ManpowerGroup Inc (MAN) 2002 Q1 法說會逐字稿

Good morning and welcome to the Manpower first quarter conference call.

All lines will be on listen-only until the question and answer session.

This call is being recorded at the request of Manpower.

If anyone has any objections you may disconnect at this time.

I would like to introduce your host for today's call, Mr. Jeff Joerres, Chairman and CEO of Manpower.

Sir, you may begin.

Thank you.

Good morning and welcome to the first quarter conference call for 2002.

With me today is Mike Van Handel, Chief Financial Officer.

Once again we'll follow the same format. It seems to be working well.

I'll give an overview of the company and then I give you a little bit more detail on the segment breakdowns. Then Mike will come in and cover some of the financial items that had an effect on the quarter and also give you a view of some of those items on how they may have an effect for the full year.

Before we get into the details of the conference call, Mike if you could go through the Safe Harbor language.

Thank you.

Good morning.

This conference call includes forward-looking statements, which are subject to risks and uncertainties.

Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements can be found in the company's annual report on Form 10-K and in the other Security and Exchange Commission filings with the company which information is incorporated herein by reference.

Thanks Mike. The first quarter of 2002 as you've seen from the results that we've published was a challenging quarter for Manpower.

However, it wasn't any more challenging in many ways then we had anticipated. We've talked about it not only in the last conference call but several conference calls before how we're leading up to this and some of the challenges that we're going to have.

As many of you know, the first quarter is seasonally very low for us not only here in the U.S. but across the world and therefore we were braced and prepared for what was going to be a difficult quarter for us.

The infrastructure that we've kept weighted down the SG&A and resulted in lower profits for the company.

We were able to achieve nine cents a share which was towards the higher side of the guidance that we issued just a few months ago. In many ways that was a positive reason.

We were able to continue executing on many of our strategies and those strategies have been outlined and you'll hear more and more about them as not only on this conference call, on others, because I really believe it is something that is driving some of the results that we have and have been able to present.

We have to put this in comparison terms.

The comparison to earnings in

new good will rules adopted this year

were 40 cents if you

was a great quarter but on a relative basis I believe the organization performed very well.

The first quarter was a quarter that in all segments was difficult.

Most of the areas that we operated in were down in top line and therefore as anticipated we had to make sure that we controlled our expenses and we can't control our expenses week by week.

We have to set ourselves up for it and we've been doing that over the last several quarters and months and we have to do this without jeopardizing the future growth of the company and we were able to do that.

Our costs excluding good will is $32 million less than what it was in the first quarter of 2001. It doesn't sound dramatic but what you have to do is to add back in all of the Jefferson Wells costs that we added in the second half that are now showing up and not on a comparable basis and on top of that we opened 235 offices throughout 2001.

So we controlled the expense line.

However, the real story still is in the gross margin.

We were able to maintain gross margin which for the company came in at 18.2 percent, flat which flat as we had talked about based on prior calls is quite an accomplishment for us.

When we - when we get into the segment detail I'll give you a little bit better breakdown of the spots of deterioration and some of the areas that we're working on to increase and flatten out some of those because it will be becoming much more difficult to do that on a going forward basis.

For the quarter our system wide sales were 2.5 billion. Our revenue reached approximately 2.3 billion, which represented a decline of 14 percent.

Year-over-year revenue growth was negatively impacted by currency and a lower number of billing days in the quarter. On a constant currency basis our revenues were down 10 percent.

The impact of lower billing days of two percent were effectively offset by the acquisition. So a very good number to use is revenues' down 10 percent in constant currency.

As I mentioned our gross profit margin was stable. SG&A however came in at 17.3 percent of revenue.

This resulted in operating profit of 18.7 million, down 67 percent after excluding good will from

. Finishing with an EBIT percent of 0.8, the currency impact on earnings was a negative one cent, which was right in line with our expectation.

This of course is a dramatic decline but one that would not indicate that we should be doing anything differently, that we should be changing our strategies because this is what we've anticipated and we do believe that we now are going to be in building mode from here on forward.

In fact, as we stated before, we are sticking to our strategies and starting to see many of those major locations showing signs of turnaround and definitely signs of stabilization.

Overall our U.S. business while still at a depressed level of 21.5

in revenue, we actually saw the first sequential year over year improvement from our previous quarter in over a year. As we've stated in the last conference call and as many of you have been reading in various publications and newsprints and

we are seeing positive signs in the recovery.

It has been somewhat slow in the first quarter but also not that much different than what we've seen in other recoveries as we had the opportunity with so much history with Manpower to go back and take a look.

While our U.S. business was down 19.5 percent in the quarter on an average daily sales basis, which is an important number, we exited the quarter down 16.5.

So you can see the growth that we were achieving throughout the quarter.

Indications would be that we are in a modest recovery based on what we might be seeing in the first quarter but it might be too early to even say that.

