ManpowerGroup Inc (MAN) 2004 Q1 法說會逐字稿

Good morning and welcome to the Manpower first-quarter 2004 earnings conference call.

At this time, all participants are in a listen-only mode.

After the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

Today's conference is being recorded; if you have any objections, you may disconnect at this time.

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

Mr. Joerres, you may begin.

Thank you.

Good morning and welcome to the first-quarter conference call for 2004.

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

As we generally do, I'll give an overview of the business and its results, and then I will discuss the segments in more detail.

As you recall, we have one more segment added, which is Right Management Consultants.

After I go through that, Mike will cover some of the financial items, as well as some assumptions of how we're looking at the business as we move into the second quarter.

Before we jump into the main body of the conference call, however, I would like to have Mike read the Safe Harbor language.

Good morning.

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

Actual results might 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 Securities and Exchange Commission filings of the Company, which information is incorporated herein by reference.

Thanks, Mike.

The results of the first quarter clearly showcase the areas of business that we've invested in and are now returning substantially to you, our shareholders.

Jefferson Wells, Japan, Elan, Italy, Australia, Germany and a few others really propelled us to a quarter above our guidance.

The operating profit for the quarter was $56.2 million, or a 48 percent increase over last year in constant currency.

Our diluted earnings per share were 45 cents.

However, you need to be aware that this includes a one-time gain from the sale of an equity interest we had in the job board business in the UK that when we sold it, we actually netted a sizable profit.

If we exclude nonrecurring items, we came in at 33 cents, still above our guidance based on the better-than-expected performance from the unit that I mentioned earlier.

We did have one more cent of currency impact than we had expected.

If you strip out Right, the nonrecurring item and the currency effect, our earnings per share growth is 31 percent above prior year.

France and the U.S. performed as we had anticipated with growth in revenue rates both at 2.4 percent ironically in constant currency.

Overall, we were able to come in slightly above where we had anticipated in gross margin, the primary driver of this being Jefferson Wells -- again, very much in line with our strategy, maintaining what we're doing, driving the areas that we are driving to make sure that we're bringing on other units that can create a good balance for the business.

We've also been able to effectively manage our costs, which if you strip out, again, the acquisition for the Right Management Consultants, went down 20 basis points from 16.2 to 16.

So, you can see, as a percent of revenue on a year-over-year basis, we're doing quite well.

This actually is still considering that, as you can see, while we've made these investments that I have talked about before, we actually opened over 100 offices last year and we're still driving out the efficiencies and continue to see the beginning of the leverage that can be achieved in our business.

Another major contributor to our success in the first quarter was the topline growth in EMEA, which is all of Europe except France.

We were able to achieve a topline growth in constant currency of 12.4 percent, or 10.5 percent on an organic growth basis.

While we experienced improving revenue trends in several countries, the greatest impact is coming from Germany, Italy and Elan.

I'll spend a little bit more time on this when we get into the segment details.

As you can also see, we were able to leverage this topline growth in EMEA by keeping costs in line and contributing nicely, which it really did contribute very nicely to the overall profitability.

Our business in France and the U.S. and other major geographies came in very much in line with what we had anticipated.

It was the investments in the higher gross-margin portions of the business and the organization that contributed so greatly to the accomplishment within the first quarter.

The numbers, of course, now that they are in ink, look a while lot easier to achieve than they did before.

What I want to do now is -- because I know a lot of people listen to this on the Manpower side -- is to congratulate the teams that contributed to this, Germany, Japan, Jefferson Wells, Elan, Australia, Italy and others, for doing a really extraordinary job and getting it done the way we like to get it done, which is in a sustainable fashion that we think we have a great deal of confidence, then, as we move into the future.

Our revenue for the quarter was up 24.5 percent in the U.S., in U.S. dollars, or 11.3 in constant currency, resulting in revenue of 3.3 billion.

Take out Right and a few of the other smaller acquisitions, our revenues came in at 3.2 billion for a 7.6 percent constant currency increase in topline.

Revenues also were helped by one additional day, billing day, from leap year, and we don't have another leap year this year, so we have to factor that, of course, into our future -- where we're going with our future growth.

As we look at the performance of trends in the various Manpower geographies and subsidiaries, we anticipate the second quarter will be in the line of about 49 to 53 cents in this diluted earnings per share, with currency having a 3 cent positive effect.

With that as the overview, I'd now like to move on into the segment detail.

As always, I'll start with the US.

Our U.S. operation did a fine job in the first quarter of ensuring that the costs were held down and at the same time recapturing as much of the gross profit as possible from the sizable (indiscernible) increases in the Workers' Compensation challenges across the U.S.

The U.S. finished up in revenue 2.4 percent with revenue for the quarter being 474.6 million.

The U.S. franchise operations were up actually more than the U.S. branch network, which of course was attributed to their mix of business, which is more focused in the light industrial and manufacturing area.

Our U.S. franchises have filled (ph), 263 million or up 15 percent over the prior year.

As we entered the first quarter and the first few weeks of January, we were looking at some very soft trends.

However, as we announced in our conference call, we were anticipating some pickup, which led us to improving our guidance for the first quarter.

Hitting the 2.4 growth was really dependent on what happened in February and March and in fact, it did happen.

February and March year-over-year average daily revenue trends were actually similar between the two of them, increasing about 3 percent.

As we moved out of March and into the first few weeks of April, we have seen this trend gradually improve, but we've yet to see it in what I would call an uninterrupted growth way, so better trends but still kind of a little bit lumpy as we move from week to week.

