ManpowerGroup Inc (MAN) 2005 Q2 法說會逐字稿

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

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

Today's call is is being recorded.

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

I would now like to turn the call over to your host, Mr. Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Thank you, and good morning and welcome to the second quarter conference call for 2005.

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

I will go through the results in general, discuss the segments in a little bit more detail, and then Mike will follow up with further financial information.

Last quarter we introduced visuals into the quarterly announcement.

We've done that again this quarter; as many of you said, it was quite helpful.

You can retrieve the visual portion of the presentation at any time from our website.

Again, as usual, before we move into the call, I'd like to have Mike read the safe harbor language.

Thank you, Jeff.

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 second quarter was a very solid quarter for us.

We were anticipating a more difficult top line in a few geographies so we were actually able to adjust our costs, which we had already started to do.

We also looked at being much more aggressive at driving higher business.

This resulted in a very solid quarter.

We entered the quarter anticipating earnings per share of 0.63 to $0.67 which would have been a 12 to 20 percent increase over 2004.

The team across the world, very nice performance, finishing the quarter at $0.70, a 25 percent increase in earnings per share.

Our projection, that we had originally laid out, had anticipated $0.04 of positive currency.

It actually turned out to be $0.02, so we had to make up, if you will, the $0.02 from the strengthening dollar.

Our revenue in the U.S. -- in U.S. dollars was just over 4 billion, an increase of nearly 12 percent, 11.9 percent in dollars, and an 8.2 percent increase in constant currency.

Our gross profit was 60 basis points lower than a year ago and up from the first quarter by 10 basis points.

Our operating earnings were 109.7 million, up 15.2 percent in dollars, or 11.2 percent in constant currency.

Other expenses and interest were pretty much in line which gave us the increased earnings per share of 25 percent.

As always, we continue to be focused on gross margin.

We really believe that we add more to our services than any of our major competitors, so we go out and make sure that we get paid for that additional service that our companies are benefiting from, clients, I should say, that are using us are benefiting from.

We are confident that our commercial staffing business is is leading the market in gross margin, among the major players.

However, we are continuing to see pressures.

Our gross margin reduction of 60 basis points spread across several geographies, so it didn't just come from one area.

In EMEA, we are seeing some natural maturing in some of the markets.

France, no surprise here, we've spoken about pricing pressures for several quarters now, and we continue to work hard to uphold the pricing that we can.

At Jefferson Wells, the gross margin reduction from last year can be attributed to utilization.

If you recall, last year this was one of the real sweet spots that we came into in the second and third quarter with some of the work last year with Jefferson Wells.

At Jefferson Wells we have a clear plan to continue our trend upwards toward 40 percent gross margin as the utilization of our professionals increases and our pipeline of business gets much more solid.

Our gross margin was also impacted by a change in the mix of business, especially the lower revenue levels coming from a much higher gross margin unit, which is Right Consulting.

Permanent placement continues to have a very positive effect on the business.

Not only does it give us the needed financial help in the gross profit margin, but it also puts us in a much different light in front of our customers so our customers are viewing us now as part of the plan in a much different way.

We're currently working on several engagements for permanent placement that are on a very large scale.

We are also working diligently in the local markets when they have the opportunity or when we have the opportunity to sell permanent placement.

We were anticipating 0.63 to $0.67 in the second quarter.

We achieved $0.70.

While were able to achieve strong financial results, we also have strengthened our balance sheet.

We continue to make appropriate investments in opening offices.

We increased our permanent placement recruiters.

We made substantial inroads into the Asian markets both in India and China, and we strengthened much more our relationships with many of our global and major accounts.

Overall, based on the market that we are experiencing, and when we look at our -- internally at the progress that we're making across the board on many fronts, we are optimistic about the prospects of our performance as we move into the third and fourth quarter.

By no means does this mean that the balance of the year is going to be easy.

We resigned ourselves, as I'm sure most companies have, there will be no easy quarter but we are optimistic about how we're going to fare, even though there is this backdrop of a difficult market.

As we look to the third quarter we would anticipate our earnings per share to come in between 0.81 and $0.85.

Now onto the segment details.

Our U.S. operation did a very nice job in making sure the gross margin was trending in the right direction and the expenses were in line.

Revenue came in at 507 million, down minus 2.1 percent.

Clearly, we don't like to see revenue trending in that direction, however, when we look inside the numbers we feel confident that we are making the right decisions related to taking on the appropriate customers and valuing our service to those customers.

Remember, we've still not anniversaried the Transpersonnel divestiture which would impact us by about two percent positive which means for the revenue for the quarter it was flat, it was zero.

Also, this doesn't include any of our franchise sales which outperformed the branches just slightly.

Our gross margin sequentially went up nicely, and was also up from prior years.

So both sequentially and prior year.

Our expenses are trending positively as we continue to be more efficient.

This resulted in operating year profit of 18 million, up 27 percent, and an operating unit profit margin of 3.5 percent up 80 basis points from a year before.

