ManpowerGroup : Earnings Results Call - Prepared Remarks Q1 2022

ManpowerGroup Earnings Results Transcript

Q1 2022 CONFERENCE CALL

SLIDE 1 - Jonas Prising

Welcome to the first quarter conference call for 2022. Our Chief Financial Officer, Jack McGinnis, is on the call with me today. For your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter, then Jack will go through the first quarter results and guidance for the second quarter of 2022. I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.

SLIDE 2 - Jack McGinnis

Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of the COVID-19 pandemic and the Russia-Ukraine War, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements.

Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures.

SLIDE 3 - Jonas Prising

Thanks Jack

On our previous earnings call the world was truly a different place. We could not have imagined the tragic events that would unfold in Ukraine. Let me be clear on ManpowerGroup's position - we stand with Ukraine; wesupport the people of Ukraine and we are committed to support refugees from Ukraine, as we have previously done with refugees elsewhere. I will talk more about this later in the call.

Turning to our financial results, in the first quarter revenue was $5.1 billion, up 10% year over year in constant currency, or 6% in organic constant currency. Our EBITA for the quarter was $148 million. Adjusting for the U.S. acquisition integration costs and a loss on our previously announced disposition of our Russia business, EBITA was $162 million, reflecting growth of 64% in constant currency year over year. Reported EBITA margin was 2.9%, and adjusted EBITA margin was 3.1% which was above the adjusted EBITA margin from the first quarter of 2019. Our U.S. business demonstrated exceptional performance during the quarter and was a major driver of our significant year over year improvement. Earnings per diluted share was $1.68 on a reported basis and $1.88 on an adjusted basis. Adjusted earnings per share increased 78% year over year in constant currency.

Although geopolitical uncertainty has increased, we continue to see strong hiring intentions in most of our major markets in Europe as well as globally. In this environment, our clients need us more than ever to provide them with the strategic and operational flexibility to transform and be successful, and to find workers of various skill levels in very tight labor markets.

The pandemic effects are still noticeable in many markets, where supply side issues have led to pent up demand and with that, continued need for workers. As a result, we see requests for skilled workers at record highs, especially in IT, finance and manufacturing operations. In select industries, there has been some additional disruption due to the Ukraine crisis, particularly in the automotive supply chain but overall, talent shortages remain a significant challenge for our clients, which benefits our brands and portfolio of services and solutions.

We continue to execute our DDI strategy - our initiatives to Diversify, Digitize and Innovate. On Diversification - our Experis IT resourcing, Talent Solutions and Manpower permanent recruitment businesses had a very strong quarter, improving our business mix, and expanding the contribution of higher growth and higher value services, strengthening our gross profit.

On Digitization we continue to execute our technology agenda adding more value to our client and candidate experience. And as part of our Innovation plans and our B2C strategy, we continue to scale our skilled talent pool of the future through Manpower MyPath - upskilling and transforming associates' lives to date across 12 countries including France, U.S. and Italy. We now have more than 11,000 clients actively engaged in this career pathways program, creating skills for our associates at scale.

Our results continue to reinforce our confidence in our strategic choices and investments. This is how we believe we will continue to drive profitable growth now and sustainable value creation for the long term for all our stakeholders.

I will now turn it over to Jack to take you through the Q1 results.

SLIDE 3 - Jack McGinnis

Thanks, Jonas.

Revenues in the first quarter came in at the top end of our constant currency guidance range. Gross profit margin came in above our guidance range. As adjusted, EBITA was $162 million, representing a 64% increase in constant currency from the prior year period, or a 46% increase on an organic constant currency basis. As adjusted, EBITA margin was 3.1% and came in above our guidance, representing 100 basis points of improvement, or 80 basis points organically.

Breaking our revenue trend down into a bit more detail, after adjusting for the negative impact of currency of about 5 and a half percent, our constant currency revenue increased 10%. Due to the impact of net acquisitions increasing revenue about three and half percent and slightly more billing days, the organic days-adjusted revenue increase was 6% compared to our guidance of 5%.

SLIDE 4 - Jack McGinnis

Turning to the EPS bridge, reported earnings per share was $1.68 which included 20 cents related to the previously announced loss on the sale of our Russia business in January and the Experis U.S. acquisitionintegration costs during the quarter. Excluding these items adjusted EPS was $1.88 which was well above the top end of our guidance range. Walking from our guidance mid-point, our results included improved operational performance of 26 cents, slightly lower weighted average shares due to share repurchases in the quarter which had a positive impact of 1 cent, a slightly higher effective tax rate which had a negative 1 cent impact, and favorable other expenses which added 2 cents.

SLIDE 5 - Jack McGinnis

Next, let's review our revenue by business line. Year over year, on an organic constant currency basis, the Manpower brand reported revenue growth of 5%, the Experis brand reported revenue growth of 15%, and the Talent Solutions brand reported revenue growth of 13%. Within Talent Solutions we continue to see exceptional revenue growth in RPO and very strong revenue growth in MSP. As we continue to experience a record low outplacement environment, Right Management saw double digit percentage revenue decreases year over year.

SLIDE 6 - Jack McGinnis

Looking at our gross profit margin in detail, our gross margin came in at 17.4%. Underlying staffing margin contributed a 40 basis point increase. The Experis U.S. acquisition added 30 basis points. Permanent recruitment contributed a 90 basis point GP margin improvement as hiring activity continued to be strong across our largest markets. Experis Solutions contributed a 20 basis point improvement which was driven by the U.S. business. This was offset by a lower mix of Right Management career transition business which resulted in 20 basis points of GP margin reduction. Direct cost adjustments in Northern Europe represented 10 basis points of improvement and other items also represented 10 basis points improvement.

SLIDE 7 - Jack McGinnis

Moving onto our gross profit by business line. During the quarter, the Manpower brand comprised 57% of gross profit, our Experis professional business comprised 28%, and Talent Solutions comprised 15%.

During the quarter, our Manpower brand reported an organic constant currency gross profit year over year growth of 11%.

Gross profit in our Experis brand increased 29% on an organic constant currency basis year over year during the quarter.

Organic gross profit in Talent Solutions increased 22% in constant currency year over year. This was driven by the performance in RPO and MSP discussed earlier which was partially offset by the decreases in Right Management due to outplacement trends.

SLIDE 8 - Jack McGinnis

Our SG&A expense in the quarter was $758 million. Excluding the loss on the Russia business disposition and the Experis U.S. acquisition integration costs, SG&A was 16% higher on a constant currency basis and 12% higher on an organic constant currency basis. This reflects continued investment in the business, reflecting the addition of recruiters and sales personnel largely in Experis, RPO and in various growth opportunity markets in Manpower. The underlying increases consisted of operational costs of $77 million, incremental costs related to net acquired businesses of $31 million, offset by currency changes of $33 million. Adjusted SG&A expenses as a percentage of revenue represented 14.5% in the first quarter.

SLIDE 9 - Jack McGinnis

The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1.3 billion, an increase of 26% in constant currency or 7% on an organic constant currency basis, or 8% after adjusting for days. OUP was $73 million. As adjusted, OUP was $77 million and OUP margin was 6.1%.

SLIDE 10 - Jack McGinnis

The U.S. is the largest country in the Americas segment, comprising 71% of segment revenues. Revenue in the U.S. was $889 million,