Leading those U.S. revenue growth segments is manufacturing.

We've seen manufacturing-related sales consistently improve during the quarter, and they are now up into the high teens over prior year.

This is typical of how recoveries act at the beginning of the cycle, and one might submit that if we were to index the cycle of recovering somewhere in the neighborhood of the October/November period, that that's really as we're seeing the beginning of the recovery now.

We are also seeing that companies are doing more with less and therefore, we would anticipate the office environment still being held down for another quarter or so.

Before we start seeing any of our office staffing services trend up similar to the manufacturing business, we would put into the maybe end of the second quarter/beginning of the third quarter.

Costs for the U.S. were reduced actually during the quarter, as you can see from the stable operating margin.

We were able to offset the impact with a SUTA Workers' Comp increases with that cost-management and productivity enhancements that will lead much more into the future and give us a better leverage model.

Margin pressures have been difficult, but not really pricing as much; pricing is still there but it really hasn't worsened from the previous quarters.

What has continued to be difficult is passing on that SUTA and Workers' Comp increase.

We've been able to recover more than what we did last year but it still had an overall impact on our gross margin profits for the U.S.

Overall, we see the U.S. market is moving in a steady, upward direction.

How long it will last or will it be a time that it plateaus off soon, or will it continue to accelerate is still the question.

However, we're seeing quite positive signs right now from our customers who are telling us that their business is getting stronger and as a result, the demand for our service is, of course, getting better.

The large accounts in VPA, or Volume Purchase Agreements, are moving more quickly than the local and retail business.

This scenario also traditionally happens during this time because larger companies will ask for many more people just because of their sheer size of operation.

Also, in many cases, they skinnied them down so severely that any kind of upturn, we can get some large numbers of people.

This mix shift, of course -- it also impacts our gross profit margin slightly.

Moving onto the French market, in some ways it's similar to the U.S. and we finished topline and constant-currency growth in France identical to that of the U.S., which was 2.4 percent.

Our French organization had much less leverage in their operation, as they have been able to manage expenses over the last few years and also didn't suffer that severe downturn that the U.S. suffered over the last two, three years.

As many of you have read, the lack in GDP growth throughout France and the difficulties that the economy has caused many organizations definitely affects our recovery as Manpower France and our business.

Our growth rate declined slightly during the quarter with March average daily revenues coming in flat to prior year.

While we're seeing continued hesitation on our customers' part bringing in people, we do not see any kind of major slide in year-over-year growth trends -- in fact, more of just a flattening out.

We expect to see the usual, of course, seasonal ramp up in our business in the late second quarter, and some of that then carries into the third quarter.

Our costs and our GP (ph) where we expected and therefore, our overall operating profit from Manpower France was very much in line at 2.5 percent.

Pricing is difficult in the marketplace.

However, we remained very disciplined even though the pricing is very difficult, and we are approaching those challenges in the similar ways that we've done in the last quarters.

Moving onto another segment, the real standout for this quarter is the EMEA segment, which includes Europe minus France.

They were up 12.4 percent, or 10.5 organically, with revenues of over 1.1 billion.

There are a few consistent highlights in the quarter, as Germany continued to growth nicely at slightly over 15 percent growth in local currency.

We are also seeing similar growth proportions in Italy.

The new driver in this quarter is the improvement in top and bottom line in Elan.

Elan is clearly starting to feel the comeback in that UK IT staffing market, but also some of that is moving into the mainland Europe staffing market.

This is across EMEA's region, is performing well though the business -- I'm sorry, in general for EMEA is performing well though it's not across the board in every country.

We believe that strength will carry us on into the second quarter; some of those standouts, the Germany and Italy and Elan.

We're seeing pickup in Belgium and a few others.

The market overall is experiencing some difficulty.

Therefore, we believe we are picking up market share while being able to maintaining our pricing discipline.

The UK saw good topline growth of nearly double-digit revenue growth.

We're starting to experience a better marketplace for permanent placement with our Brook Street Brand leading the way.

As many of you know, they have a very good infrastructure for the permanent-placement services, which really is a very good driver of profits for the business in total.

Overall, the EMEA region performed very well with good cost control and exceptional topline growth.

We feel as though the momentum that is in place in EMEA will continue at least until the second quarter.

The next segment I'd like to talk about is Right Management Consultants.

The Right segment, which now includes the Empower Group business, came in with revenues of over 100 million for the quarter and an operating profit of just over 9 million, or 9 percent.

Our synergy plan and the execution of that plan is going very well.

Right has added some very good depth to our management team and to our offering in general to our customers.

There has been a lot of joint business development meetings with both Right and Manpower customers to cross-sell our services, and I feel extremely comfortable that the synergy in all of the geographies throughout the world is going quite well.

The integration of our Empower Group operations into Right is also going well.

We've been able to take out the former management structure within Empower, which makes it much more efficient, and we're now making sure that all of the services that Empower was providing are appropriate as they are folded into Right.

As we go through this analysis, we may be paring down some services and the associated revenues that were previously provided by Empower to ensure that all of the lines business really fit well within Right.

We suspect this will happen over the next quarter or so and while we could see some associated severance costs, we don't really believe it would be that very significant.

Right is experiencing a slowdown in the career-transition area, as we expected and put into our numbers.

The slowdown has reached bottom in the U.S., while we are still experiencing a further slowdown in Europe and Asia.

Right's organizational consulting business is performing quite well; our revenues are growing and we have been able to generate strong and improving operating profit margins.

