanent recruitment business. InAustralia , revenues from services decreased 20.3% (-17.6% in constant currency) due to the decrease in our staffing/interim revenues, as a result of our decision to exit certain businesses with low-margins to improve profitability and the impact of the COVID-19 crisis, the 8.7% (-5.6% in constant currency) decline in our permanent recruitment business and the unfavorable impact of approximately one fewer billing day. The revenue decrease in the remaining markets in APME is due to the Deconsolidation, and the decline in demand for our staffing/interim services and the decrease in our permanent recruitment business, both due to the COVID-19 crisis, partially offset by the increase in demand for our Talent-Based Outsourcing services within our Manpower business. Gross profit margin increased in the third quarter of 2020 compared to 2019 due to the increase in our staffing/interim margin, mostly inJapan , partially offset by the decrease in our permanent recruitment business of 15.8% (-18.2% in constant currency). Gross profit margin decreased in the first nine months of 2020 compared to 2019 due to the decrease in our permanent recruitment business of 30.3% (-28.8% in constant currency and -11.6% in organic constant currency), partially offset by the increase in our staffing/interim margin, mostly inJapan . Selling and administrative expenses increased 82.3% (79.4% in constant currency) in the third quarter of 2020 compared to 2019 primarily due to the gain of$30.4 million from the Deconsolidation in the third quarter of 2019, an increase in costs to support the increase in revenues in certain markets, and the increase of restructuring costs to$1.5 in the third quarter of 2020 from zero in the third quarter of 2019. Selling and administrative expenses increased 2.5% (3.5% in constant currency and 22.9% in organic constant currency) in the first nine months of 2020 compared to 2019 primarily due to the gain from the Deconsolidation in the first nine months of 2019 and an increase in costs to support the increase in revenues in certain markets. These increases were partially offset by the reduction of 36 -------------------------------------------------------------------------------- recurring selling and administrative costs as a result of the Deconsolidation and the decrease of restructuring costs to$4.1 million in the first nine months of 2020 compared to$4.4 million in the first nine months of 2019. OUP margin for APME decreased to 2.8% in the third quarter of 2020 from 8.7% in the third quarter of 2019 due to the gain from the Deconsolidation in the third quarter of 2019, an increase in restructuring costs and expense deleveraging, partially offset by an increase in the gross profit margin. OUP margin decreased to 2.9% in the first nine months of 2020 from 5.1% in the first nine months of 2019 due to the gain from the Deconsolidation in the third quarter of 2019, a decline in the gross profit margin and expense deleveraging.
Financial Measures
Constant Currency and Organic Constant Currency Reconciliation
Changes in our financial results include the impact of changes in foreign currency exchange rates, acquisitions, and dispositions. We provide "constant currency" and "organic constant currency" calculations in this report to remove the impact of these items. We express year-over-year variances that are calculated in constant currency and organic constant currency as a percentage. When we use the term "constant currency," it means that we have translated financial data for a period intoUnited States dollars using the same foreign currency exchange rates that we used to translate financial data for the previous period. We believe that this calculation is a useful measure, indicating the actual growth or decline of our operations. We use constant currency results in our analysis of subsidiary or segment performance. We also use constant currency when analyzing our performance against that of our competitors. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. Changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated. When we use the term "organic constant currency," it means that we have further removed the impact of acquisitions in the current period and dispositions from the prior period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth or decline of our ongoing business. The constant currency and organic constant currency financial measures are used to supplement those measures that are in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate such financial results differently. These Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to measures presented in accordance with GAAP. 37 -------------------------------------------------------------------------------- Constant currency and organic constant currency percent variances, along with a reconciliation of these amounts to certain of our reported