ManpowerGroup Inc (MAN) 2005 Q1 法說會逐字稿

Good morning and welcome to Manpower's 2005 first quarter earnings conference call.

All parties will be on listen only until the question-and-answer portion of the presentation.

Today's call is being recorded.

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

I would -- I'd now like to turn the meeting over to your host, Mr. Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Thank you.

Good morning and welcome to the first quarter conference call for 2005.

With me as usual this morning is Mike Van Handel our Chief Financial Officer.

We'll go through our results in general and then move into the segment detail.

We've also included for the first time visuals for this, so you all received instructions.

Gives you a chance to kind of follow along with what we're doing as well as give you a bit more information for the quarter.

If you don't have web access right now, no need to worry about it.

You can retrieve the presentation on our website at a later time and get it with all of the -- the transcript as well.

So, Mike, before we move on to the conference call could to 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 10K and in the other Securities and Exchange Commission filings of the Company which information is incorporated herein by reference.

Thanks, Mike.

The first quarter was, from a results perspective, very much what we anticipated for the quarter.

Each of the units performed well, however it was a challenging quarter.

There some positives and a few disappointments in some areas and I'll get into those as we move into the segment detail.

We were anticipating for the quarter between 34 to $0.37 and we finished the quarter $0.35.

Currency added $0.01 to the earnings, it was just in line as -- as we expected.

Our earnings were up 9.5% for -- over last year and when you take out -- when you take out the non-recurring gains we have last year at this time.

Our revenue totaled 3 billion, 759 million, up 12.7% in dollars, 8.8% in constant currency.

When we were going into the first quarter we were anticipating actually a slightly higher revenue.

As we moved through the quarter most of the geographies did not live up to that expectation.

The U.S. was up marginally at 0.3.

I'll talk a little bit in the segment detail about the divestiture with Trans Personnel.

France was up 4.6 in constant currency;

EMEA, 11.8;

Jefferson Wells up 83.7 and Right Management slightly down and our other segment was up 14.9 in constant currency.

Our gross profit margin came in at 18.1.

It -- it was softer than what we at anticipated and -- and we'll talk about it, give you a breakdown as to where they came from.

We had very good expense control the first quarter with SG&A coming in at 16.5% of sales which compared last year to 16.8.

Where were able to maintain our expenses while investing as we had planned.

We continued to improve of the efficiency of the organization through technology, better metrics and cost reductions in non-revenue generating areas.

Our corporate expenses were in line, therefore leading to an operating earnings of $62.5 million, an 11.2% increase in dollars and a 6.4% increase over last year in constant currency.

This resulted in an operating profit margin of 1.7% and an earnings per share of $0.35.

The gross margin drop, as I talked about earlier, 40 basis points year-over-year involved several elements so I thought we would go through and analyze this information.

We feel comfortable, actually, that in many -- in several of these areas we -- we will be able to rectify the gross margin erosion.

Please understand we have not taken our eye off of the gross margin and the importance of gross margin for our overall success to the financials.

In previous quarters we talked about the pricing pressure in France, social charges in costs in Japan.

In France pricing pressures that we saw last year, they carried into the first quarter pretty much as we had expected.

In Japan, we were again negatively impacted by the social cost increase from last year but I'm actually encouraged that we have recently been able to begin passing some of these costs on in our pricing.

In EMEA we experienced price pressure in Italy, the Nordic's and Germany.

I'll discuss that -- specific reduction in gross margin when I get later into this -- the EMEA segment.

Jefferson Wells lost a little ground on the gross margin line due to some lower utilization.

On a positive note, the -- the U.S. improved their gross profit.

On a relatively dramatic basis by being able to be selective on our customer front as well as much more effective programs in passing through the SUTA increases.

This is the third year that we've experience SERTA -- SUTA increases and the customers are much more understanding and receptive that these types of -- of increases have to be passed on over time otherwise it would become difficult for us to be sustainable in any s -- in any way, shape or form.

Our gross margin was also helped by good growth in permanent placement business, revenue from permanent placement fees were up 21% in constant currency.

Obviously, our investment strategy for permanent placement growth is paying off.

Overall, as I had stated, the first quarter from an earnings per share perspective was about as we anticipated.

The revenue however was not at the level that we were looking for.

We were able to continue our investments in the first quarter opening 70 new offices, 200 additional permanent replacement recruiters and continue to work with the build-out of methodologies and quality structures and office structure at Jefferson Wells.

Our expense management and efficiency programs clearly had a major impact in the quarter.

Overall, we see the market, while starting in January, on a relatively positive note with optimistic feedback from our customers pretty much across the globe, have become a bit more quiet, somewhat subdued.

We are not hearing any panic or desperation from any of our customers large or small.

In the last 45 days, the sales number has been softer than we had expected.

As we look to the second quarter, we an -- we are anticipating earnings per share of 63 to $0.76 or approximately a 12 to 20% increase over 2004.

Now, on to the segment detail.

Beginning with the U.S.

As I mentioned the U.S. had a strong quarter as you were seen much of the work that's been done over the last several years really gaining momentum.

Revenues for the quarter were 476 million.

Of course this does not include the sales from our franchisees.

Overall, just revenues alone were up 0.3%.

However, we still have not anniversaried the Trans Personnel divestiture, therefore revenues for the quarter were up 2.3% excluding this impact of Trans Personnel.

Our gross profit margin increased over 2005 as a result of passing along the SUTA increases as well as the continual work on enhancing the mix of business with increased permanent placement and specialty business.

We continued to see efficiency improvement and good expense management which resulted in an operating profit of $4.9 million, a 1% profit margin which again, on a seasonally low quarter was very good.