We believe our operating profit margins will increase in this business as we complete the Empower integration and continue to move forward in the marketplace.

So, all in all, our synergy from Right acquisition is on track; the empower integration is going as we expected.

Of course, the costs associated with removing the Empower management structure are actually included in this quarter's results, and we will probably have some additional costs associated with that, as I mentioned, in the second and third quarter.

But clearly, we will have Right back up into their double-digit operating profit margins, I should say, that we've seen before and many of you are used to seeing.

The Other Operation segments, which include Jefferson Wells, Asia, Mexico, South America and Canada, performed extraordinarily well.

Revenue for the quarter were up almost 22 percent in constant currency to 480 million.

We've an operating profit of 17.3 million, which translates into an operating profit margin of 3.6 percent.

This exceptional growth is being driven by much more than one instance or one unit within this segment.

One of the drivers of this improvement is clearly the secular trends that we have been experiencing in Japan;

Japan continues to move very nicely on the topline with growth rates in excess of 10 percent, but we're seeing much more growth than that on the bottom line, as we're seeing the investments in the previous branch office openings really pay off.

I think it's important to note that the secular trends that I'm talking about in Japan are much more focused on the general trends of using flexibility in the marketplace and not on the secular trends associated with the labor law changing, which allows us, of course, to sell services to the manufacturing segment.

We are actively participating in that initiation in the industry for the manufacturing sector and I believe we're well positioned that, in fact, I would say positioned better than anyone else for some very good, long-term profit potential (inaudible) through that growth.

But as we described to you and explained to you in previous quarters, we've invested in the office network expansion and infrastructure development necessary to engage in this sector but at the same time, we believe there is more time required before this is an -- that this accelerates in a way that is acceptance of the utilization of staffing services in the Japanese manufacturing sector.

Our history with Japan indicates that when the law allows the maximum assignment to go to three years instead of the current one year maximum, which we have for the manufacturing, we will see a much greater acceleration for the use of our services in the Japanese manufacturing sector.

We continue to be optimistic, continue to invest in developing services.

However, the results that we're seeing from Japan this quarter are not derived from that manufacturing sector but rather they are overall good market movement and a great performance from our team in Japan.

In Australia, as many of you may remember, we have the national government's defense contract to recruit all of their military personnel, and it's going extremely well and made a sizable contribution to this quarter.

Mexico, Canada and Argentina are all performing well in topline and bottomline.

Another major contributor to this segment is Jefferson Wells.

The investments we made over the last year, year and a half, maybe even a little more of that business -- and the diligence from the management team and all the professionals at Jefferson Wells are paying off handsomely.

The growth rates in Jefferson Wells are in excess of 50 percent.

This growth, no doubt, is being positively impacted by the demand for our Sarbanes-Oxley client services.

However, it goes much deeper than that.

We're seeing an 18 percent increase in our finance and accounting services, and we are also seeing a very large increase in the demand for our internal audit services, including co-sourcing, staff augmentation in the internal audit department, or, in some cases, full outsourcing of the internal audit functions.

There is a sizable impact of Jefferson Wells' results from the Sarbanes-Oxley service area.

However, we have a high degree of confidence that Jefferson Wells is on the path for a solid, sustainable growth even after the Sarbanes buzz, based on our analysis of the business trends, where we see our customers wanting us to go and the depth of the management team within Jefferson Wells.

We're gaining momentum, gaining credibility from companies of all size, and we're clearly leading this field based on our size and our performance.

The first quarter, as I've said several times, is something that we're very proud of, as it highlights the diversity of the organization and demonstrates the investments that we put in place are returning to you, the shareholder, in a sizable way.

And at the same time, we're seeing positive trends in the U.S., and yet we're only at the beginning of what will be happening in the U.S.

The U.S. is getting better and we're continuing to see that positive direction.

Of course, the real question is, how robust will it get?

How sustainable will it be?

Therefore, we will continue to look at the trends on a month-to-month basis.

We expect France, which is a major producer of profit for us, to be flat from prior year as we move into the second quarter, but we're confident that our management team and the entire staff at Manpower France will be able to attain a solid profit level in the second quarter.

EMEA, Right Japan, Jefferson Wells, are all solid, all sustainable contributors that will allow us to reach our estimate of 49 to 53 cents of EPS for the second quarter.

With that, what I'd like to do now, for a little bit more depth on the financials, is to turn it over to Mike.

Thanks, Jeff.

I would like to start today by discussing our balance sheet and cash flows for the quarter and then move onto more detail around our earnings guidance.

As you do review our balance sheet, it is important to keep in mind that it now includes Right Management Consultants.

This accounts for some of the line item changes since year-end.

We closed the quarter out with cash over $400 million and net debt of $440 million.

This is an increase in net debt of $25 million during the quarter, but this includes net debt assumed from the Right acquisition of $116 million.

Overall, our balance sheet is in great shape with our debt-to-total capital improving to 31 percent from 39 percent at the end of last year.

Our Accounts Receivable increased slightly from year-end, but this includes the impact of Right being included, somewhat offset by the change in exchange rates between periods.

If you removed the impact of Right and currency, Accounts Receivable are about 1 percent below where they were at year-end.

This is typical due to the seasonal first quarter.

Our DSO for the quarter was stable.

Our free cash flow, defined as cash from operating activities less expenditures, was positive at $14.8 million.

This includes Capital Expenditures of 12.3 million, similar to the prior year.

We're making investments opportunistically and naturally, if we continue to see improving revenue trends, going forward, I would anticipate becoming more aggressive on our new office investments.