results, are provided below: 3 Months Ended September 30, 2020 Compared to 2019 Impact of Acquisitions Organic Constant and Dispositions Constant Reported Reported Impact of Currency (In Constant Currency Amount(a) Variance Currency Variance Currency) Variance Revenues from services: Americas: United States 578.8 (13.1 )% - (13.1 )% 2.1 % (15.2 )% Other Americas 350.3 (18.2 )% (10.0 )% (8.2 )% - (8.2 )% 929.1 (15.1 )% (3.9 )% (11.2 )% 1.3 % (12.5 )% Southern Europe: France 1,205.3 (13.1 )% 4.2 % (17.3 )% - (17.3 )% Italy 351.2 (6.8 )% 4.5 % (11.3 )% - (11.3 )% Other Southern Europe 555.9 (6.5 )% 4.2 % (10.7 )% - (10.7 )% 2,112.4 (10.4 )% 4.3 % (14.7 )% - (14.7 )% Northern Europe 947.7 (18.8 )% 2.8 % (21.6 )% - (21.6 )% APME 595.6 (5.4 )% 0.6 % (6.0 )% - (6.0 )% Consolidated 4,584.8 (12.7 )% 1.8 % (14.5 )% 0.2 % (14.7 )% Gross Profit 725.1 (13.7 )% 1.7 % (15.4 )% 0.3 % (15.7 )% Selling and Administrative Expenses 663.5 6.5 % 2.4 % 4.1 % 0.2 % 3.9 % Operating Profit 61.6 (71.6 )% - (71.6 )% 0.3 % (71.9 )%
(a) In millions for the three months ended
9 Months Ended September 30, 2020 Compared to 2019
Impact of
Acquisitions Organic
Constant and Dispositions Constant
Reported Reported Impact of Currency (In Constant Currency
Amount(a) Variance Currency Variance Currency) Variance
Revenues from
services:
Americas:
United States $ 1,705.6 (12.2 )% - (12.2 )% 2.3 % (14.5 )%
Other Americas 1,071.1 (14.4 )% (10.2 )% (4.2 )% - (4.2 )%
2,776.7 (13.0 )% (4.0 )% (9.0 )% 1.4 % (10.4 )%
Southern Europe:
France 3,035.1 (26.3 )% 0.3 % (26.6 )% - (26.6 )%
Italy 947.4 (16.0 )% 0.2 % (16.2 )% - (16.2 )%
Other Southern Europe 1,545.4 (4.3 )% 1.0 % (5.3 )% 5.7 % (11.0 )%
5,527.9 (19.4 )% 0.5 % (19.9 )% 1.3 % (21.2 )%
Northern Europe 2,881.9 (19.1 )% (1.2 )% (17.9 )% (0.2 )% (17.7 )%
APME 1,759.6 (14.2 )% (0.9 )% (13.3 )% (10.5 )% (2.8 )%
Consolidated $ 12,946.1 (17.4 )% (1.0 )% (16.4 )% (0.4 )% (16.0 )%
Gross Profit $ 2,025.8 (19.5 )% (0.9 )% (18.6 )% (0.7 )% (17.9 )%
Selling and
Administrative
Expenses $ 1,976.5 (4.2 )% (0.9 )% (3.3 )% (0.9 )% (2.4 )%
Operating Profit $ 49.3 (89.1 )% (0.7 )% (88.4 )% 0.4 % (88.8 )%
(a) In millions for the nine months ended
Liquidity and Capital Resources
Cash used to fund our operations is primarily generated through operating activities and provided by our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We assess and monitor our liquidity and capital resources globally. We use a global cash pooling arrangement, intercompany lending, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As ofSeptember 30, 2020 , we had$1,300 million of cash held by foreign subsidiaries. We have historically made and anticipate future cash repatriations tothe United States from certain foreign subsidiaries to fund domestic operations. With the enactment of the United States Tax Cuts and Jobs Act in 38 --------------------------------------------------------------------------------
Cash provided by operating activities was$715.7 million and$495.4 million during the nine months endedSeptember 30, 2020 and 2019, respectively. Changes in operating assets and liabilities generated$599.7 million of cash during the nine months endedSeptember 30, 2020 compared to$114.7 million of cash generated during the nine months endedSeptember 30, 2019 . These changes were primarily attributable to a decrease in accounts receivable, due to collections and the receivables not being replaced at the same level as a result of a decrease in demand for our services, and the benefit of certain government payment deferral measures introduced as part of the COVID-19 crisis. These improvements in our cash flows were partially offset by the decrease in our payroll-related liabilities due to lower activity. Accounts receivable decreased to$4,535.7 million as ofSeptember 30, 2020 from$5,273.1 million as ofDecember 31, 2019 . This decrease is primarily due to successful collection efforts and the revenue decline, partially offset by the impact of changes in currency exchange rates. Days Sales Outstanding ("DSO") decreased by approximately 1.0 day fromDecember 31, 2019 due to successful collection efforts and favorable mix changes, as a higher percentage of our consolidated revenues were generated in countries with a lower average DSO. The nature of our operations is such that our most significant current asset is accounts receivable, with an average days sales outstanding of between 55 and 60 days based on the markets where we do business. Our most significant current liabilities are payroll related costs, which are generally paid either weekly or monthly. As the demand for our services increases, we generally see an increase in our working capital needs, as we continue to pay our associates on a weekly or monthly basis while the related accounts receivable is outstanding for much longer, which may result in a decline in operating cash flows. Conversely, as the demand for our services declines, as