In fact, it was a 40 basis point improvement over last year.

The U.S. organization continues to execute extremely well.

However, we have not experienced enough revenue growth to create any -- any type of significant SG&A leverage.

As the quarter progressed we actually saw a declining year-over-year revenue growth on an average daily basis excluding the disposition of Trans Personnel, January was up 4.1%, February 3% and March 0 .5%.

However, April has -- has -- has not given us any indication that the market activity is picking up.

Clearly, we have some factors in here of the holiday and where Easter fell and where it didn't fall so it might take a little time to see a better trend.

Our current thinking, however, is that there is an opportunity for us to have flat growth year-over-year for the second quarter.

However, we will be positively impacted by an account win which we were able to transition the entire population from their previous supplier over to Manpower in one day on April 3rd.

This should have a positive impact of approximately 1% of revenue for the second quarter.

Our French operation achieved revenue of 1 billion, 248 million, up 9.8% in U.S. dollars, 4.6% in local currency.

Our gross margin was impacted by price pressures.

Nothing new as we expected the French market continued to experience price pressure as there is an overcapacity in offices.

SG&A was well controlled generating an operating profit of 21 million Euros, down 9.4% in constant currency compared to last year.

We continued to invest in permanent placement in France adding 25 full-time recruiters in the quarter.

While it's still early, we still, and do, feel confident that the permanent placement market in France will grow nicely.

As we have mentioned before, it is premature to predict the timing of the uptake for permanent placement as it's still quite early and a very new concept in the French market.

Some of you may have heard about the proposed and now passed 35-hour work week legislation that will go into effect in May.

We do not believe that this will have any major impact on us in the short term.

When the legislation has been passed, the 35-hour a week rollback is the choice of each individual company.

Which means that it would involve renegotiating any of the union agreements with the employees, and therefore, the majority of companies would be very reticent to begin that conversation.

Also, within the legislation, employees are allowed to work 220 hours of overtime.

However, this must be paid by the employer at a 25% premium.

On to EMEA.

EMEA, of course this is Europe minus France, had a solid quarter.

However, it fell a bit short of the anticipated revenue line.

EMEA had revenues of $1.3 billion, up 16.8% in dollars, 11.8% in constant currency.

The EMEA region was more heavily impacted by the Easter holidays on an average daily basis revenues were up 15.2% in constant currency, so you can really see the effect of -- of where Easter falls.

The revenue shortfall came primarily from staffing revenue as permanent placement business was actually up 31% in constant currency.

Gross margin was down year-over-year despite the strength in the permanent placement business.

Declines in staffing gross margin were experience in Italy, Germany, and Norway.

In Italy and Norway we were seeing pricing pressures from large customers.

We were working hard to defend our market position and continue to articulate the values of Manpower offerings.

We're also focused on continuing to evolve our business mix to other higher margin skills.

In Italy we're also impacting negatively on the gross margin as a result of a higher rate of sickness in January and February and of course this should return to something much more normal in March.

In Germany, we experienced lower margins on the government related personal services agencies, or what you might have heard is PSA's.

Due to some changes in the fee structure this business has actually become less profitable and we are exiting some of this business.

Additionally, in Germany the wage increase mandate from the collective bargaining agreement is taking a while to pass on.

Overall, we're managing these issues and expect Germany's gross margin to return to normal in the second quarter.

We finished the quarter with operating profit of 15 billion -- I'm sorry, 15 million in U.S. dollars, up 9.4% and 4.3% in constant currency.

This resulted in an operating unit profit margin of 1.1%.

Even though we were up against some different comparables from last year, the operating in a market that -- in operating in a market that really is cautious we experienced good growth rates in many of the countries in Europe.

Nordic's were up -- and this is all in constant currency.

The Nordic's were up 7%;

Italy, 16; while Germany was at 9%.

The U.K. grew at 8% and once again for several quarters in a row, Elan really hit the ball out of the park with a growth rate of 35%.

We feel as though it would be safe to generalize in the case of EMEA and state that we are seeing EMEA customers become more cautious and therefore we will continue to look very closely over the next few weeks and months to see which direction our topline is moving.

We're confident that we are moving with the marketplace or actually ahead of the marketplace and will see an increase in year-over-year bas -- on a year-over-year basis.

What we need to factor in, and our thinking is, on the revenue growth is the GDP growth in these various countries as well as watching the confidence indices and the manufacturing output indices.

And to the next segment.

Jefferson Wells.

Jefferson Wells revenue for the quarter was 93 million, 84% increase over last year.

Had operating profit of 8.1 million compared to 2 million last year which resulted in an operating profit margin of 8.7%.

Our revenue basis still on a relatively -- on a relative basis small which opens us up to much more saw-toothing. if you will, as one of our -- as one or two of our customers can affect the quarter.

Jefferson Wells is only a -- a piece of the Manpower story, but there's been several questions so I thought it would be important for us to give you a bit more information on Jefferson Wells.

In the quarter of -- in the third quarter of 2004, we go back a bit, we had revenues of 111 million. 31 million of that 111 million came from four large customers.

As we moved into the fourth quarter of 2004, the furthest -- fourth largest customers either completed the project we were working on or completed the majority of their SOX work.

This reduced that revenue from 31 million to 20 million.

However, the balance of the business actually grew from third quarter to the fourth quarter.

As we moved into 2005 overall revenues came in at 93 million.

There became much less dependence on the four large customers which moved from 20 million down to 13 million, and the balance of the business came in at 80 million.

Actually of these four larger accounts, two of them are Sarbanes-Oxley related while the other two are -- were all non-SOX very large major projects.