Next, I'd like to discuss our second-quarter guidance in a bit more detail.

As Jeff indicated, we're currently estimating earnings for the quarter of 49 to 53 cents.

This assumes a positive currency impacted of 3 cents, which may be lower than what some of you were previously forecasting since the dollar has strengthened in the last few weeks.

This includes estimated accretion from Right of 3 cents and also assumes our convertible bonds are included in the fully diluted calculation, which results in an additional 2 cents of dilution.

Up until now, our convertibles have not been included in the earnings dilution calculation, as our share price has not reached certain thresholds for the necessary period of time.

For the second quarter, the share price threshold is just over $47 per share, so it's very possible that we could meet this test.

For the second quarter, I'm estimating our weighted average diluted shares to be about $91 million; that's before the impact of the convertible bonds.

This increase from the first quarter reflects the fact that the shares issued in the Right acquisition are outstanding for the entire quarter.

To then adjust for the impact of the convertible bonds, you would add an additional 6.1 million shares to the weighted average share count and add $1.2 million to net earnings, which represents the convertible bond quarterly interest expense net of the associated income taxes.

Year-over-year revenue growth for the quarter is expected to be in the mid teens range on a reported U.S. dollar basis.

This includes an estimated 4 percent favorable currency impact and a 3 percent impact from Right.

This represents a modest improvement from the first quarter in our constant currency revenue growth trend, especially when considering that the first quarter was helped by the additional billing day.

Our second-quarter gross profit margin is expected to be stable to slightly up sequentially from the first quarter.

The significant year-over-year increase, then, is primarily due to Right but we also expect some slight improvement in year-over-year gross margins before the impact of Right in the second quarter.

Our operating profit margins will improve sequentially and on a year-over-year basis, reflecting the impact of Right and the gains from improving leverage with the existing Manpower business.

We continue to estimate our tax rate for the second quarter at 36 percent.

You'll note that our effective rate for the first quarter was lower, but this was entirely due to the non-recurring items being taxed at different rates.

We continue to monitor the FASB developments around accounting for equity-based compensation plans.

Currently, we're following the provisions of AP Number 25 -- APB Number 25 -- and are not expressing the cost of stock options.

Had we expensed the options under Statement Number 123, our earnings charge for the quarter would have been 2 cents.

Jeff, back to you.

Okay.

Thanks, Mike.

So, I went over the overview, the segment overview and I think Mike gave you some good insight into what was making up some of our capital structure, as well as what went into the numbers.

So, what we would like to do now is open it up for questions, so if we could have the first question, please.

Thank you, sir.

We would now like to begin the formal question-and-answer session. (OPERATOR INSTRUCTIONS).

Chris Gutek of Morgan Stanley.

Good morning, Jeff and Mike.

Starting with the U.S., Jeff, I know when you published, a couple of weeks ago, the results of the second-quarter hiring outlook survey, recognizing that's a survey for full-time workers, not temporary workers, it seemed as if that showed a nice improvement.

And you were quoted as saying some pretty positive things regarding pent-up demand starting to get unleashed.

Could you kind of walk us through your thinking in terms of what kind of a GDP growth environment we're going to need to see for that pent-up demand to get unleashed a bit more quickly?

Are you convinced it's going to be a slow and steady build because there is still so much reluctance on the part of companies to move forward with hiring plans?

Well, it's very good question, because I prefer to look a little at the GDP number and dig a little deeper because we know that GDP growth and the growth in the labor market really hasn't been correlated that well in the U.S., unlike what we're seeing in France, where it is more correlated.

So, when I look at what kind of growth we need, I like to look at the ISM numbers, some of the PMI stuff that is underneath there.

Our employment outlook survey, which surveys 16,000 companies, clearly are saying that the companies are more optimistic and we are starting to see that.

The numbers that we saw in April, as I mentioned to you, you've got some of our franchises in total up 15 percent.

That's fairly sizable.

Our light manufacturing business, which is manufacturing and others, is somewhere in that neighborhood, actually maybe a little bit above that, and it's continuing to grow.

Office is really the conundrum.

We're seeing Office just kind of sitting there, not really doing much.

What we're seeing there is I think less of GDP impact and more of the impact that customers are so gun-shot to hire, which time will tell but I'd like to think that that offers us better secular growth, as companies are going to move with temporaries first, maybe go temporary-to-perm as a way of bringing people in.

Our first few weeks in April, as I had mentioned, are more positive than what we were seeing in March but three weeks and Easter in there just a little bit too much foggy to really say which way we are going, but I'm optimistic and feel as though the next couple months -- we've talked before that this was a critical time -- to see if we are really out of it.

My suggestion would be is that we are out of it.

Now, it's steady and the real question is, is it steady and gradual or steady and accelerating?

I believe it's too early to tell.

Greg Cappelli of CSFB.

Hi, It's Greg and Josh.

Jeff, you mentioned your strategy a couple of times that you employed over the last year, successfully paying off, particularly with Jefferson Wells and Elan.

You know, we really wanted to ask what you think is next for Manpower on this front.

Are we going to see more diversification perhaps through -- well, I guess either acquisition or internal growth strategies?

No doubt, our focus, as we move forward now for, let's say, the next several years -- that's nebulous enough, I think that falls between like two and five or something like that -- we would really see it by continuing to expand what we have.

Jefferson Wells is currently still opening offices;

Elan can still open some offices.

We're working with Right, and Right is working very hard on improving more of their organizational consulting.