Overall, the U.S. organization did quite well.

We're seeing that our customers continue to be measured.

No surprise in the type of staff they're taking on.

However, we do not see this trending in any direction that we haven't seen in the last six months.

In other words, we're seeing good, stable, carefully adding staff, just not any type of euphoria, nor is there any type of, if you will, depression out there.

Therefore, we are anticipating a similar environment as we move into the third quarter.

Our French operation was up 10 percent U.S. dollars, six percent from constant currency.

Revenue came in at $1.4 billion.

We had an operating unit profit that went up by five percent in U.S. dollars and one percent in constant currency to $42 million.

We've continue to see throughout the quarter, pressure on gross margin.

However, it's not any more severe really than what we had been experiencing in the last six months.

Our expenses right in line leading a 2.9 percent operating profit margin in U.S. dollars, down 20 basis points.

We continue to see the beginning of a good market in permanent placement.

Throughout the first half, we added over 70 full-time recruiters, and we are now seeing a consistent demand for our services in permanent placement.

Overall, the French market, we are seeing customers behaving in many ways similar to what we're seeing in the U.S., and that is the client is very much in a wait-and-see measured type of response.

As we look to the third quarter, we did not see any trends that are any different than what we are seeing now.

Revenue would be about the same.

We'll continue to see some pressure on gross margin.

However, it will continue to work on our productivity enhancements as well as our mix of business.

As we will see permanent placement beginning to have much more of a financial contribution by the third quarter.

We'll also continue our branding initiative which calls -- in France, which calls for us -- some expanded advertising into the third quarter, which will have a slight effect on our profitability in the third quarter.

Moving on to EMEA.

EMEA had a very good quarter.

I think this was probably the best efforts we had amongst the group.

Revenue was up 13.6 percent in constant currency.

Revenues for the second quarter came in at $1.4 billion, up 18 percent in dollars.

Operating profits were up 50 basis points to 38.4 million, a 46.8 percent increase in dollars and a 41.6 percent increase in constant currency.

EMEA achieved slightly higher revenue than we had anticipated as we were getting some very good performances out of several of the units.

Permanent placement for EMEA was up 38 percent in constant currency, which contributed to the higher operating profits.

To highlight a few businesses and geographies, Elan was up 40 percent in constant currency, just a great performance, and not a one-time performance.

We've seen Elan now for the last four quarters exceed anywhere near the market growth.

We're seeing in the IT professional market both in the U.K. and in mainland Europe continue to do well for us.

We feel as though we are extremely well positioned and are taking market share as a result of our organizational structure, processes, and the team at Elan.

In constant currency, Germany was up 19 percent.

Spain 20 percent, Belgium continues to do well, up 19 percent.

We're also seeing Norway and Sweden perform in the mid to high teens on the top line.

On the bottom line, we're seeing good leverage in Elan with the bottom line increasing more than the top line as is the case for several of the countries that I just highlighted.

In our U.K. operations we are experiencing a bit of softening of the top line as the U.K. business climate is somewhat cautious.

As we look to the third quarter, we would see a bit of softening in the EMEA segment, whereas in the U.S. and France we would see much more of a consistency of the trend line.

On the top line, what we anticipate for EMEA is a little bit more of a slowdown, similar to what we experienced in June, nothing dramatic.

Slowdown in temporary staffing can be softened a bit by our permanent placement business, which is going quite well as a few of our marketing initiatives and internal cost initiatives that we've already put in place.

Moving on to Jefferson Wells.

They, too, performed well, up 22 percent in revenue with a $93 million quarter.

Saw sequential growth from Q1 to Q2, which is very encouraging as we've been able to continue to balance the reduction in the Sarbanes work with more work coming from the non-Sox area.

We consistently have seen our sales pipeline in the non-Sox area continue to grow, and as a result, we are seeing anticipated slowing in our Sox work.

It is more -- it has been more than made up on the other side of the business, as you can see from the sequential growth.

In the Sox area by itself, on an intra-quarter basis, we actually started to see the Sox work trend up just slightly.

The reason for that is we started to see the 2005 filers that are starting to ramp up some of their own projects.

We are very confident we'll be able to satisfy that need from the marketplace as well as continue our expansion in the non-Sarbanes work.

Our Jefferson Wells operating profit was down on a year-over-year basis 16 percent, but we made 10 percent operating profit margin at 9.3 million.

Showing that after a little bit of a settling out of the bubble caused by Sox, we are now well on our way to be able to deliver solid double-digit operating unit profit margins.

As we look to the future based on the balance of the business and had the uniqueness of our offering, we are anticipating sequential growth from Jefferson Wells, both on the top line and the bottom line with more leverage occurring because as we increase our top line, we're able to increase our utilization.

Therefore, resulting in better profitability.

Revenues from Right Management increased sequentially to 108 million, down on a year-over-year basis 10 percent in U.S. dollars, 12 percent in constant currency.