In all four of these accounts, we have an ongoing a relationship and feel confident that because of the quality of work that we did and based on their business that we would anticipate that from this point forward we would actually see these large accounts start to grow again.

We've had a very balanced book of business from a perspective of the services our customers are using.

In fact, each month we expand our base of customers and the use of more services within those customers.

SOX is an important service, but 56% of our customer base in 2004 did not uses for any SOX engagement.

If we were just to take out -- take cli -- take clients that are spending over $1 million a year with us in 2003, we had 18 over 1 million. 2003, 18 clients over 2 -- over $1 million.

Of those 18, 11 were using no stock service at all, seven were using us for several different projects and offerings including SOX.

Now as we move into 2004 you can see that we have dramatically grown our customer list with 46 companies spending over $1 million.

Eight of those 46 are only using us for a SOX the vast majority, 31 of them, are using us for more than just socks and then there are some very large clients who are using as for any SOX 404 work, just for major projects.

We've said now, since the -- well it must be the second, maybe third quarter of 2004, that we'd be anticipating some sequential slow down as -- as we roll through some of this.

We actually experience a bit more than we anticipated.

This is primarily due to those few large accounts that I pointed out before and then not starting some of the approved projects as quickly as they had anticipated which also affected the utilization our professionals.

As a result we experienced a reduction in our gross margin.

We also made the difficult but correct decision to put in over $1 million into our retention strategy for our professionals.

We are optimistic about the future and as a result we are very pleased with our extremely talented team and we believe that we need a meaningful retention strategy that is imperative for our grand promise as we go forward.

Our customer list is a very strong and we've been able to expand the usage of products, if you will, in having multiple products being used by several of our customers.

We are seeing our pipeline in the business start to improve slightly which gives us a sense that we would be able to move into the second quarter flat to maybe slightly down sequentially and improve our gross margin by improving the utilization of -- of the staff why we peel off some of the subcontractors and bring in full-time staff.

Overall, we are very confident about Jefferson Wells' strong market position which adds to our confidence for future growth prospects.

Additionally, the pipeline for sales opportunity, which is updated and reviewed weekly, is at an all-time record.

So when we look at the future we see the customer and prospect list becoming stronger both in size and mix in use of our services because of the slide down in revenue line on a sequential basis we will be transitioning, as I mentioned before, some of the contractors to full-time support staff which is part of our retention strategy and will support the future growth of the business giving us a value proposition like none other -- like none other in the industry.

We've also coupled the hiring of full-time staff with retention program, it was very well received by the professionals and also adds to our confidence in being able to main -- maintain that value proposition experienced person -- professionals eight, ten, 12 years experience for the best value in the industry.

Moving on to Right.

Revenues there were 104 million, a 2.2% increase in dollars and flat in constant currency.

However, January in 2004 was not a full month as -- as we had acquired in January -- on January 22nd.

Our cost-containment programs and reductions that we did in 2004 are paying off as we are able to produce 9.8 million in profit, or an operating profit percent of 9.4.

We are seeing good performance from our U.S. organization with career transition business stabilizing and our organizational consulting business improving both in the U.S. as well as in other parts of the world.

Currently our organizational consulting business is about 30% of the total revenue and growing.

We continue to see the benefits of owning Right as we have been able to work with some of our largest customers in a way that no one else in our industry can do.

This has allowed us to work much close -- much more closely with customers and as -- as a result have established strong relationships which has already turned into new business.

The other operation segment, which many of you know includes Japan, Australia, Canada, Mexico, parts of Asia and South America, achieved revenues of $506 million, up 17.6% in dollars or 14.9% in constant currency.

Operating profit was 12.5 million versus 15.3 million last year.

This decrease is primarily due to the strong first quarter we had last year in profitability from Japan.

However on a sequential basis, from fourth quarter to first quarter in Japan we made great strides in recapturing gross margin from the erosion caused by social charges that we were unable at the time to pass along to the customers.

We've been much more successful in the first quarter of 2005.

Additionally, in Austria we had a little bit of a slower start in the first quarter of 2005 than 2004 in the Australian defense force contract.

We believe that we should be able to make up the balance of this as we look to the second quarter.

We continue to see Canada, Argentina, put in a -- a great performance as did Mexico.

All of which contributed nicely giving us a $12.5 million profit for the quarter.

We are confident as we move in the second quarter that Japan as well as the other countries in this segment will perform well as we see the economies as well as decisions that were being made in the last 60 days beginning to pay off.

Therefore, we are at looking at an improving operating in a profit for the second quarter for the other country segments.

The first quarter was a challenge for us, it offered an unexpected slowdown in revenue and a more difficult challenge in gross profit than we anticipated.

However, once again the Manpower organization responded superbly continuing the efforts of our efficiency and cost reduction which resulted in a quarter that was very much in line with our anticipated earnings.

As we look to the second quarter we will continue to monitor and evaluate what is occurring in the various markets, particularly on the revenue line.

We will continue to make investments, however we may moderate these investments based on the slowing top line that we might be seeing in some countries.

This slowdown of the top line, however, may not persist in which case we would continue down the path as we have previously outlined for ourselves from a earnings projection perspective and in the investment area.

As I mentioned earlier we anticipated the second quarter showing about the same top line growth as we achieved in the first quarter which would lead us to the anticipated earnings per share of 63 to $0. 67.

With that as a wrap-up of the, kind of overall as well as segment detail I would like Mike to go into some of the financial highlights.

Thank you, Jeff.

I'll start as I usually do discussing our balance sheet and cash flow and then add a few more details on our first quarter earnings and finish our outlook for the second quarter of 2005.