Then we shouldn't forget some of the core parts of our business, which is more than alive and well, and that's investing in the structure and permanent placement in the U.S. and in other countries, investing in light manufacturing offices in Japan.

So, we will invest, we have invested, and I think you will see more of it to invest internally.

We are focused very heavily on our return on invested capital, and we believe that that's the right way to do it.

Also, we do need, every once in a while, to add a few points here and there from acquisitions, but acquisitions are a tremendous amount of work, could be a tremendous amount of distraction, and we believe there's a nice big, juicy market out there for us to go get and we will put some more money into it. (multiple speakers) -- comments on the capital.

Yes, I think, as I mentioned in my comments earlier, we are going to see how the recovery strengthens here but we see a lot of opportunity for additional investment, and we will ramp up those investments as we see fit in the geographies.

Certainly, there are geographies we are investing in today that show good opportunity and are strengthening already.

Terrific.

Just two more quick ones -- Mike, I just want to make sure -- is the 12 cents 100 percent below the line, the gain?

Yes, it's all in other income, so below the operating profit number.

The absolute pretax number that is in there is $14.2 million, so 10.2 on an after-tax basis, if that helps you fill some blanks in a little bit.

That does.

Jeff, just one final one, I just wanted to make sure I heard this.

You had mentioned the gross margin as we go through the year here.

I guess you would be assuming, then, that, from a Workers' Comp perspective or (indiscernible) that you are going to be able to past a little bit more of that along or it's going to get a little bit easier this year versus last year.

I missed your comment on that.

Yes, and last year, we did a lot of work; we passed through a few.

This year, we're passing through more.

My point was twofold; we are passing through more but we're still not passing through everything for us to be able to make up for the sizable increases.

We had a couple of states actually give us a second increase, and it's pretty tough to go back to a customer after you got the increase and say, "Well, we just got another one and it's retro and now you need to do this."

So I would say the team did well.

I'm always disappointed if we can't get 100 percent back, and we're not going to get it.

So perm placement should kick in and we will have to do some better efficiencies and cost controls.

Okay.

Well, terrific job.

Thanks a lot.

Andrew Steinerman of Bear Stearns.

Good morning.

I think probably the biggest success here is the turn of the gross margins, the sustainability of that, and obviously the portfolio effect is working in our favor and you've already given us some comments about the U.S. and Jefferson Wells.

But could you just walk us through gross margins for the rest of the world region by region, sort of what's kicking in for us already and what should kick in for us?

When you break it down, Andrew, clearly it's the other segment that really is having an exceptionally strong performance, and I could go through each of the geographies within there and almost find an improvement in every one.

Japan had very good gross margin performance, Jefferson Wells, we talked about Australia, Canada, all of them improving.

When you get into the EMEA region, fairly stable gross margin across the board.

We do have some differences in mix, just given the different components that are growing there, but I would say, in general, gross margin overall is stable there.

Jeff talked a little bit about the U.S., so the U.S., we've got little bit of pressure in that we aren't fully passing on all of the costs.

Okay, so still down a little bit year-over-year?

Still down a little bit year-over-year in the U.S.

In France, things are generally stable.

We're feeling a little bit of pressure on the overall core gross margin in France, particularly coming from the second-tier players, which have been quite aggressive in opening offices over the last couple of years are now trying to build their capacity because the market itself is declining.

They are a little bit hungrier than normal, if you will, to go after business.

We're keeping our price discipline.

We're not going to give up what our belief is, which is we can hold our pricing and still grow and show good growth and good profit performance.

So, we're looking at overall profit improvement and not just trying to drive the top line.

Sure, that's along with the strategy.

With that in mind, has there been any region, U.S. or France, where you've had to walk away from more business because of that discipline?

I think we're seeing, actually, a little bit more of that in the U.S. but we have been for a couple of quarters where, you know, we would get down to the final and the prospect would say, "All you have to do is to match this price.

We would rather have you and it's a price we can't match."

We are starting and I met with two customers last week and in both cases, clearly what they are doing is leading now, with service, the productivity gains from the Manpower people, because we match and test and assess better than anyone else, and then they say "price".

So that's an instance of two, but that's a whole lot different than what we had been hearing just three or four months ago, which is, what are we going to do with price and oh, by the way, yes, we are interested if you could service us well or not.

So, maybe a little bit of a change, less so right now in France, still tough but we will be monitoring this change in the U.S. over the next couple of months to see if there is a better understanding of total cost of our services, not just the bill-rate costs.

Super, good job.

Thanks.

Randy Mehl of Robert Baird.

Good morning, Jeff and Mike, and congratulations on a great first quarter, or at least a grossly-improved first quarter.

I think you mentioned, Jeff, that you expected flat revenue trends in France.

I was wondering, is that a reasonable expectation for the year, or is there reason to expect a second-half acceleration in that?

I think that there is reason to expect some second-half acceleration, but one could also play the other side and say, if France can't grow out of some of the challenges that they are having with some weak GDP growth, that it would be more difficult.

But you know, I think we have a fair amount of visibility of what's happening in the second quarter and feel comfortable with it flattening out a little.

We do not see this currently as a slippery slope that is something that is really going to go down.

So, I think we're going to have to wait and see, but I think there might be a little bit more money, a slight increase in the second half as opposed to more decrease.

Jeff, as said earlier, the French market is a little bit more closely tied to GDP and certainly, the economists' GDP forecast are for a strengthening second half.

So if they are right, I would certainly anticipate our staffing business to move along positively with that as well.

Okay.

Then you also mentioned pricing pressures there, yet you've been able to hold onto gross margin, give or take a little bit.