We were able to achieve an 8.6 operating profit margin with an operating profit of $9 million.

In that operating profit margin, we did take a few more severance charges as we continue to refine the efficiency and structure of Right Management.

Overall, we are seeing the U.S. market continue to perform well with top line consistent with what we've seen in the last quarter and down a little from last year.

We are seeing very good growth in our organizational consulting with the U.S. organizational consulting up 21 percent in dollars and our U.K. organizational consulting business up 13 percent.

Overall, we're deriving two-thirds of our business from career transition and the balance, of course, from organizational consulting.

We continue to see positive signs as we are approaching major accounts in a joint fashion between Manpower and Right Consulting talking about the employment continuum.

Therefore, we are winning business from the competitors on career transition, and we're also winning business on the staffing side, based on this unique offering and the relationship we have with career transition, staffing, and organizational consulting.

We have, over the last four months, made additional changes, launched some initiatives within Right, and, therefore, we are optimistic about Right's ability to produce solid profitability and also to offer more value as we continue to redefine the industry.

When we look at the third quarter, I want to remind that you Right's third quarter is traditionally a softer quarter from a seasonality perspective.

Therefore, you can anticipate our profits going down and then back up again in the fourth quarter.

The other operations segment was able to maintain a very good growth rate and is beginning to gain momentum on the operating margin.

Revenues were 518 million, a 20.9 percent increase or 15.9 percent increase in constant currency.

Our costs were kept in line, which gave us an increase in profitability in U.S. dollars of 36.4 percent, 31percent in constant currency, raising our operating profit percent 30 basis points to 2.5.

Some of the highlights within the other operations segment, Australia and Japan where top line was close to 10 percent, but more importantly Japan was up more much on the bottom line.

As we talked about earlier within Japan, we did not move as quickly as we would have liked, passing on some additional social costs last year.

We've now done that, and we've gone through the process of getting back to our customers, implementing a price increase to reflect that change, and we're seeing that now the results of that come through this quarter.

Canada, Mexico, and Argentina all did quite well, with Mexico in particular performing quite well on the top and bottom line.

This segment of our business, the other operations segment, is operating well and continues to show very good progress and good signs as we move into the balance of the year.

Overall, we had a good quarter.

It was a quarter where execution meant everything.

It was a quarter where when you anticipate some of the changes that are occurring, you can actually make effects on them.

We anticipated this lower revenue in several of the countries.

Therefore, we were able to anticipate and make changes as required and to respond quite effectively in the quarter which resulted in a 21percent increase in constant currency in our earnings per share.

As I spoke about earlier in the third quarter, we would anticipate the top-line growth rate slowing slightly from the second quarter but still being able to deliver solid earnings per share growth in the range of 81 to $0.85.

With that as a background, I'd like to have Mike cover some of the financial highlights from the quarter.

Okay, I'd like to begin today by discussing our balance sheet and capital structure, followed by cash flow and then our third quarter outlook.

We closed out the second quarter with total debt of $754 million and cash of $363 million bringing our net debt position to $391 million.

Our total debt to total capitalization at quarter end was a comfortable 27 percent.

Available borrowings under our credit facilities were $672 million at the end of June, so clearly you can see we have the financial strength and liquidity to support our growth going forward.

I'd like to take a few minutes to discuss our capital structure in a bit more detail.

We have made a number of moves in the first half of the year that improved our capital structure and strengthened our financial position.

Since year end, our total debt has declined by $148 million, but more importantly we have changed the debt composition.

We had 150 million euro notes mature in March, and we called our convertible debentures in March.

The convertible was redeemed for $207 million in cash and 1.4 million shares of common stock.

These two securities were essentially refinanced with the proceeds from a new seven-year 300 million euro notes with an effective interest rate of 4.58 percent.

This refinancing improved the maturity profile of our debt portfolio and also removed any uncertainty associated with the periodic put feature of the convertibles.

In addition, we completed the repurchase of 5 million shares of common stock for $204 million. 3,935,000 of those shares were purchased in the second quarter, and 1,065,000 shares were purchased in the second quarter.

These repurchases added at least $0.02 of accretion to the second quarter earnings per share.

Free cash flow, defined as cash from operations less capital expenditures, improved to $62 million in the first half from $41 million in the prior year.

Capital expenditures increased to $36 million from $27 million the prior year.

This investment relates to over 100 new office openings and our normal office refurbishments.

Our accounts receivable are at 3.1 billion at the end of June, a decline of 143 million since the prior year end.

This decline is the result of currency changes, as without the currency impact accounts receivable would have increased by $133 million, reflecting usual seasonal patterns.

DSO for the quarter was stable.

Next, I'd like to discuss a few detail items on the earnings statement.

Corporate expense is is 16.7 million compared to 14.4 million in the prior year.

This increase primarily relates to the timing of global IT projects.

As you may recall from the first quarter, corporate expense was below prior year for the same reason.

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

Had we expensed this cost under statement number 123, our earnings charge would have been $0.03 per share.