we saw starting in late March and continuing through the third quarter of 2020 due to the impact of the COVID-19 crisis, we generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be expected to be sustained in the event that an economic downturn continued for an extended period. During the third quarter of 2020, we were highly successful in receivable collections while incurring lower payroll costs on lower activity. Our improved cash flow also benefited from certain government payment deferral measures introduced as part of the COVID-19 crisis, with some of the benefits maturing in the third quarter. The impact of the remaining benefits is expected to mature in the last quarter of the 2020 and first quarter of 2021 and we expect lower levels of operating cash flow during the fourth quarter of 2020 and first quarter of 2021. Capital expenditures were$30.5 million for the nine months endedSeptember 30, 2020 compared to$36.2 million for the nine months endedSeptember 30, 2019 . These expenditures were primarily comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments, as well as capitalized software costs. The lower expenditures in 2020 compared to 2019 are primarily due to overall scale-back of activities in 2020 due to the COVID-19 crisis and the completion of a software development project in 2019, as well as the timing of capital expenditures. From time to time, we acquire and invest in companies throughout the world, including franchises. For the nine months endedSeptember 30, 2020 , the total cash consideration paid for acquisitions, net of cash acquired, was$1.7 million , which represents a deferred consideration payment related to a previous acquisition. OnSeptember 30, 2020 we disposed of four businesses (Serbia ,Croatia ,Slovenia ,Bulgaria ) in ourSouthern Europe segment for$5.8 million , subject to normal post close working capital adjustments, and simultaneously entered into franchise agreements with the new ownership of these businesses. In connection with the disposition, we recognized a one-time loss on disposition of$5.8 million , which was included in the selling and administrative expenses in the Consolidated Statement of Operations for the three and nine months endedSeptember 30, 2020 . OnApril 3, 2019 , we acquired the remaining 51% controlling interest in our Swiss franchise ("Manpower Switzerland") to obtain full ownership of the entity. Additionally, as part of the purchase agreement, we acquired the remaining 20% interest inExperis AG . ManpowerSwitzerland provides contingent staffing services under our Manpower brand in the four main language regions in 39 --------------------------------------------------------------------------------Switzerland . BothManpower Switzerland and Experis AG are reported in ourSouthern Europe segment. The aggregate cash consideration paid was$212.7 million as ofSeptember 30, 2019 and was funded through cash on hand. Of the total consideration paid,$58.3 million was for the acquired interests and the remaining$154.4 million was for cash and cash equivalents. The total cash impact of the acquisition was an inflow of$104.8 million , net of cash acquired of$317.5 million . The acquisition of the remaining interest ofExperis AG was accounted for as an equity transaction as we previously consolidated the entity. In connection with the business combination, we recognized a one-time, non-cash gain on the disposition of our previously held equity interest in ManpowerSwitzerland of$80.4 million , which is included within interest and other expenses (income), net on the Consolidated Statements of Operations. Of the$80.4 million ,$32.5 million represented the reclassification of foreign currency translation adjustments related to the previously held equity interest, from accumulated other comprehensive income. Excluding Manpower Switzerland and Experis AG, the total cash consideration paid for acquisitions, net of cash acquired, was$17.7 million for the nine months endedSeptember 30, 2019 . This balance represents contingent consideration payments related to previous acquisitions, of which$12.9 million had been recognized as a liability at the acquisition date. OnJuly 10, 2019 , our joint venture inGreater China ,ManpowerGroup Greater China Limited , became listed on the Main Board of theStock Exchange of Hong Kong Limited through an initial public offering. Prior to the initial public offering, we owned a 51% controlling interest in the joint venture and consolidated the financial position and results of its operations into our Consolidated Financial Statements as part of our APME segment. As a result of the offering, in whichManpowerGroup Greater China Limited issued new shares representing 25% of the equity of the company, our ownership interest was diluted to 38.25%, and then further diluted to 36.87% as the underwriters exercised their overallotment option in full onAugust 7, 2019 . As a