I'm wondering if that's something that sort of perpetuated throughout the quarter.

You might be looking now for gross margin, on an apples-to-apples basis, year-over-year, down a little bit, whereas you had expected roughly flat, adjusting for the benefit you got at the end of last year.

Yes, on a go-forward -- you're talking about just France? (multiple speakers) -- yes, I would expect, on a go-forward basis, you know, I think we're going to, at least near-term, continue to see some pressure in the marketplace.

You know, could we be down a little bit against prior year?

Last year, we had a very good year in terms of gross margins there.

Yes, I think we might see ourselves flat to slightly down but again, I think, as you put that in with the mix of all of the other businesses, I still feel very good overall where our gross margin is going.

I would expect, overall, that gross margin for the Company, taking Right out, is going to be improved upon last year.

There's nothing that I see today that would give me any indication that we can't hit the gross margin targets that would allow us to get to our overall operating profit targets at all, going forward -- in fact, just the opposite.

I think what you're seeing in this quarter are some of the positive mix impacts that I've talked about now over the last year or two starting to occur.

So overall, I still feel there's still good opportunity in the gross margin, going forward.

Thank you very much.

I appreciate it.

Kelly Flynn of UBS.

Mike, can you give us the constant currency guidance for next quarter?

I don't think you did it this time, unless I missed it.

Then I have a follow-up.

Thanks.

Yes.

Overall, on a consolidated basis in U.S. dollars, we're looking at mid teens.

Then I indicated about 4 percent for currency and about 3 percent for Right, so I guess if you strip that out, you're going to be somewhere above mid single digit type growth -- slightly stronger or around the 7.6 percent of organic constant-currency growth that we saw in the first quarter.

However, the first quarter had the benefit of one additional billing day.

So, we're looking at slightly stronger organic constant-currency growth in the second quarter when you put it on an apples-to-apples basis.

I want to make sure we've got that one right.

With currency, as we look forward to the 49 to 53 cents, we are saying that we're going to have a currency effect of 3 cents positive.

Yes, 3 cents positive, 4 percent on the revenue line positive impact.

Can you give us growth by region?

I can give you a little bit more detail, I think.

If we look at our key segments in the U.S., I would look to something slightly above mid single digit type of revenue growth.

France, we would be looking for, in constant currency, flat to slightly positive year-over-year growth.

In the EMEA and the other regions, I would look to revenue growth in constant currencies somewhere in the range of last year, or of last quarter, first quarter, I'm sorry.

So for instance, the EMEA was up 12 percent and the other category was up about 22 percent.

I would say, on a constant-currency basis, in that same range.

Again, currency in all of those regions will have less of an impact as the dollar/euro relationship primarily is not -- there isn't as strong of a delta in the second quarter as there was in the first quarter.

Then the final segment, the Right segment, which does include our Empower business as well, you saw it did just over 100 million in the first quarter, and we didn't have a full January in there for Right; we had about a third of January.

So, in the second quarter, I would anticipate something above 120 million once we include a full quarter of Right being in that result.

Okay, great.

My follow-up, Jeff, can you just give us some color on the regulatory environment in Germany?

Obviously, you put some good numbers there, but just a little bit of color on what's going on?

Generally, how has that impacted your feelings about the market prospects, longer-term?

Well, the German market has been relatively hesitant in really freeing up or creating any type of legislative changes that would, if you will, catapult us.

What they have been doing this just slowly loosening some of the things, whether it be contiguous assignments or more of the older population, so there's a few things like that.

What we're clearly seeing is that companies are just wanting to use the service, so we're seeing more of a secular trend.

In addition to that, we opened many, many offices over the last year and a half and interestingly, our new office openings, which were located in different areas, are outperforming our old office locations.

So, I think we are well-positioned in the market.

We would be hopeful that, over the next two years, we get an election in there of course, but (indiscernible) we would be able to actually get some labor law changes for temporary help that have Germany following instep with the rest of Europe, which we believe is where we would see much more acceleration.

Fred McCrea of Thomas Weisel Partners.

Good morning, gentlemen.

A quick question in terms of what we've seen here in California recently is actually some things moving the opposite direction on Workers' Comp (sic).

Obviously, we're working from a very low base.

Is that something you guys have looked into?

Do you think that might be a trend that begins to spread as Workers' Comp has just gotten so out of hand that we will see things moving in the other direction to the positive in terms of reform?

Well, California is a case of one, and I think the new governor has said, "Look, we've got to keep businesses in-state and in order to do that, we clearly see that Workers' Compensation is something that needs to be handled and handled effectively.

I do believe that there will be some of that as we move further in, but two things are working -- one, as more people go back to work and two, the Workers' Comp fund, similar to the SUTA fund, gets filled up a bit little more so they can't start to make changes.

But currently, some of the regulations associated with Workers' Comp is (sic) very onerous, can be very detrimental to growth of businesses within states.

California, I believe, is going to actually take more of an aggressive role than you are currently seeing to try to keep some of the jobs in state.

We're participating with that as well.

Great.

Are there other states that you would view as onerous as California right now?

No, they are the biggest. (LAUGHTER).

They are the most different when it comes to Workers' Comp.

The others are much more manageable; they don't have the same kinds of claims, so I think that if California were to pass some things, possibly other states would take a good look at maybe revising what their laws may be, but it won't have anywhere near the impact that it has in California.

Great.

Thanks so much.

Jeff Silber of Harris, Nesbitt Gerard.

I actually had a few questions about Right.