The beginning of recoveries have always been unpredictable when you're' in the midst of them and that is exactly where we are right now. The shape of this recovery though not what we would like to see because of course we'd like to see a rocket recovery but that's not what's happening right now.

It is similar to what we were seeing in some of the weeks coming out of the recession in '83 as well as coming out of the recession in '91.

We are of course starting from a lower point so this would make it

But our biggest gains no doubt were in the light industrial area.

The light industrial segment improved over 10 percentage points year over year throughout the quarter. The second quarter will be a very important quarter for us to determine this recovery in the U.S., to see if it's different from previous ones or will it react the same way?

We will be looking very closely at the numbers on a weekly basis which we get. Our sense is that the weekly numbers over the next eight weeks will give us the needed information to better understand the balance of the year.

The first few weeks of April are a little difficult to

much from but clearly they're the - there has been no further decline. Overall signs are still positive but there are still choppy numbers from region to region and office to office.

Switching to France, France revenues were in line with our forecast declining 14.1 percent in euros and 18.3 in U.S. dollars on an average daily sales basis because they lost a few days also.

They were down 12.7. However, we exited the quarter down less than 11 percent.

So the trend throughout the quarter was actually an improving decrease as opposed to a flattening or a leveling out which many would have expected. I think we can see that at least in the case of France we have more of a synchronization of the U.S. and the French economy.

Some of the things that are driving the French economy are the same things and seem to be in very similar phases of what's driving the U.S. economy.

In France the first few weeks of the second quarter have continued to show those same modest improvements.

So we are making gains as we move into April.

In the U.K. we're still seeing declines.

For many quarters we talked about how the U.K., it was passed over for some of the recession. Last quarter we said it was a little bit more difficult and in fact it's proved that which is a bit different than what we're seeing in the other Europe category, which is showing signs of stability.

It doesn't mean it's completely healthy but it is showing signs of stability instead of rapid drops in some of those numbers.

While some of those countries in that segment are smaller, they are still meaningful when you add them all together.

We continued to see positive growth in some of the countries, for example Italy and Spain while some of the larger ones that we need to really get moving Germany, Sweden, and Holland are experiencing declines in their growth on a year over year basis.

As we talked about in previous calls as well as many of our investor conferences that we've gone to, we continue to look at our SG&A and continue to take appropriate action but we're not going to ask the European group to cut costs below where it would jeopardize the future.

This also holds true in all of the Europe segments as well as the other country segments.

Based on what we're seeing in the billable hours trends in the U.S., France and the U.K. as well as other major markets, our earnings forecast for the second quarter is in the range of 23 to 27 cents.

This is an estimate that is based on some continuation of the pickup in France and U.S. While there are opportunities to see this acceleration actually bigger than that throughout the quarter, it would be far too early and we would lack information to predict that kind of swing and I believe it would be a bit cavalier and trivializing how difficult it is to look at the economies right now.

Historically if we were to look at this point in which we are in the recovery based on some of those numbers, it would be possible to be - to really hold our own and move up in somewhat of an accelerated way.

I'd like now to talk a bit about the segments in a little bit more detail.

As I mentioned the U.S. did see some top line movement from a minus 25 to a minus 21.5. The real news in there is that we saw March down 16.5.

We're definitely in the recovery phase so the real question is how long will this take and we'd like it to move quickly so we can stop being punished by kind of the de-leveraging by keeping our offices open and still moving on some of our major initiatives.

If you break the revenue down in a few categories you'd see that we are continuing to see an improvement in the light manufacturing area.

I mentioned before that there was a 10 percentage point swing from the beginning of the quarter to the end. We're seeing a similar swing in Manpower professional, which the sales were down 17 percent.

Is that acceptable to us? We believe we should be really attacking and approaching that market in a much more aggressive way so we're taking action to do that.

We're keeping a close look at the activities that are going on, the kinds of orders that are coming in so that we can see some of the reversal in trends. We can definitely see that companies are still eliminating projects or holding off on projects in the IT area.

We found that most of the improvements in our professional businesses right now are coming from engineering. We have a fairly strong presence there and that's where we see most of the gains coming from.

Our profit margin in the U.S. lagged the prior year

in the fourth quarter. We did not see any further signs of deterioration.

The cause of the year over year decline continues to be the same three which is sourcing

used franchise fees and just a bit and we're looking at narrowing that in the

. We're continuing to look at that paid bill gap and doing whatever we can to widen that gap.

That's a slow process. We want to make sure that we are a responsible employer, that we look forward to protecting our brand so we're not going to do that in a brutal way.

While it would benefit us short term it would definitely hurt us in the long term.

As we stated before, the recession continuing the effects on manufacturers and other parts of the U.S. economy.

So we have to fight everyday. We have to fight to hold onto that gross margin and our team out in the field is doing just one hell of a job doing that. There are some positive signs but we are anticipating the second quarter to be pretty much comparable in gross profit in the U.S. as it was in the first.