As you are likely aware, Statement 123R requires us to adopt the new rules in 2006.

Next I'd like to cover our outlook for the third quarter.

Currently we expect year-over-year revenue growth between five and seven percent.

This reflects continuation of year-over-year growth trends in the U.S., France, and the other operations segment.

In the EMEA segment we anticipate good growth of between eight and 10 percent.

However, this reflects some moderation in the growth trend from the second quarter.

We expect Jefferson Wells to continue to see improving revenues levels as demand for non-Sox services more than offsets any tail-off in Sox work.

I'd also remind that you Jefferson Wells had an unusually high operating margin in the third quarter last year due to the huge ramp up in business.

This year we would expect a more normal operating margin in the lower double-digit range.

The third quarter is seasonally slow -- is the seasonally slow quarter for Right, and therefore; we expect revenues to be slightly down from the second quarter but flattish with the prior year.

The seasonal revenue decline also compresses the operating margin due to the normal expense de-leveraging.

We expect our gross profit margin to be similar to the second quarter and our operating profit margin to be up sequentially but slightly down on a year-over-year basis.

This decline reflects the lower Jefferson Wells operating margin and the pricing pressures in France which will not be fully offset by operating margin gains in the other segments.

We estimate our full year tax rate to continue to be 36.5 percent.

However, we'll continue to evaluate that throughout the year and change that estimate as appropriate.

Our diluted weighted average share count should be about $88 million for the third quarter which gives us an earnings range of 0.81 to $0.85.

We have not included any currency impact in our estimate as exchange rates are close to the average third quarter rates of a year ago.

With that I'll turn it back to Jeff.

Thanks, Mike.

That's it for our prepared comments.

So what we'd like to do now is is to open it up for questions.

Thank you, sir.

We will now begin the question-and-answer session. [OPERATOR INSTRUCTIONS] And our first question comes from Jim Janesky from Ryan Beck & Company.

Yes, hi, thank you.

Good morning.

Jeff, you seem to be more optimistic on the market in France than, let's say, European either companies or French companies or economists.

What do you see on the horizon, or are you taking share?

What's your outlook as you go into the third quarter?

We wouldn't anticipate, nor have we tried this last quarter to take share.

I think there's a little bit of a see-sawing effect that always happens in France because free players have so much of the marketplace.

So we can be up one year and then down the next as it relates to market share gain.

Optimistic can sometimes be interpreted as having euphoria in that.

I'm not talking about euphoric optimism.

What we're looking at with our customers is a tough marketplace but a marketplace that is not bottoming out, a marketplace that will continue, if will you, kind of straight line in that neighborhood that we were at, let's call it, right around five percent.

So, you know, I think we can maintain that plus or minus a little here and there, but for the most part, what we're hearing from the customers is things aren't bad.

What they are is just very measured.

As I had said in some of the prepared comments, that you see a lot of this.

It's not just a U.S. phenomenon.

It's a phenomenon that would say that it is spreading across the world regardless of how they approach their labor market laws.

So, if we were to say France was up three to five percent that's typically not enough for to us live on from a highly leverageable situation, but it also gives us the ability to feel confident and optimistic that, you know, as we look at the third quarter, the floor is clearly not going to drop out from us.

Okay, thank you.

Brandt Sakakeeny, Deutsche Bank, you may ask your question.

Thanks.

Good morning.

Jeff or Mike, could you give us a sense for how things progressed through the quarter both in the U.S. and Europe and also into July as well?

If we look at starting with the U.S.

I think you'd see things fairly stable across the board.

I wouldn't say it's -- it's a bit flat and sideways.

As a reminder, we did have the Transpersonnel disposition which is what caused to us go negative two percent, otherwise we would have we would have been flat on a year-over-year basis. pretty much looked that way across the quarter and I think the -- I haven't seen any significant change in trend as we moved into July.

If you look at France, I don't know -- I don't think the story would be too different there.

Again, a little bit of bouncing up one month, looking a little bit stronger than another month, but I would say no real trend either upwards or downwards.

I'd had say a bit of bouncing around four, five, six percent in terms of overall revenue growth, and again, not a real discernible trend as we go into July as well.

So not really any real change in direction.

If you look at the EMEA region, which is a collection of different markets, so it becomes a little bit more difficult when you analyze it at that level.

I guess, in summary, we would look and see June a little bit softer overall than the first two months, April and May.

However, when you dissect that, most of that moderation is actually coming out of the U.K. market.

We did see the U.K. market weaken as we progressed all the way through the quarter and into the early parts of July, but generally the other markets outside of that would probably have a little bit of a story to tell.

I'm not sure that that general trend would go across.

But that's part of the reason why our guidance on the revenue line for EMEA being eight to 10 percent growth is a little lower than the 13.6 percent you saw in the second quarter as we did see June a little bit weaker overall.

I think there was one last piece to your question, Brandt, and I forgot it.