Cash flows were very strong in the quarter and we were also able to strengthen our capital structure.

Our total debt at the end of the quarter was $627 million, or 275 million lower than at year-end.

The majority of this reduction came from the March 7th maturity of our 150 million Euro notes which were ret -- which were retired with available cash.

We ended the quarter with net debt of $231 million.

Our credit ratios also improved the end of the quarter with our total debt to total cap declining to 22%.

As many of you are also aware, we called our convertible bonds during the quarter.

As a result, 77% of the bonds were redeemed for cash of $207 million and 23% were converted into 1.4 million shares of common stock.

The cash redemptions were financed through borrowing -- borrowings under our AR facility and corporate revolver at an average variable interest rate of just over 3%.

Currently, we intend to refinance these borrowings with seven to 10-year notes in the U.S. or Euro market.

This call of the convertibles allowed us to gain more certainty in our capital structure and reduce the dilutive drag of the securities.

We estimate that we will pick up $0.02 of accretion per quarter beginning with the second quarter.

There was no -- no accretion impact on the first quarter as the redemption was concluded on March 30th.

Pre-cash flow, defined as cash from operations less capital expenditures, was very healthy in the quarter at $67 million compared to $15 million in the prior year.

DSO was relatively stable against the prior increasing less than one full day reflecting changes in business mix.

Capital expenditures increased to $19 million as we invested in 70 new offices and office refurbishments.

We also used cash in the quarter of $47 million to repurchase 1 million, 65 thousand shares.

This leaves 3 thous -- 3,935,000 shares authorized for repurchase under our program.

Next, let's turn to a few detail items on the earnings statement.

Corporate expense was 12.1 million in the quarter compared to 13.2 million in the prior year.

The lower amount this year is primarily due to the timing of IT projects.

I anticipate that corporate expense will be in the range of prior year amounts in the next few quarters.

Included in interest and other expense is net miscellaneous expense of 1.6 million in 2005 compared to net mini -- miscellaneous income of 12.8 million in the prior year.

Our prior year amount includes non-operating gains of $14.2 million which had a favorable impact on prior year net income of 10.2 million or $0.11 per share.

After adjusting for these gains, our miscellaneous expense -- expenses are about in line with the prior year.

Similar to the prior -- similar to prior quarters, we continue to follow APV number 25 and do not expense the cost of equity based pay.

Had we expensed this cost under statement 123 our earnings charge for the quarter would of been $0.02 per share.

As you are likely aware, statement 123-R has been delayed and therefore we do not anticipate adopting the new equity based rules until 2006.

Lastly, I'd like to cover our outlook for the second quarter.

Currently we anticipate constant currency revenue growth of 6 to 8% in the quarter.

Based upon current exchange rates currency should add about 6% to that growth rate.

This constant currency growth rate is slightly weaker than the first quarter primarily due to the tougher comparables for Jefferson Wells and Right Management.

In the case of Right the second quarter of 2004 was the first full quarter they were included in our results.

Revenue growth of the other segments is expected to be in the range of the first quarter growth rates, however I should point out that the first quarter was negatively impacted by less billable days in many markets compared to the prior year due to Easter and leap year.

Our gross profit margin should -- should improve slightly on a sequential basis but continues to be down against prior year.

Approximately half of this year-over-year decline relates to business mix primarily as a result of the decline in revenue from Right which has a much higher than average gross profit margin.

The balance of the decline reflects a continuation of some of the pricing pressure we are seeing in some of the European markets and a more normalized gross profit margin from Jefferson Wells.

Jefferson Wells' gross margin was higher than normal last year as utiliza -- utilization was higher given the rapid ramp up we had in business.

Our SG&A expense will continue be well managed allowing us to make up for the gross profit decline through enhanced cost efficiencies -- cost efficiency.

As a result we expect our operating margin to be in the same range as prior year.

We continue to estimate our tax rate at 36.5% for the year.

However, this assessment will likely be refined as we progress through the year.

Our diluted weighted average share should be about 92 million reflecting the impact of calling the convertible diventures.

This gives us estimated earnings of 63 to $0.67 which again includes $0.04 of currency.

Lastly, for those of you maintaining financial models I would like to make a few comments on the third quarter.

First, the summer months are our seasonally slow period for the career transition business, therefore Rights' operating margins typically dip in the third quarter as we saw last year.

Second, as a reminder Jefferson Wells had an unusually high operating margin in the third quarter of last year.

We currently expect a more normal operating margin, which would tend to be in the low double digits.

And with that, I'll turn the call back over to Jeff.

Thanks, Mike.

Now's the time to open it up for questions.

So Ryan, if you could get the questions started.

Thank you.

At this time we are ready to begin the question and answer session. (OPERATOR INSTRUCTIONS) .

First question is from Jim Janesky with Ryan Beck and company.

Sir, your line is open.

Yes, good morning.

Could you spend a little bit more time, Jeff, on the possibility of slowing up your investments?

Right now are you -- are you proceeding with those investments and as the quarter progresses you would possibly throttle back or have you made the decision now to throttle them back and would move in the other direction if the -- if results strengthen during the quarter?

Yes, Jim.

It's a good question.

Our -- our strategy on this was coming into 2005 we felt as though we had the opportunity to put some investments in some key areas, emerging markets some office openings and perm placement.

And -- and we like to do that even though it's always difficult in the first quarter because it's such a -- a low quarter for it, we -- we like to do that in the first quarter so that we can still get the benefit of it in -- in the year.

So in this year, 2005.