Moving on to France, once again they did a hell of a great job with the French market despite some of the trends. We were pleased to see that in euro our revenue was down 14 one.

On an average daily billable hours basis it was down 12.7. As I mentioned earlier the year over year trends were improving throughout the quarter.

We also continued for another quarter to improve our gross margin of our first year over year from last year. We see that leveling out going forward as we annualize the gains made over the last year.

We'll keep the expenses in line which we did from last year which actually yields it a slightly increased operating profit margin of 2.9 from 2.8 and a strong operating profit of 25 million euro. As we move forward in gross profit in France with the

of gains that we talked about, I don't believe we will - we will be able to show any improvement.

In fact, I would see in the next few quarters slight declines, nothing to be alarmed about in our core business but it's just a matter of how much we can get out of this and how long now.

We've been working on this for 18 months and there will come an end to this as we've talking about for several quarters.

In the U.K. we saw the effects of the downturn hit us much more this quarter.

Our top line sales were down over 15 percent or 14 percent in constant currency. Our gross margin was down which really was the result of the placement

It's also a bit of the effect of just the weakening in the economy and the pricing pressures. The U.K. for the most part was passed over as I mentioned earlier in the downturn and they are now squarely hit right in the middle of it.

So I would see their second quarter still struggling as they are not on the upturn as we are in France and the U.S.

We'll continue to watch expenses.

Expenses are down 13 percent from a year ago but much like what we said in other regions we're just going to be careful so it doesn't impair our ability to service customers and make sure that we have a strong comeback.

Other Europe revenues were down 11.5 or seven percent in constant currency.

They also had a reduction in their gross margin primarily due to

placement in some of the countries, Holland and a few others where we do that. Gross - some of the large gross profit countries like Sweden and Holland and Norway were down dramatically so it really gave us a change in the mix of business and that was a big part of the gross margin that moved in there.

The other countries segment, definitely very spotty. Canada still up against some very tough comparables.

They need another quarter before they can run against a bit easier comparables, comparables that take into effect how we had lost thousands of employees in just a few accounts.

Manpower group and Jefferson Wells are still showing good revenue but our investments there continue to take away from the bottom line.

And Japan while slowing showed growth of over 20 percent in constant currency and seven in organic based on the performance of the major units within that group. This segment ended up with a loss of 1.8 million compared with a gain of two million in 2001.

We see this segment and I am very confident about seeing this segment write itself as the economy improves. Many good things are going on in there.

We've made some difficult decisions within Jefferson Wells and Manpower and Japan and we believe those will take off.

In Jefferson Wells we increased and for the first time we actually did major ads in the Wall Street Journal, CFO Magazine and other publications to really try to gain some visibility and strength on the whole issue of independence. We opened offices.

We opened in the high single digits a number of offices just this year in the first quarter. We believe it's the right thing to do.

We'd like to return a few extra, a half of a penny or another penny to you this quarter but we find that not to be the best use of our investments and we also have the bench model which is a tricky thing to deal with at a time like this

people that are not on

To finish up, in many ways I'd like to spend some time on the management succession, the changes that have taken place that we've talked about and I've written about.

It's very unfortunate to announce the death of

in our French operations. He's been with us for over 30 years and made a tremendous contribution in every single role that he had within Manpower France and for that matter made a tremendous impression and contribution to Manpower throughout the world.

While it's tragic on a personal level, in many ways within the company we've known for several years that we would try to create a succession plan for Jean-Pierre Lemonnier taking over. So he had been designated as the heir apparent, had been working in the job as

was going through his cancer treatments.

So the process has been quite smooth and very natural.

Barbara Beck, the new head in the U.S. and Canada is settling in very nicely making several trips to not only here in the home office, in the field and with customers and is already making some very substantial positive contributions to the organization and adding a whole new level of energy.

So successions are all things that I view with very seriously, spend a lot of time with the new people and really inject where we're going, the kinds of values we portray and so far both of these are examples of how we can do that.

It's a difficult time across all countries.

We continued to invest. We invested in the first quarter on our e-commerce and we are winning business with our e-commerce solutions and in fact with our new release of

really a big leap in generation from our first one that has multiple global aspects in it. Our first installation was actually in the Far East connected with a large global account where we are tying together the ordering process with all of our - with that account on a global basis.

Our back office systems projects across more particularly in the U.S. continue to be on schedule.

By all means we look to this year as a challenge but a challenge filled with opportunity and this quarter gave us a little bit of a boost of adrenaline that is needed as we've been working particularly in the U.S. for several quarters now seeing it go down.

Now we've seen it reverse. That leads us to be able to give you the guidance of some anticipated earnings for the second quarter to be between 23 and 27 cents.

So with that as kind of the round up, I'd like to turn it over to Mike to cover some of the financial items.

Mike ...

Thanks.