I think that was it, but I did after second question, which was, in terms of the margins, did you put your or sort of take your foot off the gas with respect to investment in new offices and stuff like that this quarter, or did you see in terms of the strong market performance just some aging of the investment you had done in the first quarter and that sort of stuff starting to mature?

Yeah, I don't think we took our foot off the gas, so to speak.

We continued the invest in permanent recruiters, certainly in France but also in EMEA as well as the U.S.

We did open offices in the second quarter as well for the six-month period we have over 100 offices opened, so we had a little bit more than half of those were in the first quarter, so when you look to our original plan, our plan had called for a little bit more aggressive opening in the first quarter of the year.

As we look at the balance of the year, I would see continued investment.

We will be careful as to where those investments are, but clearly there are markets that we still see opportunity for new offices as well as perm recruiters, where as you can see from our numbers, permanent recruitment overall was up over 30 percent company-wide on a constant currency basis, so that initiative is working quite well for us and we're going to continue to take advantage of that.

But I think what you're seeing in terms of operating leverage is really good execution from a productivity standpoint.

That's been a focus of the organization for a number of quarters.

We still have more work to do there, no question, but I think you're seeing the results of some of that.

Great.

Final question.

Just a reauthorization of the buyback now that that's complete?

Well, that's something, you know, the board will continue to look at at a regular basis, and as appropriate, you know, they would reauthorize, but we're comfortable with our capital structure as-is we don't feel we have excess cash on the balance sheet.

The cash that you see at quarter end is about what we need from a structural standpoint, but, you know, to the extent that there's a build in cash, you know, we certainly would revisit that -- revisit a reauthorization.

So we'll take that as it comes.

Great.

Thanks.

Nice quarter.

Thank you.

Andrew Steinerman, Bear Stearns, your line is open.

Good morning, gentlemen.

My question is about operating margin, sustainability in the U.S.

When I look on only a temp basis and not Jefferson Wells and not just Right, the U.S. had the lowest operating margins of the temp regions in the first quarter, and now in the temp regions, I think it has the highest.

I know there's a payroll tax ceiling that helped sequentially but even with that in mind, this is a huge change given that revenues were flattish on a sustained basis.

What is the sustainability of US operating margins kind of staying leader of the pack here?

Clearly the performance was quite strong in the U.S. from an operating margin standpoint and you'll see that it really comes from two places.

The gross margin as well as the SG&A line.

On the gross margin part of what you're see ring the permanent recruitment initiatives help add to the GP expansion but I would say in particular, from an SG&A standpoint there have been a number of strong initiatives going forward in the U.S. to improve productivity down at the individual branch office level.

And we're starting to see the results of that, and that's been work that's been going on, frankly, for more than a year, the first quarter, because of the seasonality, you know, it really doesn't come through.

We started to see it a little bit, but you can't really see it in the numbers, so to speak, given the seasonality, but I do think what we have is is something stable here, so I would anticipate, you know, we're going to be able to sustain that level of operating margin, and typically the second half of the year seasonally is a little bit stronger from an operating margin standpoint, so I feel pretty good about the operating margin where it is and maintaining that or perhaps improve that for the balance of the year.

Okay.

Thanks for the explanation.

Chris [Gertech], Morgan Stanley, you may ask your question.

Thanks, good morning.

Nice quarter, guys.

I have a follow-up question on the U.S. market.

I guess revenue continues to be a little below the market growth, could you comment is that explicitly part of the strategy to focus more on profitability and are you content with the under-performance on the growth perspective and then can you also elaborate on what you're seeing with clerical versus light industrial segments?

We're never satisfied being in negative territory even if we're the top of the heap in negative territory because it doesn't bode well for the business model, if you will.

Are we content at this market growth rate being basically flat?

Again, if you throw out Transpersonnel, I think we've looked across the last two, three-quarters of some of our competitors and when you take out some of the noise we've been right in line if not a little ahead of some of them.

So it's a little hard when you juxtapose it to the BLS number but I'm not sure if we want to get into a detailed conversation about the BLS numbers.

I would say if we are picking the right customers, going after the business in an aggressive way and winning the ones we should be winning, I'm satisfied with it.

I would say that right now we are going through a bit of a transformation in that we have to get better as an organization of winning more of the accounts we should be winning, meaning those that would value some of the service that we have.

So I'm okay with this.

You can't -- it's very hard in an organization to send a mixed message and say good all the sales you can and make sure it's profitable.

It's a very difficult one.

So the message right now is sell hard, be aggressive, but here are your targets when comes to margin, and it's working.

When it comes to clerical versus light industrial we have seen light industrial trim back.

That's a lot of what you're seeing in the decline on a sequential basis, so that you're seeing a little less light industrial.

What we're really being told by our customers is is is that it seems to be more of a pause than anything systemic as they're waiting to get their product through the channels, see what happens with a few other things, then start ramping up again.

Office business still seems to be eluding us a bit.

There is some growth there, but it's on a negative basis so we're climbing our way out of the hole slightly but not enough.