If you could kind of give us, on a normalized basis, just looking at the Right region per se, how you break that down between Right's revenues and Empower's revenues and then drilling down into Right between the career transition and the organizational consulting business.

Yes, if you look overall on a run-rate basis, I'm going to use some fairly round numbers, Jeff, but I think it's -- given the side of how they fit within our picture, I think you can use round numbers.

But effectively, their run-rate is in the neighborhood of $100 million of business for Right, standalone.

For Empower -- that's other quarterly basis -- for Empower, we're running in the range of 20 million or so.

Right would have operating margins in the teens on a stand-alone basis.

But with the Empower business included, which doesn't have the margins yet today, although they are working on them hard, that would bring our overall margins for that group down into the lower double-digit range.

In the first quarter, I should point out Empower was within that quarter and there was some severance costs (sic) in the first quarter as well.

That had the impact of bringing the overall operating margins for Right down a little bit further.

So, that's part of the impact that you see there.

Then, when you put the overall Group combined, you're looking at the organizational consulting business being roughly 30 percent of the overall mix for Right on an overall basis.

Okay, just so I understand, Empower on a stand-alone basis, even if I took out those severance costs, was Empower not making money?

If so, when do you think it will be profitable?

They would've had a modest loss in the quarter, and I think we're taking a hard look right now in connection with the Right Management group, who now has management responsibility at the different businesses that we do have and how they mesh in with the existing Right organizational consulting business.

They do align quite well but there may be some pieces of business, as Jeff mentioned in his comments earlier, that we may in fact take out and scale back.

So overall, I think we're going to see that business turn profitable likely, I think, in the second quarter and certainly as we get into the second half of the year.

Great.

One quick follow-up -- in terms of permanent placement revenues overall, I know it's relatively small system-wide.

Can you just kind of give us some color on that, where it is now, where you think that will head over time?

Permanent placement is an important area for us, an important opportunity for us.

We certainly do have markets where we do a fair amount.

Brook Street, of course, is well-known for the permanent placement business that they do, but it is, right now, a growing part of our business.

As we think about our overall margin, gross margin objectives, going forward, that is going to be an important piece to achieving those objectives.

We have a number of initiatives in place to continue to grow that.

Today, it's probably best to look at it on a gross margin basis.

It would be something just less than 5 percent of our overall gross margin, and I guess that was before putting in Right, so maybe even a little bit less than that.

But going forward, again, we see some good opportunity there.

Our next question comes from Craig Peckham of Jefferies.

Jeff, I just wanted to revisit Jefferson Wells for a minute -- really healthy growth there, obviously, as you said, helped by Sarb-Ox.

Maybe you can elaborate a bit more for us, though, about what the elements are in that business that can give the confidence in sustainability and growth there, beyond the implementation time frame.

We break down the Jefferson Wells business into three major categories, and there are sub categories underneath that, of course.

But you've got financial accounting, which offers some higher-end staff augmentation and work in some of the areas of risk and other things.

Then you have the second part, which is internal audit; inside the internal audit is where we actually have the Sarbanes-Oxley work sitting.

Then the third area is tax.

So, when we look at those and as I mentioned in my comments, we're seeing financial accounting up 18 percent; we're seeing Sarbanes-Oxley and internal audit up dramatically.

What gives me a very good sense is we're building a tremendous amount of credibility, very large companies with several million dollar contracts that we're doing.

They are asking us, after we're in to do some Sarbanes-Oxley work, to assist or work with their internal audits, either as a co-sourcing, full outsourcing, or for that matter, some staff augmentation.

Also, in area of tax, as we see tax possibly hitting down one of the paths where there needs to be more independence from the auditor signature is that tax work -- not tax-planning but tax work -- is a good opportunity for us.

That's a high focus for Jefferson Wells, the people in the field, the professionals, as well as the management team.

So I look at Jefferson Wells, which no one has their size, no one has their scope, the number of offices, the amount of work we're doing and the model of having all bench-sitters with a tremendous amount of experience.

Then I look at the growth and where it's coming from, the diversity of accounts, the size of accounts; it gives me -- and with talking to the management team -- it gives me a very good sense that there's a lot of sustainability here.

There was sustainability in Jefferson Wells prior to Sarbanes-Oxley; this just gives us a real adrenaline shot and the ability to show some customers that may not have seen us before to see how good we are and the kind of credibility we can gain.

Is it possible to get a rough sense for how much of Jefferson Wells is coming from internal audit, inclusive of the Sarbanes-Oxley work?

Sixty, Mike?

It's roughly 60 percent.

(Multiple Speakers) -- roughly in your model because I don't have the number right in front of me but you're going to be pretty close.

You know, Jefferson Wells grew up on internal auditing and it's always been a strong part of their practice, so it's got a strong base there and that really is -- Sarbanes-Oxley just feeds into an existing base that was there already, which -- that's their strong suit.

Just a follow-up here, circling back to the discussion on California, do you have a sense for how much of your U.S. revenue comes out of California?

I don't.

It's another question we asked that I could probably calculate in my head but you know, out of the U.S. revenues, my guess is 10 percent, something like that.

About 11 percent of the workforce is there, so that would fill (indiscernible).

I just wanted to be sure there wasn't any more concentration.

Okay, thanks.

Brandt Sakakeeny of Deutsche Bank.

Good morning.

Just a couple of quick housekeeping items.

Mike, did you give the conversion ratios for the quarter?

I guess if you didn't, were they up sequentially or down sequentially, say, from the prior quarter?

Conversion ratios -- exactly what are you looking for there, Brandt?