I'd like to begin by focusing my remarks on the balance sheet and cash flow.

Despite the relatively weak earnings environments, our financial position at March 31st remains very strong.

Total debt at the end of March was 827 million, just slightly below the year-end amounts of 835 million. Available cash was 211 million, which brings our net debt position to $616 million.

Similar to the prior year end there were no amounts outstanding on our off balance sheet accounts receivable

facility.

Our net interest coverage on a trailing 12 month basis remains strong above six times.

Our free cash flow which represents cash from operating activities less capital expenditures was a positive 16.3 million in the quarter.

Depreciation and amortization for the quarter was 14.9 million while capital expenditures were 14.1 million.

I continue to be pleased with our management of accounts receivables, days sales outstanding. at the end of March our DSO was one day below margin of the prior year reflecting our ability to sustain the DSO gains that we achieved in 2001.

DSO continues to be a key focus of the organization. However, as I've said earlier, I really don't anticipate further gains in DSO for the balance of the year given where we are in the economic cycle.

What I've - what really has occurred in the first quarter we've been able to hold onto the gains that we achieved last year but we didn't make any further progress although we are focused on it and working very hard to keep our accounts receivable cash collections coming in as orderly as possible.

During March we did elect to exercise our commitment to repurchase shares of common stock under our forward repurchase agreement.

Under this agreement we repurchased 900,000 shares at approximately $34 per share. The $30.7 million of purchase price in total was funded through our available cash.

We have no further commitments under the forward repurchase agreement.

Lastly a few details on earnings.

You may have noticed interest and other expense declined to eight million from 10.3 million last year. Since there are a number of elements included in that line, let me dissect that a bit.

I basically look at that line in three buckets. The first bucket being our financing costs which that includes interest income, interest expense and the cost of our account

facility.

In total our financing costs were 7.4 million this quarter which compares to 8.3 million in the prior year and really the reason for the reduction was lower interest rates given what's been occurring in interest rates over the last year.

The second bucket is translation gains and losses, which tend to move around depending upon where currency rates are and where our inter-company balances might be outstanding at month end.

This year we had a loss of $200,000 compared to last year when we had a loss of $700,000.

And in the third bucket is miscellaneous expense, which tends to be expenses of a non-operating nature and given their non-recurring nature these expenses can vary from quarter to quarter.

This quarter these expenses totaled 400,000 whereas a year ago they were $1.3 million.

So that sums it up for that line.

A last point on currency, as Jeff mentioned earlier, the impact of foreign currency on the first quarter was in line with our estimates as foreign currency rates remain relatively stable throughout the quarter. Based upon exchange rates presently we anticipate that the currency impact in the second quarter will be negligible.

So with that I'll turn it back to Jeff.

Thanks Mike.

We will now open it up for questions. I think the format we used before is an appropriate one where if you could just ask a question and if it's a small follow up we'll answer but we'd like to get as many people in as possible who wanted to ask - answer questions.

So if we could now open it up for questions I would appreciate it.

Thank you sir.

At this time we're ready to open up for the formal question and answer session. If you'd like to ask a question please press star one.

You'll be announced prior to asking your questions. To withdraw your question please press star two. Once again to ask a question please press star one.

Our first question is from

of Bear Stearns. Sir, you may ask your question.

Hi. Good morning.

Solid job on the results. My question is of course the most important line, gross margin which judges the quality of revenues here and you said you'd be able to maintain it in the quarter year over year.

Sequentially could you help us analyze it. I know there's seasonality here but when you look at the most important elements, bill rate, pay rate, gap, as you look at your first quarter versus your fourth quarter, have you've seen that gap narrow or increase country by country?

OK. Let's cover it kind of on a going forward basis.

You know on a sequential basis as I talked about when you look at the comparables that become much more difficult so we would see that not being able to not only continue to improve but in some ways falling slightly behind where we were not in an alarming way. So we are looking at each one of the drivers of that gross margin line which is mix of business,

placement in some of the countries where we do that and in addition to that, that paid bill gap.

We are focusing very hard on the paid bill gap.

These are programs that you just don't send a memo and it changes the paid bill but we have seen slight improvement throughout the quarter particularly in the U.S. on the paid bill.

The improvement was so slight that if we even continued that it wouldn't have a material effect on the gross margin so what we would need to do is to actually accelerate it.

So I'm hedging a bit because that gross margin line is something that, you know, took us almost 18 months to set up the movement that we had.

So we can't make little tweaks and tunes and see it go up or down even by 15 or 20 basis points.

In the second half of the year we'd like to see Jefferson Wells gain some momentum and as such they should be able to add a good part of the mix and possibly give us a little bit more of a boost in there but even with that we would see finishing this year slightly below where we were last year.

OK.

Thanks so much Jeff.

Thanks

.

of Wachovia Securities you may ask your question.