So, what we are doing now, is we are looking at all the investments and then saying okay, you know there might be a little bit slowing revenue or maybe a pause or a quite period in here so -- so why don't we hold off on -- on some of those for a little while, bring them to Mike.

Mike approves them, and we'll still do some but maybe not at the rate of our original full 2005 plan.

Okay.

And, part of the investments that you were making was within -- within Right Management because you felt as if some of the consolidation trends within the industry could drive out-placement activity.

Is that from a big picture perspective, is that still your expectation?

Well, I'm not sure if I -- I looked at it that way.

I think the investments we made in Right were -- were a little bit of blood, sweat and unfortunately a few tears.

In -- in taking out some of the offices and doing consolidating.

So, we are not looking at investment in Right in this sense of the classical expansion investment.

What we're looking for Right is to do the appropriate types of consolidation and product offerings in the OC, organizational consulting side of the business, that would move us forward.

So, we have not looked at Right as a heavy investment area.

We've looked at Jefferson Wells a bit more in the heavy investment area opening some offices in -- in Europe which we are doing and then making sure that we are offering training in -- in quality assurance and methodology programs to our professionals.

To you point, Jim, on -- on the M&A side, the M&S should certainly help stabilize the overall revenue trends within Right and -- so that -- that certainly will be helpful going forward.

Okay.

Thanks.

Mike, very quickly.

On the convert.

I -- my estimate was it was about $0.03 accretive in the second quarter of '05.

Is that in line with your expectations?

Well as I said, $0.02 accretive, I suppose it depends on whether you round up or round down.

I think -- I think I number might be 2.4 something, but I think you're in -- I think you're in the ballpark, so I think it's a -- a couple of cents for each of the quarters for this year.

Okay.

Great.

Thank you.

Greg Cappelli, Credit Suisse First Boston.

You may ask your question.

Thanks, Greg and Jeremy.

Hi, guys.

Hello, Greg.

I guess, Jeff, does the overall staffing business, in your opinion, feel like you're in a -- in a holding period right now across geographies and I guess depending upon some important variables like obviously oil could send the business either way?

I just wondered if you could give us a little more color on exactly what your clients are telling you in different areas and how they are feeling at this point?

Yes, there is a little bit of a holding period across most of the geographies.

Again, you can't characterize them all that way.

For me to relate it to oil would -- would do far more justice to my Econ 101 class 25 years ago.

So, what we hear from our customers is -- is not so much oil or potential interest rates, what they're really telling us is that nothing new but maybe with a little bit more of an exclamation point at the end of it is is they're not going to get ahead of themselves.

They're going to do this in a measured way.

So -- so when we talk to the clients they're pretty optimistic.

They feel as though their business, particularly some of the core manufacturing business, is going well, but they're going to be optimizing, optimizing and optimizing.

And, if I can stick my neck out a little on the econ side, it's from our perspective what we need to do is to see the line cross between productivity increases in GDP growth and we haven't really seen that.

We've seen GD -- we've seen productivity increases outstrip GDP growth.

Now productivity is starting to move down a bit, as that moves down and if GDP can move up on us which it's -- it's in a little bit of a holding pattern, can move up, again my -- my simple math says ahh that's the time when you got more growth than productivity where are you going to do, you're going to add people.

And -- and that's how I look at it.

So I -- this little soft patch here, I wish I could give you what it would be like in the third and fourth quarter but I think we're going to have to see how the second quarter plays out with many elements in -- in what's happening in Europe as well as what's happening in Eur -- in the U.S. before we can give you any better answer.

Okay.

But the commentary to this point doesn't feel like it did a couple of years ago for instance.

No, I -- we're not battening hatched down and putting canned food in the basement.

We are absolutely saying okay we see something here.

Now, how are we going to manage this?

Because the customers aren't giving us the gloom and doom which is what they were doing a few years ago saying, you know, come back in a couple months because we're -- we're in trouble, that's not happening any more.

Got it.

Okay.

Two more quick ones.

Just, when -- when -- Jeff, what you were -- you talked a little bit about the pern placement business in France.

When -- when do think we'll start to see more meaningful financial impact from that going forward?

Well, France is a harder one to get meaningful because it's such a monster organization.

You start adding 25, 30 perm recruiters and they're each doing two placements a week which would be fantastic you still haven't moved the needle a lot.

One of the challenges we're having is finding the perm recruiters that because it is in a marketplace.

I have said, I think it was two quarters ago, that we would will be really be looking at something like the end of the third quarter to get a sense with some type of metrics, how many perm recruiters, how many orders are coming in, are the pricing holding up so that we can get a better projection for 2006.

Okay.

Great.

And then just one more quick one for Mike.

Mike, you mentioned free cash in the quarter.

Where's your -- your estimate for free cash for '05 in general right now?

Well, I think that's -- that's a tough one, Greg and it tends to be one I stay away from just because so some much depends upon what that revenue growth rate looks like in the second half and particularly in the fourth quarter because that will move our -- our overall working capital around.

Overall, I would -- I would expect that we would be in excess of where we were last year if you were to ask me today.

But if things really -- really started moving could we add a little bit more working capital and be a bit below last year which came in just over 150 million of free cash?

We could -- we could possibly drop down but so either way I still see very -- a very good free cash flow year over year.

Okay.

Thank you, guys.

Appreciate the --

If I could -- if I could request the callers to -- to try and limit to one question perhaps a follow on and then if you have more questions to requeue.

I just want to make sure we get through as many -- as many people as possible.

Thank you.

Brandt Sakakeeny, Deutsche Bank.

You may ask your question.

Thanks.

Good morning Mike and Jeff.