I'm looking for the percentage of revenues that were generated by temps who were converted to perm.

No, I didn't give that and typically we don't.

I don't have an exact number for you or a close for you right now.

Okay.

Do you have roughly the same-day organic growth, if you excluded the benefit from the leap year from the --?

Yes.

So, on an organic, constant-currency basis, we were up 7.6 percent, so with the benefit of one day, that's going to bring that down to around 6 percent, just above 6 percent.

Okay, just above 6 percent.

Final item -- do you happen to have the breakdown of D&A for the quarter?

Sure.

Overall, depreciation and amortization was 19.7 million for the quarter.

The amortization of intangibles related to Right in there was 2.3 million, so that's going to leave you 17.4 million of depreciation.

Perfect, great.

Thank you very much.

Last question, please.

Marta Nichols of Banc of America Securities.

Good morning, thanks.

I'm wondering if you guys can talk a little bit about the other operations segment and whether or not those margins that we saw in the quarter are sustainable.

You just had great trends in that segment over the course of the last year in terms of rising margins every quarter.

Is this now a 3 to 4 percent operating margin segment or will we see those margins pull back again?

I think, when you look at what's driving the operating margins in the quarter, you know, I think it feels pretty sustainable, when you look to Japan and Jefferson Wells, what we're seeing in Australia and Canada, so I would say there's some fundamental strength that I would anticipate will go forward.

It will always be a segment that will be an investing segment, so as we ramp up maybe some of our investing in Japan or Jefferson Wells, could there be some near-term pressure on margins?

Sure, but I think, fundamentally, I think what you're seeing there are really some sustainable overall margins.

That actually leads me to my second question.

On the office-count side, Mike, you said on this call and you many times in the past that you'll sort of look to add offices depending on what the results are.

Can you give us any parameters for how many offices you intend to add in 2004, given a range of expectations, and how much higher or lower you might go in terms of investment, based on where the market is?

I'm just trying to get as broad a sense of what the low end and the high end of office additions and the cost to you might be this year.

Sure, and again it does change, so anything I say could change as things move around but given what we are seeing today, I would think the range of new office openings could be on the order of 100 to 200 offices.

I know that's a fairly broad range, and in a normal year for us, I would think more towards 250 to 300 offices.

So again, because we're still toward the front end of a recovery, this won't be at quite the normal level.

But that's what I would be thinking about right now, you know, how that then translates into capital expenditures;

I'd be thinking right now it's something on the order of 75 to $85 million for the Company has a whole.

That 75 to 85 basically assumes the midpoint of the range of 100 to 200?

Yes.

It's important to remember, within the Capital Expenditures, there is a fair amount of IT capital spend as well as just refurbishment within the offices.

So, those new offices aren't the only thing that would be driving it, but that probably gives you a good sense for how the new offices may impact.

Okay.

Can you just remind us what the status of the convert is?

We know that the guidance for the next quarter assumes that the convert is dilutive, but you get to a point, I believe in the summer of this year, where you can actually call the convert.

Is that correct?

Correct.

On August 17th, the convert becomes callable and then is callable for us from that point forward at anytime.

August 17th also has a one-time put date, so those holders of the convert can put on that date and that date only if they so choose.

Economically, that probably would not be in their best interest.

The share price would have to be likely in the upper 20s to the low 30s for that to be a good economic decision of the holders.

So, the likelihood of a put, at least given where our share price is today, there is no likelihood of a put.

But then we will have to make a decision as to whether we actually call the bonds at that point or not.

Okay.

Can you tell us whether economically it makes sense for you at these current price levels?

Well, it will be something we will need to look at and evaluate at the time, given the interest rate market, our capital structure and our capital environment.

Certainly, given where our share price is at the current levels, I think it should move into the dilutive calculation and I think the world will be thinking about that more as equity as opposed to debt, outside the rating agencies.

So, the advantage, I suppose, to making it equity will be that the rating agencies also will give us equity credit if, in fact, we work to call it at that point in time.

But we will evaluate that as part of the overall equation.

Because there are so many variables, that can change between now and then.

I'm a bit reluctant to give any indication of where we might go.

But we will see and evaluate the alternatives when the time comes.

Okay, just a final question, I hate to leave it on this note but because the news came out this morning, I think it's worth just touching on.

We heard another negative announcement from Adecco this morning about their inability to report fourth quarter.

There was a lot of talk at the end of the first quarter about the potential advantages to some of the other large players like yourself if Adecco had issues.

Now that this has cropped up again, I'm just wondering, can you tell us whether there has been any kind of noise competitively, any kind of client wins that you think have been at all related to this, or any clients that have approached you to come and pitch them as a result of what has happened to Adecco?

Well, we have a very large organization, as do they; it's spread across many countries and customers.

It is a, as you all know, very competitive marketplace.

So, you know, it's hard to quantify and so when I look at, we are picking up some market share, in my believe, in EMEA.

I'm not quite sure in the U.S., but I feel good that we are fairly well in line.

We're probably picking up a little market share in Japan.

When I put all of that together, I would say it's good execution from our team's place, perspective, as well as just working hard on our plan.

So it would be very hard for us to put any kind of number or name the accounts, so it's not something we track, per se.

Right, but marketshare appears to be rising at least for what you're seeing?

Yes,.

Okay, thank you, everyone, for the call.

As normal, if there's any kind of questions after this, please feel free to give Mike a call.

Thank you.

Thank you, sir.

This conclude today's conference.

Thank you for your participation.

You may disconnect at this time.