I want to follow up a little bit with regards to

question. I mean and it relates to gross margins and also just the operating profit levels that you were able to achieve in the U.S. and France.

I'm wondering if you can give us, you know, a little bit of color there because the margins were better than what I would have expected so I'm wondering if you could give us a little bit of color in terms of you know how that was achieved and what's occurring with the gross margins in the U.S. and France? I mean what are the implications going forward in terms of operating margins you know in both of those countries, you know, on a sequential basis?

All right

. The - you know the way we really saw some of the operating profit margin where we were able to squeak out something in the U.S. and much more than something in France where we actually improved it over a fairly strong first quarter in 2001.

That really, if you look pretty closely at it, it really comes down to our expense management. The gross margin was helpful but it was the expense management and we've put in some pretty stringent expense management but not so stringent as you repeat that we've ripped the organization down, far from it.

So we've reorganized some things. We've set ourselves up.

We've created different kinds of benchmarks. So I look at operating profit margin in this quarter not to be taken out of context but pretty strong

what's relative and what we were doing, it was relatively strong.

Going forward we are going to struggle if we don't get that top line. We need the top line to give us that operating profit.

We've done about as much as we can on expenses in the U.S. We've got a little bit more we can do in France, a little bit more we can do in Europe but not enough to really fuel the operating profit.

So to get operating profit percents about to where we'd like to see them be we need a little boost on the top line.

Mike, do you have anything to add to that?

Yeah. Maybe just to give a little bit more specifics on the gross profit margin line, you know, as I think many of you know that have been following us, we've taken a number of initiatives in France to help improve the gross profit line and that improvement really has been coming through for over a year now and we've been able to hold our own within that market but effectively what'll happen in the second quarter, it really was the second quarter of last year.

If you look at first to second quarter of last year we really started the boost in French gross profit margin helped boost the combined total and as we now go from first quarter to second we're going to annualize that improvement and therefore, you know, that as you look at - really when you look at the gross profit margin you have to look at all of the pieces and that clearly France has been a real big - a real nice contributor over the last year to our improving gross profit margin story.

That really annualizes as we get into the second quarter. So that's as we look at the second quarter as Jeff indicated we'd anticipate at least on the gross profit margin line that we will - we will fall on a consolidated basis below 2001 but again that has a lot to do with mix and what the makeup is of the countries.

It does not necessarily have to do with what's happening within the specific countries themselves. So that's all on that.

So are you saying basically that gross margins will basically be kind of flattish on a sequential basis going from Q1 to Q2 on a consolidated basis?

I think they could be in that range as we - you know and then as we get further into the year, you know, we'll see how things progress and how the economy comes back and you know as - if the economies pick up, business picks up.

We'll then see some improvement on the permanent placement side, the sourcing fees in the U.S.. We'll see I would expect some improvement on Jefferson Wells and with the Manpower groups.

All of those elements as the economy picks up will help them drive our gross profit margin, you know, back up.

And OP margin should increase sequentially just given seasonality.

Yeah. Clearly sequentially on seasonality and hopefully we'll start to see the economy help us out and help drive that top line as Jeff mentioned.

Great. Thank you.

:

of Robert W. Baird, you may ask your question.

Good morning gentlemen.

Good quarter. Thanks for having us today.

A question on the U.K. side, can you just give me an idea of how you left the quarter there in terms of performance and I'm assuming the weakness is primarily on the

side and maybe in the

as well?

You know what?

I'd like to say that I think the weakness is across the board. I think in the U.K. is what we were seeing in France and what we were seeing in the - in the U.S., the U.S. maybe six months ago, France three months ago and that is it's a downward so they entered - they exited the quarter down further then they entered the quarter.

So they haven't hit that inflection point.

I'd like to say that.

It would be fun to say that but it's not true. So I think you know we're going to do some expense things in the U.K. but we have a tradition in all of our units in the U.K., the Manpower brand, the

brand and the

brand that we've run it pretty thin so there's not a lot we can cut out.

So I think as you look to the second quarter for the U.K. you're going to see some continued struggle, maybe a slight decline in some of the profit but it's not something that I believe will be as long lived as what we were seeing in some of the other countries because you can't have the U.K. do this slide and stay and hang out there by themselves so long. And France is coming back.

The U.S. is coming back. Possibly the U.K. will come back a little bit sooner than it would if it were following a normal part of the cycle.

Were your average daily sales leaving the quarter lower than where they started once you go through the holiday, you know, the holiday week or two at the beginning of the year?

That's correct.

OK. Thank you very much.

of Bank of

, you may ask your question.

Hi there. Congratulations from me as well on a good quarter.

I'm wondering if you can touch a little bit more on the light industrial comments that you made in the U.S. in particular. You said that you saw it up 10 percentage points on a year over year basis throughout the quarter.

Does that mean we're seeing positive growth in light industrial or is that improvement versus very weak results last year and then you ...