It -- it would happen to -- to my question that I get only one.

So let me --

[Laughter - Inaudible] your 10 questions.

-- I want to ask.

I guess Mike, with respect to -- to Jefferson Wells sort of a tentative guidance with -- in the third quarter you suggested that obviously operating margins in third quarter last year were particularly high and so this -- this year might be more moderated.

What -- in -- in terms of the revenue assumptions for Jefferson Wells, should we presume again another slight flattish to sequential decline in 3Q relative to 2Q?

Okay, so you're trying to take advantage of the fact I gave you a couple looks on the third quarter and push for a little bit more.

But --

That's exactly right -- that's exactly right.

You gave us the operating margin assumptions but -- but not the revenue assumptions, so -- ?

I think -- our view would be that -- and -- and I'll put -- I'll put some caveats around this.

I think we are seeing some tail off in the -- in the Sarbanes-Oxley work but my sense would be we're going to find that to stabilize in the second quarter and -- and I would expect as we move to the third quarter right now I would expect that we probably would see it flattish with the second quarter to up slightly sequentially, that'd be my best estimate.

Understand that there's -- there is a little bit limited visibility on that right now but that's -- that's how I'd be thinking about it.

Okay.

Great.

I'll -- I'll wait for others.

Thanks.

Thank you.

Kelly Flynn with UBS.

You may ask your question.

Thanks.

Mike, I was hoping you could give an little more detail on the Q2 guidance.

I think this time you only gave constant currency for overall and at Right.

Could you go into the regions in more detail and then I guess as well, you said half of the gross profit margins declined to relate to business mix and the other to weakness in the European market.

Could you maybe allocate by country in terms of how much we could -- we might see in particular countries?

Thanks.

Sure.

Yes, on the -- on the overall guidance for the second quarter, let me just summarize that quickly terms of revenue guidance.

Overall, we're looking for 6 to 8% in constant currency which gives us up 12 to 14% in U.S. dollars.

U.S., we're looking for a 1 to 3% growth.

France, were looking for something in the range of 3 to 6%, which based upon where currencies are 11 to 14% U.S. dollars.

EMEA up 11 to 13% in constant currency which would give us 19 to 21% in U.S. dollars.

Jefferson Wells, up 15 to 20% year-on-year.

Right constant currency down 13 to 15% which in U.S. dollars will be down 11 to 13%.

And then the other category up 12 to 14% in constant currency which is up 17 to 19% in terms of -- of others.

So that's how I would see the revenue line playing out.

In terms of -- of -- of the gross profit margin decline, as I said I would expect some year-on-year decline and about half of that again is due to a business mix with Right coming on for -- for a full quarter this year compared to a full quarter last year with their gross margin being almost at 60%.

The fact that their revenue is declining certainly does have a fairly significant impact.

The other half of that decline is going to come from France, which is really a continuation.

We'll have some pressure within the EMEA market as well as we talked a little bit earlier, Italy in particular in the Nordic's, we're seeing some pricing pressure there so that will have some impact on the overall and then last;y, Jefferson Wells had a very -- well, not very high, but had a higher than normal gross margin last year as there utilization was very high as business was ramping up and we would expect a more normal gross margin for Jefferson Wells in the second quarter.

So that's -- that really captures the -- the large differences year-on-year in terms of gross margin and how that's moving.

Okay.

Great.

Thank you.

Yes.

Thanks.

Andrew Steinerman, Bears Stearns.

You may ask your question.

Hi.

Could you just go into U.S. gross margins a little bit more?

We talked about a more educational SUTA plan in its third year.

What's happening on wage inflation, clients' sensitivities to tightness of labor?

Does the labor market seem tight or is it really caught up with the comments that were made about revenue that it's not such a tight labor market.

Could you just call the -- the gross margin improvements with the flattening of revenue growth, what if those two usually go together?

Yes, I think, overall when you look at overall gross margin, I think there -- I think clearly we've been working hard as an organization to pass on these SUTA increases.

And I think the market has -- has got to the point where it's -- it's -- it's able to accept some of the price increases, so I think there is -- is some positive trend from a pricing standpoint.

Is there still -- are there still bits of business and contracts out there at rates that we're not -- we're not interested in playing at?

Absolutely.

But I think the market has adjusted a little bit and is able to accept a little bit more on the overall pricing side.

From a wage standpoint we're seeing an overall wage increase on average of -- of between 2 to 3%, so -- so we're able to pass that on as part of the -- through our overall retail business and in the contract business this normally goes on automatically as well.

So, we're -- I would say -- I would say that market clearly is -- is -- is tightening, but there's still is some availability.

Certainly there are some skills that are very difficult to find particularly as you get on the more professional side, but that's how I -- I would summarize it overall.

Right.

But we're able to raise prices faster than wage and faster than SUTA inflation overall when you talked about the overall impact in the U.S., Right?

Yes.

Sounds good.

Thank you.

Michel Morin, Merrill Lynch.

You may ask your question.

Yes, good morning, guys.

I just wanted to focus a bit by Japan.

Wondering if you could talk a bit about any noticeable changes you might have seem in the competitive landscape there and also if you can talk -- give us a bit more color in terms of some of the investments that you've made and that you expect to make as we go through 2005?

Thanks.

Well, Japan is a -- is a market that has gone through a lot of evolution in the last few years with some labor laws that have changed from adding light industrial and -- and some of the social charges.

We see the Japanese market as a -- as a very good market, but a market that tends to just take a bit longer to -- to -- to move in a -- in a certain direction, so we are putting investments in permanent placement.