Part of that is we can bring it down to a few customers, a few of them that we had turned away because it was at a rate that we didn't want, if I strip those out, we're still in an area where I'd feel more comfortable if we had more business in that area right now.

Great, thanks, Jeff.

Greg Cappelli, Credit Suisse First Boston, you may ask your question.

Hi, guys.

Hi, Greg.

Jeff, you mentioned a couple of times perm placement is obviously playing a bigger role across the organization.

Obviously, there's a good opportunity in France.

Sorry if I missed any data that you gave out here.

Can you update us on the total number of consultants you actually have training and ramping up in the area of perm in France and how quickly they could impact the margin over there?

Yeah, I'll let Mike answer France, and I think maybe more in general, but we're going to want to give you some ranges.

We consider this to be some competitive information, and I think as an investor, if you can just get a sense of the direction we're taking, how quickly we can turn some of these perm consultants into making money for the organization I think is most important from a directional perspective.

Okay.

Yes, we have close to 100 on that are either out working on training, and I'd had say the market is developing well.

I think it's still too early to put numbers to it.

I think as we've explained in previous calls we're certainly going to be there to take advantage of whatever the opportunity is, but certainly there is interest in the marketplace, and I think things are progressing fairly close to plan.

We're looking at a year where we could see some net operating profit if we do it's going to be modest, but we'll set ourselves up for next year to continue to invest but at the same time start to see some returns.

So I think the feeling general is the market certainly seems to be there.

We're off to a good start and are encouraged by it.

We'll continue to monitor it and invest as we deem appropriate.

Great.

Also on France, I think you had mentioned in the past that the group is focused on trying to gain market share within the retail sector.

Maybe experimenting with opening retail in new branches.

Is there any update there you can provide us with?

You've got some of that right.

We are, as a whole organization, looking at retail, and we are dividing some of our locations, retail to major account.

We have not begun that yet in France.

We are focusing on retail, however, in France, and retail is actually gaining speed.

Over the last 90 days we've actually ticked up a bit in our retail on a percent basis compared to major or key accounts.

It's just a longer journey because you can bring on so many more people in a major account than you can retail.

But the balance actually came in a little bit better this quarter than almost any other quarter.

As we see some of the other European countries that we are making the split between retail and major accounts, from a delivery perspective, we will monitor those and if they are going well, we will absolutely increase the speed of that implementation.

Okay.

That's helpful.

Final question here.

Kind of using, if we go out a couple years, is it still realistic to think you can achieve four percent operating margins by say '08 even if you're not able to put up, given the labor markets, 10 percent revenue growth over that time period, given that you are starting to see more of an impact from perm placement business?

Yes, I think, you know, certainly as we think about four percent we're clearly thinking about the mix of our business including more permanent recruitment business in there, more specialty business in that mix as well.

So I think as we think about our -- call it medium term targets of four percent, clearly that still is in our sights, and the question of course, does become timing, as you mentioned, and depending upon what the growth environment is will certainly dictate whether we can get there more quick or whether it's a little bit longer time horizon.

I think given the mix and how the mix of business comes on, if we're looking at 10 percent plus, I think 2008 is still, you know, is still a reasonable goal, if we're getting a little bit more than that on the top line we might be able to get there a bit quicker, and naturally if we're looking at growth of six to seven percent it's going to be some tough sledding to get there, no question.

But I think as we think about that four percent, clearly embedded in that is an anticipation that we're going to see that permanent recruitment be a greater part of our overall mix of business.

Okay.

Very helpful.

Thanks, guys.

Thanks, Greg.

Kelly Flynn with UBS, you may ask your question.

This is Andrew for Kelly.

First of all, on your other operating margin in other operations, you mentioned that you had managed to pass on some social costs in Japan.

I think your operating margin for other operations was flat year-over-year in Q1 and was up about 60 basis points in Q2.

What should we be looking at as we look at the second half of the year?

Q2 we saw about a 30 basis point year-over-year improvement in -- I think as we look at the balance of the year I would anticipate we'll see some expansion in operating profit margin because I think basically we've made the gains in Japan, and that's influencing the overall operating margin so that's the key reason for the expansion and I would anticipate that to carry through for the balance of the year.

I think you'll see a continuation of expansion, probably not dissimilar to what you saw in the second quarter.

Okay.

Then I guess a similar question for EMEA.

I think you had said that you had seen Italy in Q1 you had had seen a little bit of a maturing of the market in Italy, but I guess in Q2 we have seen some improvement, so again what should we be looking at for the second half of the year?

I think in Italy I'm not sure if we were talking about a maturing of the market.

What we had was a couple situations with some offices that were hit up by some sicknesses, a few other things on the gross margin side is and we felt as though those would all be rectified in a relatively short period of time when you look at the second quarter.

In fact, they have been.

Going forward, we had talked about EMEA a bit slower.

That would include Italy, but nothing dramatic.