We're down so far that 10 points still doesn't put us above sea level.

OK. So we're talking about going from negative really bad to negative 10 percentage points less than really bad.

You know it's amazing what can make you feel better after

but no, that's true and again it's not - it's not atypical. What I did was I went back and I looked very carefully at the different lines of business that we were doing and the different areas of the recessions and passed recessions and what we have found is that and if it repeats itself who knows but what we have found is that when you - when you're down you tend to move up relatively slowly up to where I would call sea level and then after sea level is where you really start to see more of the acceleration.

So you know to give you some idea, in some of the toughest times in light industrial we were down 28, 27 percent in certain months now and now we're down 14.

OK.

So you know there's good signs there. Now we need to see whether this will keep going or not and I look at that light industrial much more than some of the others because it really is a much more of a leading indicator particularly the second tier light industrial, the suppliers to the OEMs which have depleted their inventories much faster than some of the larger OEMs.

OK. Can you give us a little more granularity in terms of what light industrial is made up of?

I mean you mentioned suppliers to OEMs but what kind of dominates that segment or are there particular categories or industries that you're most focused on there?

There's about 135,000 customers in that category.

OK.

So it really is more a function of the whole segment.

If you're looking for telecom coming back or you know injection rubber modeling or I can't answer that. I don't have that kind of granularity.

OK. Great.

Thanks.

of UBS Warburg, you may ask your question.

Thanks. I'm also pursuing this gross margin issue as well.

In the U.S. I think you said on your call last time that you know the margin deteriorated year over year and about two thirds of that came from the sourcing issue as well as the franchise issue. Could you just kind of contrast that two thirds, one third mix that you saw last quarter with what you saw this quarter, maybe also was the margin erosion year over year comparable or was it a little bit less significant perhaps than last quarter?

Thanks.

OK.

Yeah. Good question. We talked about it kind of as a third, a third, and a third.

What would we - what we saw in the first quarter is that changed a bit and it changed a bit on a couple things that will take us just a little time to rectify because it's a bit more difficult. I'll give you a very good example.

The state of New York gave us a workers' comp increase in our employment and what they did is they had it retro all the way back to January so we'll go back to customers to try to recover that but we put that into the core GP not the franchise piece or sourcing. So if it were a third, a third, and a third, it's a little bit more of a third now in what I would call that core GP.

Do I like it? No.

I'd like to see it go to zero.

Am I alarmed by it?

No. We can manage this.

We are still winning business at acceptable if not slightly premium gross margins on major accounts all things relative, really based on our service, our on our superior service.

So you know as this comes back, top line revenue will feed more franchise fees in the U.S. and a little bit later after that would improve our sourcing.

We need to continue to focus on that

and as I had mentioned, an area we're really focusing on that is that paid bill. That's the way to do it and possibly recovering some of these changes in legislative cost to us.

OK. I think you guys stated last time that as you see

and they may recover a little bit earlier in their spending, that may cause gross margin to be a little bit weaker.

Is that something you still are seeing or could you give us an update there?

We'll just start to see that because we just start to see that as the pickup is starting and that's really a timing phenomenon so we don't want to lose our heads over it

it tends to balance out.

You know a major account can add 400 people in a

at a time but we've got dedicated salespeople now into the retail markets and we've gotten much more aggressive on attacking that market. So I believe that that might have more of an effect next quarter then it did this quarter.

OK. Great.

Thanks very much.

of JP Morgan, you may ask your question.

Hi. Good morning.

I had a - you have touched on my main question which is pricing pressure. You talked last quarter about pay rate reductions as opposed to bill rate reductions and from your last comment it sounds like you're maintaining your pricing pretty well based on your service, which I know is your goal.

So I'm just wondering what trends you're seeing and specifically pricing in the light industrials which ought to be the strongest and best growing

thanks.

Well that's a bit more of a difficult one but we are seeing that our ability to price in some of the retail and light industrial is a bit easier but there is still fierce pricing pressure and major corporations and mid sized corporations, they know exactly where we are in the phase and where they are in the phase is they want to lock us on a three year contract so when the - when all the volume goes up they get to live with a low price.

So we are doing whatever we cannot to be put into that.

I'm a bit disappointed that the industry falls for that and when they fall for it then we have to walk away from the business and then we end up winning the business back because they can't service it at that level.

So that would be one of my most, you know, upsetting things and what we're seeing is we're at the end of the cycle.

Let's hang on. Let's not cave now after we've done it and that's our message to our field and

I mean I want to repeat, my hat is off to the people in the field in Manpower because this is hard work.

It sounds easy to say it on a conference call but when it comes to winning an account in a city that's important and we have a chance at losing it for a mere two points, sometimes they think we're crazy and our view is it's two points in 150 different cities that have been in all those - in all those different accounts. So pricing will still be tough.

It will probably get a little bit more intense over the next quarter as the procurement people are now on their next band way and which is lock down pricing for the next three years.