We are putting investments in -- in some office reconfigurations that -- that we are doing as well as continuing to feel as though we will stay and -- and -- and stay in a heavy way in the light industrial area because in another year and a half you would see another law change that would allow the assignment of a temporary to be much longer which we think that is the time when -- when Japan's light industrial would take off.

So we wouldn't put Japan very high right now on our list of where we are putting lots of investments.

Right now in Japan it's much more executing, going after the market.

Competition there is -- is extremely smart and has been doing a nice job in the marketplace.

We do a good job on -- on national global accounts and now we're starting to penetrate more of the -- the mid-sized Japanese accounts.

Thank you.

And are you, just as a follow-up on that, are you seeing any changes in terms of market share?

Do you feel that you're gaining some share there?

I would say on some of the -- the -- the mid-sized ones we would be gaining slight share.

When we're looking at some of the top ones, you'd have to look at a two-year where last year we were gaining more share so this year I would suspect that we would -- would just come off that a little.

But I feel comfortable in our market position and where we're going there?

Great.

Thank you.

Yes.

Mark Marcon, Robert W. Baird.

Your line is open.

Good morning.

I wanted to ask a big quick -- picture question.

You had mentioned, Jeff, that right now you're not battening down the hatches and clients aren't giving you any reason to -- obviously the -- the market has settled a bit of concern in terms of a potential macro slowdown.

If -- if that were to occur on a -- on a broader based more noticeable basis, can you talk a little bit about some of the levers that you would have on the expense side to -- to maintain what has historically been a tremendous track record of -- of managing through downturns?

Well, we've got several initiatives going on now so whether it goes down or not from a market perspective, I think that we would be able to pull maybe those initiatives up a little bit more and focus on them.

You've heard us talk about initiatives in the IT area.

We now are consolidating all data centers in Europe.

We've consolidated den -- consolidated data centers in Asia.

We are working through some of those types of expenses in -- in -- including office opening types of expenses and getting better at that.

So we would accelerate some of those from -- from an efficiency perspective.

The -- the -- the big nut to look at is what you do with oss -- office openings, not necessarily in the -- in the real super emerging markets, ala India and what we're doing in China which we believe and very confident that we're well ahead of the competition both in our relationships as well as well over 150 people on the ground right now in -- in China doing perm placement.

We would still put those there but we might be looking at doing some consolidation where appropriate one office around the street -- around the corner to another office, we might accelerate some of that reduce some of our real-estate sorts of things.

So, if those of you that remember, we really have kind of two programs.

One that is when it's going down a bit, we call that our profit protection plan and it typically has four or five gates that you go through in order to pull the -- the -- the levers to make sure that we're protecting our profit and then when we're coming out the cost -- the cost containment programs to make sure the SG&A doesn't sneak up on us.

So I feel as though we are prepared to do that.

There are some investments and there are some things we can do based on our assessment of whether there are structural changes in the slowdown or just cyclical changes in the slowdown.

And that makes a big difference in -- in which levers would we be pulling or not pulling.

Great.

Can I ask one quick follow-up?

Sure.

In terms of -- in terms of pricing?

You mentioned Italy and the Nordic's.

Is -- is that -- are you seeing competition coming from some of your larger competitors, or is it more isolated, a little -- a little local instances there are popping up here and there or is it -- is it across the entire country?

Yes.

The two are very different scenarios.

In the Nordic's where we own the majority of the market share, we've got one major competitor who just seems to be, regardless of price, wants market share and pretty much are -- are confusing the customers and -- and -- and making the market probably not an even better but a lot worse for everybody, in the customers and the industry.

Now, in Italy you would see it coming from many different sides, you'd see it from small, medium-sized players.

So -- so that's more of a -- a different story which is really a bit of a maturity story.

We've been doing this since 1998.

Each year it kind of clicks down a little.

France is not that far away from Italy for those of you who know your geography, and -- and -- and you start to get a little bit of an okay, we're not more mature can we get this at a different price and it's pretty much more across the board.

Got it.

Thank you.

Yes.

Jeff Silber, Harris Nesbitt.

You may ask your question.

Thanks and good morning.

And thanks again for providing the slides, they were very helpful.

Good.

I believe was quarter, Jeff, you talked about looking out for the full year where you thought operating profits would improve about 15% year-over-year.

Is that something we should still be using for modeling purposes?

Well, you guys can use anything he want for your model.

But -- but -- I to be serious about that.

What we were -- what we were looking at in January at that time, so we're in the third week of January, seeing January is starting off, we know first quarter is a bit seasonally weak and when we looked out over it and looked at some revenue growth and our plans in place, felt as though 15 which is our stated objective always, 15 plus, but it's achievable.

Now, clearly, we still have and still feel that that is our goal of.

It has not been changed within our -- our field organizations, but we also have to be realistic to some extent that if we don't get a little wind at our back, you can't really just cut, cut, cut to get to 15% or if you do it's probably not the smartest thing to do.

So in no -- in no way am I saying that 15% plus is something that is now after 25% of the year is done out the window, far from it.

We came within the range so we're on track.

If you couple that with what's happening -- what we had announced is our range for the second quarter we're pretty much on track.

Now what we need to do is to see over the next three months what that second half looked like from a revenue line.

What's it look like from a -- from a GP perspective in a country like France or -- or in the Nordic's and-- and then w'll have a better assessment as to is there a way to recalibrate that down or, on my optimistic side, calibrate it up.

It all depends on what kind of wind we have are back.

Okay, that's helpful.

And just a quick follow up, this one's for Mike.

The Tight guidance for the second quarter was a little bit below what we're looking for.