result, we deconsolidated the joint venture as of the listing date and account for the remaining interest under the equity method of accounting and record our share of equity income or loss in interest and other expenses (income), net in the Consolidated Statement of Operations. In connection with the deconsolidation of the joint venture, we recognized a one-time cash gain of$30.4 , which was included in the selling and administrative expenses in the Consolidated Statement of Operations in the quarter endedSeptember 30, 2019 . Included in the$30.4 was foreign currency translation adjustment losses of$6.2 related to the joint venture from accumulated other comprehensive income. Net debt repayments were$28.7 million in the nine months endedSeptember 30, 2020 compared to cash provided by net borrowings of$6.3 million in the nine months endedSeptember 30, 2019 . Our €500.0 million notes and €400.0 million notes are dueJune 2026 andSeptember 2022 , respectively. When the notes mature, we plan to repay the amounts with available cash, borrowings under our$600.0 million revolving credit facility or a new borrowing. The credit terms, including interest rate and facility fees, of any replacement borrowings will be dependent upon the condition of the credit markets at that time. We currently do not anticipate any problems accessing the credit markets should we decide to replace either the €500.0 million or €400.0 million notes. As ofSeptember 30, 2020 , we had letters of credit totaling$0.5 million issued under our$600.0 million revolving credit facility. Additional borrowings of$599.5 million were available to us under the facility as ofSeptember 30, 2020 . The$600.0 million revolving credit agreement requires that we comply with a leverage ratio (Net Debt-to-Net Earnings before interest and other expenses, provision for income taxes, intangible asset amortization expense, depreciation and amortization expense ("EBITDA")) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. As defined in the agreement, we had a Net Debt-to-EBITDA ratio of (0.24) to 1 and a fixed charge coverage ratio of 3.33 to 1 as ofSeptember 30, 2020 . Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months. We have assessed what impact the COVID-19 crisis has had or may have on our liquidity position as ofSeptember 30, 2020 and for the near future. As ofSeptember 30, 2020 , our cash and cash equivalents balance was$1,587.7 million . We also have access to the previously mentioned revolving credit facility that could immediately provide us with up to$600 million of additional cash, which remains unused as ofSeptember 30, 2020 , and we have an option to request an increase to the total availability under the revolving credit facility by an additional$200 million and each lender may participate in the requested increase at their discretion. In addition, we have access to the previously mentioned credit lines of up to$300 million ($600 million in the third quarter) to meet the working capital needs of our subsidiaries, of which$262.0 million was available to use as ofSeptember 30, 2020 . Our €500.0 million notes and €400.0 million notes that total$1,049.6 million as ofSeptember 30, 2020 mature in 2022 and 2026, thus, there are no payments due in the very near term except for annual interest payments. Based on the above, we believe we have sufficient liquidity and capital 40
-------------------------------------------------------------------------------- resources to satisfy future requirements and meet our obligations currently and in the near future should the COVID-19 crisis cause any additional cash flow needs. The Board of Directors declared a semi-annual dividend of$1.09 per share on bothMay 8, 2020 andMay 10, 2019 . The 2020 dividends were paid onJune 15, 2020 to shareholders of record as ofJune 1, 2020 . The 2019 dividends were paid onJune 14, 2019 to shareholders of record onJune 3, 2019 . InAugust 2019 , the Board of Directors authorized the repurchase of 6.0 million shares of our common stock, with terms consistent with the previous authorizations. This authorization is in addition to theAugust 2018 Board authorizations to purchase 6.0 million shares of our common stock. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. During the first nine months of 2020, we repurchased a total of 0.9 million shares comprised of 0.8 million shares under the 2018 authorization and 0.1 million shares under the 2019 authorization, at a total cost of$63.8 million . The repurchases in the first nine months of 2020 all occurred within the first quarter of 2020. During the first nine months of 2019, we repurchased a total of 1.8 million shares at a cost of$152.0 million under the 2018 authorization. As ofSeptember 30, 2020 , there were 5.9 million shares remaining authorized for repurchase under the 2019 authorization and no shares remaining authorized for repurchase under the 2018 authorization.