OK.

Thank you very much.

of Morgan Stanley, you may ask your question.

Yes.

Thanks. It's

from Morgan Stanley. Good morning Jeff and Mike.

Hi

.

Jeff there's been quite a bit of discussion among economists generally and this has been a broader media regarding the increase use of temporary labor by a corporation generally over the last decade and certainly now the penetration of temporary workers has increased significantly.

In that context and you mentioned that the recovery so far for your business is looking similar to past recoveries although it's probably too early to make that call yet but because of the nature of the use of temporary labor has increased so dramatically over the last decade I'm curious what you're hearing from your major customers. Are you getting any sense that as the major customers start to add labor they will be disproportioned in bringing on more temporary labor than they have previously?

Maybe

thoughts on how you see the recovery playing out.

Right.

That's a very good question because it really goes to the not just the next quarter or two but you know the really next two or three years of growth in our industry. What we are hearing from our customers is that they don't want to go through again what they went through.

Now I must admit that we heard the same thing in the last recession so typically what you see is a bit of a step up because of that. Now we went into this period doing much more for our clients then ever before.

Where we used to have 100 we had 1,000. Where we had 1,000 we had 2,000.

So there was a tremendous amount of use of our services knowing that the flexibility in the labor market is key because they need to move quickly. They need to move in and out of product lines and in and out of cities in order to be competitive.

That really says that we do have a fine opportunity to improve this. There will be those positions that are highly skilled positions that companies are saying I need this indigenously into my company.

I don't need this from somebody else. We're all in favor of that.

In fact for our major clients we actually go through studies and surveys of how to reduce temporary help that we're giving them and turn them over to full time staff because we believe when we do some of that we actually win on the other side because they realize that they can start projects with us and they won't feel beholding to us for the rest of their lives. So will this be another step up in temporary help not only here in the U.S. but across the world?

My guess is yes.

The dramatic part of it will be or how dramatic it is I think will be based an awful lot on the labor market and we will be touching much more quickly than we have before in recovery a tighter labor market and if our industry and if Manpower in particular who really prides itself on the brand of the employer that we are the responsible employer with our training and other things that we should also be able to get a benefit from that because we have the people and they don't.

We didn't abandon our people. Our global earnings center online is training more people now than ever before and we'd like to think that that's a benefit for us.

Thanks Jeff. If I can ask a follow up question to Mike.

Sure.

Mike you've given an earnings guidance for the second quarter.

Would you care to comment on what you're expecting for revenues of other different regions?

Sure.

I can give you some top line information anyway in terms of what we're - what we're basing that on. If I step through them or maybe it's easier just for me to step at a consolidated level first.

Our estimates right now are that overall revenues would be in the six to eight percent decline range year over year compared to the second quarter of last and effectively that's on a constant currency basis because as I said earlier at least right now we don't anticipate any significant translation impact. Of course if the rates move those numbers would move as well.

The U.S. market, we'd be looking for something down year over year in the 11 to 13 percent range.

As Jeff mentioned we exited the quarter at about 16 and a half percent so we're looking for some continued improvement there.

Within the French market we're looking for revenues to be down in the eight to 10 percent range. I think earlier Jeff said we exited the quarter at around 11 percent so we're looking for some continued improvement there as well.

The other markets in Europe, U.K. we could see slip a little bit further I think as we go into the second quarter compared to prior year.

Europe, other Europe outside of continental Europe outside of France I would expect right now to be stable. Maybe we'll see - certain countries I think we'll see some slight signs of improvement.

So that's kind of a summary of what I would see happening on a segment by segment basis.

OK.

Great. Thank you very much.

of Commerce Bank, your line is open.

Yeah.

Hi

. Just a quick question, just sort of following up on the

sort of medium term outlook. There's been a fair bit of speculation in Europe that's some of the bureaucrats is Brussels are intent on maximizing our high unemployment

press parity of legal standing between temps and permanents.

I realize that negotiations are ongoing between the various lobbyists representing the temping agencies and the employers but what's your - what's your say? What do you think the likely regulatory environment's going to be like in Europe over the next 12 months or so?

Well I think in the next 12 months we probably will get a little bit more hints and indications about what might be happening with the interactive but we're not going to see any action come out of that.

There is still much debate between the commissioners and much debate between the countries and those commissioners. Parity pay is not something new to our industry.

It's in Italy. It's in Spain.

It's in France and it works quite well. The real issue is can that be transported and work as well in other countries, Germany, Holland, the U.K. and in U.K. which is where most of the angst is of course we don't believe it will work well at all.

We think that there is still some good opportunity to work as a - in educating the commissioners and educating the labor ministers in the various countries. That is the path that we're on because what we do not want to lose employer status.

We are the employer and as soon as you start to put too much legislation on that it moves further and further away which is not good for the individual. It's not good for any of the social partners within Europe.