On an average daily constant currency basis is the guidance you're giving for the second quarter roughly what you generated in the first quarter?

Just for -- you said, Tom, for Right stand alone?

That's correct.

Yes, that would be -- that would be correct.

If you -- if you do an average daily basis it would be right in this similar ballpark, that's true.

Okay.

Thanks a lot.

Yes.

Rob Harris, CSFB.

You may ask your question.

Yes, afternoon, gentlemen.

Forgive me because I was having trouble logging on to the -- the webcast, so you may well have gone through this in the early part of your -- of your discussion.

But I wonder if you could -- normally you're prepared to specify the run rates in some of your largest territories as the -- as the call to progressed.

I wonder if you'd be good enough to do that for both the State's and -- and for France?

We did do it for the State's so we'll go over that in France, we just kind of just gave an overall.

Right -- right -- yes -- yes -- so that in the States, we went from January from, I believe it was 4.1 to February 3% to March 0.5%.

That's correct.

And -- and as we -- it's a little bit difficult the end of March into -- into April because you had Easter this year in March and Easter in April last year.

If I put -- if I try to take some of that noise out, overall revenue is running fairly flat on a year-on-year basis for us within the U.S. market right now.

Okay.

That's an organic ratio?

Yes?

That's correct.

Right.

All those numbers excluded the impact of the Trans Personnel dispish -- disposition that we had in July of last year.

The -- in the French market, what we would have been seeing was a stronger January.

February was looking pretty good.

We saw a little bit of softness at the end of February and into early Mar -- into early March, probably somewhat linked to some bad weather in Europe in general.

And then we saw March kind of bounce back to earlier levels but then we saw late March early April taper off to -- we're seeing some -- some modest -- fairly modest volume growth right now.

So certainly we saw in the last couple of weeks a little bit of slowing.

I think, the question is, is this -- is it bouncing around here is or is it going to flatten out or is it bounce back you.

So, we're -- we're anticipating that we're going to see, in terms of 3 to 5% overall revenue growth, or I should say 3 to 6% constant currency revenue growth.

So that's looking for it to bounce back a little but not -- not really accelerate too dramatically.

Well, that's the second quarter, is it?

Yes.

That's for the second quarter.

Lovely.

Thanks very much.

And then forgive me once more because I -- I literally got in as you were -- you were talking about the -- the 35 hour working week.

So I was wondering if you -- if you -- if you'd done so already just quickly go over the -- the reasons behind the -- the 30 basis point decline in the French margin year-on-year?

I just assume that has something to do with the subsidy arrangements amongst other things.

Yes, if you look at -- if you look at year-on-year decrease there was a change in subsidy at -- at the beginning of -- of this year were it was lowered but you -- you may recall in July of 2004 there was an increase.

And those somewhat offset each other.

So I think when you look at year-on-year decline in gross margin in France I think it really comes down to -- to core GP and -- and core pricing pressure.

And -- and that -- we've seen that for the last couple quarters.

I would say this isn't new news, but I'd say it is a continuation of some of the pressure we've just seen in the French market.

Okay.

Okay.

Thanks ever so much.

Last question, please.

Leone Young, Smith Barney.

You may ask your question.

Hi, it's Pete Carrillo for Leone.

Just one really quick question and another one that's a little more big picture.

The first question is on the terms of this morning GM announced sort of negative earnings and there's some talk about they have eventual layoffs.

Any -- any idea as to how much that's going to impact you, particularly of into auto industry issue not just GM issue?

Are you talking about how it impacts Right or how it impacts Manpower's --?

Manpower, overall.

Yes.

Well, it impacts Right on a positive way and -- and -- and possibly on the Manpower side, the staffing side not as -- as positively.

I mean we hear an awful lot, particularly, in the automotive's what's going on whether it be on the supplier base or -- or in the OEMs.

We work with the majority of all of them so it can be relatively positive, if you will from a Right perspective.

I think what we're seeing which -- in maybe now a little bit more acutely aware of is that it goes back to that whole measured concept if -- if companies are not feeling right at this month or at this week they take action right away.

Either move people out or bring people in or -- or do some adjustment and that's what we're seeing.

So -- so whether it be GM or what's happening in Ford or some of the other announcements that came out in -- in -- in the tech sector,

My other question was just over looking at the last several year's maybe since sort of the latter part of the 90s, granted the total revenues went from around as much as 40% and now it's coming down to sort of the mid 30s, maybe, I guess, for modelling, maybe a little -- I guess 33% in the first quarter it looks like, is that -- should -- is the trend sort of, have France become less part of the concentration slowly over time?

Yes, that has -- that has been a stated strategy.

And the stated strategy is not to do anything bad to the French revenue. t We -- we really like what's going on in France.

The -- the strategy is, is when you see Italy growing at 18, 20% and Belgium 25% and -- and -- and Germany 15% and Jefferson Wells at its pace it becomes much, much more balanced where we would see France being something 30 or maybe even less than 30% of the -- of the top line as some of the other countries are kicking in and -- and growing their businesses.

And I guess you would see the pricing pressures in places like Belgium and Italy and Germany, et cetera as much as you're seeing in France?

That's correct.

We see pricing pressures.

It's just not quite as mature as -- as what you would see in the French market.

Right.

Okay.

Great.

Thanks.

All right.

Well, thank you everyone.

As I said before the -- the visuals are up on the website so if you would like to take a look at them, please do.

We'd like to be it as extremely sensitive as possible for what you need so on our website you get a chance to send things it and see what else you might like or -- or -- or look at as -- as we want to make sure that these calls are as productive as possible for you.

So, thanks for attending and we look forward to talking to you next quarter.