We had aggregate commitments of
We also have entered into guarantee contracts and stand-by letters of credit totaling approximately$941.7 million and$845.0 million as ofSeptember 30, 2020 andDecember 31, 2019 , respectively ($890.1 million and$793.4 million for guarantees, respectively, and$51.6 million for stand-by letters of credit as of both dates). The guarantees primarily relate to staffing license requirements, operating leases and indebtedness. The stand-by letters of credit mainly relate to workers' compensation inthe United States . If certain conditions were met under these arrangements, we would be required to satisfy our obligations in cash. Due to the nature of these arrangements and our historical experience, we do not expect any significant payments under these arrangements. Therefore, they have been excluded from our aggregate commitments. The cost of these guarantees and letters of credit was$1.4 million and$1.3 million for the nine months endedSeptember 30, 2020 and 2019, respectively. We recorded net restructuring costs of$98.1 million and$42.5 million during the nine months endedSeptember 30, 2020 and 2019, respectively, in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. As a result of the adoption of the new accounting guidance on leases as ofJanuary 1, 2019 , the office closure costs of$22.4 million during the nine months endedSeptember 30, 2020 were recorded as an impairment to the operating lease right-of-use asset and, thus, are not included in the restructuring reserve balance as ofSeptember 30, 2020 . The costs paid, utilized or transferred out of our restructuring reserve were$55.5 million during the nine months endedSeptember 30, 2020 . We expect a majority of the remaining$49.9 million reserve will be paid by the end of 2020.
Application of Critical Accounting Policies
In accordance with the accounting guidance for goodwill, we perform an annual
impairment test of goodwill at our reporting unit level during the third
quarter, or more frequently if events or circumstances change that would more
likely than not reduce the fair value of our reporting units below carrying
value.
Estimated cash flows and goodwill are grouped at the reporting unit level, which
the company has determined to be a component of the operating segments for which
discrete financial information is available and for which segment management
regularly reviews the reporting results.
We evaluate the recoverability of goodwill utilizing an income approach that
estimates the fair value of the future discounted cash flows to which the
goodwill relates. This approach reflects management's internal outlook of the
reporting units, which is believed to be the best determination of value due to
management's insight and experience with the reporting units. Significant
assumptions used in our goodwill impairment test during the third quarter of
2020 included: expected future revenue growth rates, operating unit profit
margins, working capital levels, discount rates, and a terminal value multiple.
The expected future revenue growth rates and operating unit profit margins were
determined after taking into consideration our historical revenue growth rates
and operating unit profit margins, our assessment of future market potential,
and our expectations of future business performance.
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We believe that the future discounted cash flow valuation model provides the
most reasonable and meaningful fair value estimate based on the reporting units'
projections of future operating results and cash flows and is consistent with
our view of how market participants would value the company's reporting units in
an orderly transaction.
In the event the fair value of a reporting unit is less than the carrying value,
including goodwill, we would record an impairment charge based on the excess of
a reporting units' carrying amount over its fair value.
For the second quarter of 2020, in connection with the preparation of our
quarterly financial statements, we assessed the changes in circumstances that
occurred during the quarter to determine if it was more likely than not that the
fair value of any reporting unit was below its carrying amount. We identified
several factors related to our Germany reporting unit that led us to conclude
that it was more likely than not that the fair value of the reporting unit was
below its carrying amount. These factors included sustained operating losses
resulted from the ongoing decline and increased uncertainty in the outlook of
the manufacturing sector, particularly the automotive sector in Germany , coupled
with the significant implications of COVID-19.
As we determined that it was more likely than not that the fair value of the
Germany reporting unit was below its carrying amount, we performed an interim
impairment test on this reporting unit as of June 30, 2020 . As a result of our
interim test, we recognized a non-cash impairment loss of $66.8 , which resulted
in full impairment of the remaining goodwill in the Germany reporting unit. The
Germany reporting unit is included in the Northern Europe segment. The goodwill
impairment charge resulted from reductions in the estimated fair value for our
Germany reporting unit based on lower expectations for future revenue,
profitability and cash flows as compared to the expectations of the 2019 annual
goodwill impairment test and our quarterly assessments in the intervening
periods due to the factors discussed above.
We performed our annual impairment test of our goodwill during the third quarter
of 2020 and there was no impairment of our goodwill as a result of our annual
tests. Refer to Note 1 for results of our annual goodwill impairment testing.
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements.
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