I think Italy can still put in a very nice year for the balance of the year.

Okay.

So I guess looking -- I guess EMEA was up about 60 basis points year-over-year.

Should we expect kind of a similar performance in the second half?

Yeah, I think there's opportunity for expansion in operating margin in the second half.

I think fundamentally what you're seeing in the second quarter I think some of that clearly carries through.

A lot of that, they're getting from productivity enhancements, and I see that carrying through.

To the extent that the top line softens ups a little bit perhaps they won't be able to maintain quite that spread on the operating margin, quite that amount of expansion but certainly I would anticipate in the second half we'll see expansion over prior year.

Okay, thanks.

Michael Moran, Merrill Lynch, you may ask your question.

Yes, good morning.

Just to follow up on some of the earlier questions on perm placement.

I was wondering if you could update us on where we stand now with permanent placement as a percentage of the gross profit overall and by region and whether you're still had adding recruiters in some of the other regions like EMEA, where I think you had added quite a few last year.

Secondly, on margins in France, gross margins, I was wondering if that 20-bip impact that we're seeing year-on-year, does that reflect part of the permanent recruiter additions, or is that really more in the SG&A line?

Thanks.

Sure.

Yeah, in terms of overall mix on permanent recruitment, presently for this quarter we're just over seven percent of GP is coming from the permanent recruitment side.

That would compare to last year which was just for the full year just slightly over five percent.

So you can clearly see there's a bit of shift, and as we've talked in the past, certainly we think that perm can move towards 10 percent, perhaps even as high as 15 percent of our overall GP mix when you look at it over more of a medium-term basis.

So we still believe there's good opportunity there.

We have been expanding in, really, all of our major markets, both in EMEA, France, and the U.S. market, Asia-Pac as well.

So we're see going opportunity there.

I think the important thing is how the customers are viewing us and viewing our services.

They're really looking at us as being a much larger service provider and can see that we can provide permanent people quite well just as we can on the temporary side.

So there really has been a shift in attitude from a customer standpoint in the marketplace, and I think that's working well for us.

On the overall operating margin in France, the decline year-on-year of some 20 basis points, I really wouldn't put that to the perm recruitment side.

That's not having that much of an impact.

Really what you're seeing are the impact of core pricing pressure really falling down from the gross margin down to the operating margin.

So that's really the reason for the year-on-year decline.

Okay.

Sorry, also on perm, I think you had mentioned that there were some large-scale project that you were looking at right now.

Can we get any color as to which regions those were in or how big these officer.

No, I'm not going to give you a lot of color on that but you would see EMEA and the U.S. are ones that would be leading that as companies are looking at outsourcing their recruitment, whether it be for entry-level, mid-level, or higher level, and because of the audience and the relationship we have with many of these companies, particularly in Europe, we have a good opportunity to take this on and at the same time, really set some new standards in the industry.

So rather than give you any more color on it, I think it's most important to understand that this is a business that is now not a separate business.

It's a big part of the core offering, and what we're explaining is that when you have temporary and contractors coming in and the conversion from temporary to permanent and permanent recruiting and you do that all in an organized way, the organization that we would be doing that service for is going to benefit greatly as opposed to just having one of the services doing that.

Great.

Thanks very much.

Jeff Silber, Harris Nesbitt, you may ask your question.

Thanks.

Good morning, and my congratulations as well.

You mentioned about the strength in your Elan business.

I am just wondering if you are seeing similar results in your IT staffing services business in the U.S., and if not, why not, what's going on differently overseas?

I don't think we are seeing in fact, I know that we are not seeing that same strength at all.

Some of it has to do with some comparables of where we had shifted out some customers out are Manpower Professional and in the IT.

Also, we are not seeing the U.S. get as aggressive in how they are approaching projects, U.S. companies, so we might be a little affected on that, and to be honest, we've got a little bit more work to do on our ability to deliver, so we're working on that as well.

So Elan, pan European, and U.K. is really a shining star.

You rack them up against almost any business division and right now it would be pretty hard to catch up to.

Shifting gears to the interest and other expense line item, with the recent restructuring, should we expect to see that line item increase a little bit in the third and fourth quarter?

Yeah, I would expect, so Jeff.

If you look at, you know, the second quarter was -- we add number of changes going on with refinancing.

Actually maybe easier to look at interest relative to the first quarter.

Net interest there was 9.3 million, and I would expect incrementally, due to the share repurchase that we would add about a million to a million and a half interest.

So, you're probably going to see in the third quarter I would think about net interest being somewhere between 10 and $11 million, something in that range.

Okay, great.

Finally one follow-up.

You had mentioned some of the severance charges in right.

Are those finished or are we going to see more of those throughout the balance of the year?

We don't expect anything significant coming through there from a severance standpoint.

We've got the organization pretty much set.

There's always things that we're doing to tweak and manage things going forward, but I don't anticipate anything of size going forward.

Okay, great.

Let me add my congratulations as well.