We're going to fight very hard to make sure that we're an employer and as such certain rights go with that that are not abusive. In fact they're much different than that.

As one can imagine parity pay is something that's really hard to do. If you're replacing somebody for two weeks or for that matter for nine weeks that has 18 years of experience and the person you're putting in has five, parity pay becomes pretty difficult.

So there's a lot of issues.

The one that was put out most recently is a compromise from the one before but we still see the term in which parity pay does not apply to be far too short and we think that there is a better answer and we're to continue to educate and work with the commissions to come up with a better answer.

OK. Do you see something you're very concerned about or concerned about but convinced that common sense will prevail?

I do believe common sense will prevail and I do believe that this is one where one law cannot fit all and this is a challenge not only in the labor market but other things within the EU and to impose this as a stand alone directive within a U.K. market that doesn't have the complimentary directives that balance off one law, that becomes the bigger challenge and that's where I think once there's some more education and once we understand that we really are acting as a responsible employer there could be some real benefits to a better dialogue that myself and other people in the industry are making a concerted effort to have that dialogue.

Thank you very much.

:

of

ask your question.

Yes.

Good morning

one question on France. I understood from you that light industrials were picking up.

Is this also the key driver behind the French market bottoming out already and why would France

bottom out and Germany stay behind

That's a tough question.

You know I just don't want to be put into a position where I'm an economist. If you look at some of the things that are happening in France, their consumer spending has been holding, consumer confidence is holding and automobile sales while just lagging slightly are for the most part holding.

The inventories have been depleted over the last several months and quarters and therefore they are - they are in a classic position of being to now have some real growth. That isn't necessarily true in the German market.

So any further and I get into an area that is too much speculation for me to have on a conference call that's reported for - recording for 10 days and 1,000 people listen to.

So to me I think the most interesting of it is even the situation that France is in now is so much similar to the situation that the U.S. is in that you know only time will tell but the time will be short but it definitely looks like a synchronization and we've talked about the synchronization historically had been - the lag I should say had been four to six to seven months.

About two, three months ago we moved that up based on what we were seeing to something more like two to three month lag and now in France it looks like it's more on a synchronized basis. So you know we'll see.

I think we're writing some new history here.

by industrial staffing in terms as well or was it specialty services?

No. It's mainly driven by industrial staffing at least from our view because that is the bulk of our business.

It's much more weighted towards industrial than office and clerical.

And maybe one follow up on medium term, do you see some clients who prefer to start

complete processes rather than make things flexible themselves by using temp agencies?

For example if ...

Yeah.

The discussions are going on. We've seen a few pull triggers on that.

We are participating in many of the outsourcing for permanent staffing, the outsourcing for assessment. We've introduced a new online assessment over the Internet over four months ago with the acquisition of Career Harmony.

So we were several months if not quarters ahead of any of our competition on that and we are really starting to see that roll and it is a global program so we see some of those things. We've run into total outsourcers that are taking over the HR department and

we view ourselves running

not qualified

partners with some of them because

and some of those transactional things.

We would prefer others to handle that and then join hands with them on some of the staffing elements either inside or we're bringing in outside

:

of Credit Suisse First Boston, your line is open.

Hi guys. It's

and

.

I just wanted to follow up Jeff on one thing I thought I heard you comment on earlier which was you're attacking the professional market and I just wanted to get a little bit more color from you on that if there's been, you know, any significant change there.

And then secondly, in Jefferson Wells, you know, it certainly sounds like you're not holding back there. Just give us an idea if you - if you can to what it cost you in the quarter.

It sounded like you continue to invest pretty heavily there.

Yeah.

On the professional market, we - you know we moved from down in the mid to high 20s down to a minus 17. As I said it was primarily based on engineering as opposed to some of the IT.

We continued to have the infrastructure in place. We're turning up the heat in being able to really place the people.

Companies are still

but not deciding.

In the case of Jefferson Wells we were on a plan that said this is what we need to do if we're going to dominate that space.

The independence issue came up. It by far is not a major portion of Jefferson Wells but it's a great way to identify the brand and really show the kind of caliber of people we have.

So you know we opened several offices, you know, as I said in the high single digits.

We invested in some additional global practices and we streamlined the bench but we don't want the bench to be so empty that when business comes back we are in a bit of trouble.

Additionally, this is a new venture between the two of us so you know we're - we don't lose our heads during downturns and we don't want Jefferson Wells to lose their head during downturns. So the fact is that we lost money in Jefferson Wells.

OK. Thanks a lot.

And in losing that money I would love to give the shareholders back a little but my assessment is and my confidence in the Jefferson Wells team is we'll give it back to you compounded by making these investments now.

I understand. Thanks.

OK. So I thank everyone for joining.

Mike will be accessible. Hopefully we gave you a complete set of where we're going, the trends that we see and we'll see most of you in some conference coming up.

Thank you.