Mark Marcon from Robert W. Baird, you may ask your question.

Good morning.

With regards to EMEA sounds like the U.K. and maybe to a smaller extent Italy slowed down a little bit.

Were all the other regions pretty constant during the balance of the quarter?

You mean regions or countries?

Countries.

Yeah, you know, I think for the most part that's probably fair, Mark.

Some of them were, in fact, a little bit stronger in the second quarter.

So you're going to see a bit of shifting around.

Italy is going up against some pretty tough comparables from the prior year.

So while the growth rate is moderating a little bit, I still expect some fairly good growth in the second quarter as well.

But, you know, I would say, for the most part, revenue levels are fairly similar quarter to quarter.

I think the other market that was a little bit weaker, the Dutch market was a little bit weaker year-on-year in Q2 versus Q1, but, you know, I don't think there's anything else that's too noteworthy in terms of trend change beyond that.

In terms of what you're seeing across the bulk of the countries in the EMEA region, would you say that part of what's occurring is is -- or most of what's occurring is just the pure secular trend towards a greater adoption of flexible labor market practices or are you also augmenting that secular trend with some share gains?

I would say clearly augmenting with some share gains.

Italy particularly.

Italy I think we're picking up some gains.

We're doing quite well in Germany.

Clearly Elan is picking up some market share.

Belgium, we're doing quite well.

I would say, no question there's a secular shift here but we've had some good execution on the sales side in picking up a little bit of market share gains in a number of markets.

With regards to the longer term outlook as you talk about a four percent EBITDA margin at points in the past you've talked about gross margins getting into the 19 percent range in terms of achieving that.

How do you feel about that at this point, particularly in light of, you know, what you saw in France and EMEA with the gross margins?

Yeah, I think it's -- I think 18.5 to 19 is clearly a range that we can still get to 14 percent -- or four percent, I'm sorry, on the EBITDA line.

I think that's part of what you're going to see with balancing of the business, is getting some more perm recruitment in there, more specialty business.

That should buoy that gross margin backs towards 19 percent.

The other element that we should see with an improving economy, if we get a little bit more top-line growth as well, some of these cyclical factors that put pressure on the gross margin should reverse themselves, such as state employment taxes, workers' compensation to a lesser extent, so I think there will be some natural forces that could work in our favor as well.

So I think nine percent is still about the range, and then I think with the efficiency and productivity on the expense side we should be able to get there.

As we think about that longer term target, you've done a tremendous job in terms of improving the overall mix of the business.

We take a look at U.S. and France on a combined basis back in 2002, they were about, you know, 54 percent of revenues, now they're down to 47 percent of revenues with all the other areas really picking up.

How do you think that balance is going to continue to play out as we look out three, four years from now?

Well, I don't think you'll see a major shift, but I think could you see a bit of a continuation.

When you look at what I would say are more the stronger growth markets and stronger secular growth markets, whether that be in the EMEA segment, the other operations segment, adding in the specialty side, I think you will see a continued evolution, if you will, and perhaps even a little bit more of an evolution on the operating profit side.

I think that's one of the things that you clearly have seen, is more of our operating profit coming from different areas of the business, and I think as we continue to expand some of that specialty business as well, you'll see a continuation of that shift.

I think that's the important part, probably should be looked at more as a specialty and some of those other businesses as a percent of operating profit, not of revenue.

It's a great point.

Congratulations again on the quarter.

Thank you.

One last question, please.

Leone Young from Smith Barney.

Yes, thank you.

My questions have largely been answered but you were kind enough to give us a little direction for Right and Jefferson Wells in the third quarter.

Anything in particular in the fourth quarter we should be aware of on a trend or a seasonal basis?

Yes, that's a fair question.

Without getting myself out there too much I don't think there's anything that unique in the fourth quarter as we had in the third quarter, which I think is kind of the thrust of your question.

When you look at fourth quarter of last year, Right, given some of the restructuring and cost movements were made ahead had a small loss in the fourth quarter.

I wouldn't anticipate that.

I would anticipate more of a normal operating margin toward the upper single-digit-type range for Right.

I think that's the only one where we see a big difference in Q4 relative -- this year relative to the prior year.

Great.

Last little housekeeping question.

You had mentioned the corporate expense being lower first quarter, higher second quarter.

I'd assume third and fourth quarter would be more normalized at 14 to 15 million.

Well, I think you're going to see it a little bit higher than that.

I would -- I think probably closer to the 16 range would be my sense that we have in terms of looking at, that's going to reflect in the second half of the year about a 10 percent year-on-year increase, if you will.

Okay.

And that increase really relates to two primary areas.

We have centralized some of our IT function, and we've got some global IT projects that we're running that we think are important for the organization and should drive productivity overall, so that will drive up a little bit more expense as well as some advertising and branding work that we have underway.

Thanks very much.

Thanks.

Thank you all.

Appreciate you attending the call, and if there's any questions, as we've had in the past, just give Mike Van Handel a call.

Thanks.