ManpowerGroup Inc (MAN) 2005 Q3 法說會逐字稿

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

All parties will be able to 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 now like to turn the call over to your host, Mr. Jeff Joerres, Chairman and CEO.

Sir, you may begin.

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

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

I will go through the results in general, discussing the segments in a bit more detail, and then Mike will follow up with some of the financial information that affected this quarter as well as the balance of the year.

You can also sign onto our website to get the visual portion of the presentation if you would like.

Before we move into the body of the conference call, I would 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 entire team performed very well in the third quarter.

Across the majority of the units within Manpower we have seen in increase in top lines as well as profitability, which of course is much more important.

We continue to ensure that we are adjusting our costs and driving efficiency in order to be as competitive as possible while maintaining the Manpower difference for our clients.

When we were looking ahead to the third quarter, we anticipated earnings per share between $0.81 and $0.85.

The team was able to achieve $0.87, truly an accomplishment given how we were viewing the third quarter before we entered it.

As I stated earlier, nearly every unit performed quite well.

In fact, there were some positives coming from countries that maybe were not on, if you will, your radar screens in the past, like Argentina, Mexico, Canada, Sweden, and others that emphasize really the power of our network and how when we execute across the network, we're able to achieve some very extraordinary results.

France continues to be under pressure from a gross margin perspective;

I will talk more about that later.

But we continue to look at our efficiencies and costs within France and the team there is doing an outstanding job in adjusting based on the environment that we believe we are dealing with now and will probably be dealing with in the near future.

Our revenues in U.S. dollars for the Company were just up over 4.1 billion, a 6.1% increase in constant currency and a 6.3% variance in U.S. dollars.

Our gross profit came in at 18.3, 40 basis points less than a year ago, up 10 basis points on a sequential basis, which is a very good performance based on some of the erosions in pricing that we have seen in Manpower France.

Our operating earnings were $132 million, up 4% in constant currency, while our operating profit margins declined 10 basis points.

Now it is important to note that we were up against some very strong comparables in the prior year from our Jefferson Wells business.

If we were to exclude our Jefferson Wells business, we picked up 30 basis points in our operating margin.

This result was from productivity improvements as well as we were able to reduce our SG&A expenses to 15.1% of revenues and 82.6% of gross profit.

Overall, the conclusion is a strong quarter, a quarter where we finished at $0.87 with no assistance from currency.

This compares to a prior-year quarter at $0.87, which included the favorable impact of a tax provision adjustment.

If you exclude that adjustment, our earnings per share increased 10% over the prior year.

Much like last quarter, we're seeing some of the same trends in our gross profit.

We continue to work very hard with our clients and our internal staff to ensure that the pricing that we are quoting in the market is commensurative (ph) to the value that we're bringing to the client, which means in many cases we are still passing on business in the marketplace.

Clearly, it is something that we need to continue to do and to do it selectively, yet by facing a real reality in saying that there is not all business that we would want to take.

We have seen some of the marketplaces, particularly the U.S., become more stabilized in pricing as the market has become much more rational on their approach.

We are still seeing pressure from some of the countries in EMEA and France.

Jefferson Wells, on the other hand, is seeing some gross margin improvement on a sequential basis; however, a decline year-over-year.

In fact, as you remember, the third quarter last year was the strongest quarter that Jefferson Wells had, with an operating unit profit margin of 22.7%, given the high leverage that we were seeing last year, versus this year's 11.1%.

Our utilization, however, is continuing to trend in the right direction and our result was a solid gross profit margin.

As we do in every quarter, we continue to make decisions regarding the future and this quarter was no exception.

We opened new offices.

We continue to increase our presence in permanent recruiters and, as many of you have seen, we have also entered into a joint venture in India, making us the largest provider of permanent recruitment in the Indian market.

What is especially appealing is that that market presence that we have now is in the highest growth, most important industries within the Indian market.

We continue to see the overall market as a market that is really not going to be giving us anything, if you will.

We have to go out and make sure that we work for every bit of our earnings, as our team did in the third quarter.

As we look to the fourth quarter, we anticipate earnings between $0.82 and $0.86 per share, which includes $0.05 of negative currency.

This reflects an increase in constant currency earnings per share of 20 to 25% for the fourth quarter.

I'd like now the switch to the segment information.

I will talk about the U.S. segment data.

The U.S. did an outstanding job in the third quarter.

To get right to the punch line, they achieved a 4.3% operating profit margin, something that we have not seen in the U.S. for several years.

The U.S. team was able to achieve results like this by executing well in every single category on the profit and loss statement.

We went into the quarter anticipating the our top line would be flat on a year-over-year basis, based on the trends that we were seeing in the second quarter, and in fact that is what occurred.

We were able to on a sequential basis improve our gross margin in the U.S. by 70 basis points on a year-over-year basis -- 70 basis points -- I'm sorry -- sequentially and on a year-over-year basis, 110 basis points.

This has been achieved by solid pricing, aggressive management of Worker's Compensation costs and a very strong growth in our permanent recruitment piece.

I would like to take a step back and take a look at some of the larger trends or, if you will, the macrotrends that were occurring within the quarter.

Within the U.S. what we saw in the second quarter was a sluggish intraquarter or month-to-month revenue line.

If we just look at the average daily sales, the second quarter was about flat through the quarter.

Now if you fast forward and look the third quarter, we actually see a little different picture.

It started out flat but it ended up positive.

So we've just started to see a slight uptick in the U.S. marketplace.

A bit too early to call it a trend, but clearly there has been an uptick.

And also as we look at what we have already seen in the month of October, you would be able to echo that uptick by stating that we are seeing some sustaining on the upside in the staffing side of the business in the U.S.

This slight improvement is actually now coming in our office business.

We have seen for some time that our light industrial environment was carrying our growth.

We are now seeing that moderate and what we're really starting to see is that the office is picking up in our U.S. operations.

So the U.S. team did a great job and we're looking forward to that momentum carrying into the fourth quarter.

Our French operation was up 7% in constant currency, with a revenue of $1.5 billion for the quarter.

Our operating unit profit was down 9% in constant currency at $50 million, leaving us with an operating unit profit of 3.4%.

In fact going into the quarter, this is about as we had anticipated, as the difficult pricing environment still exists that we have seen in the last several quarters in France.

We are experiencing slightly improving revenue growth and we believe that we are slightly ahead of the market.

As we have stated in the past, we are not taking market share through lower pricing.

Rather what we are going after is the market in a disciplined way.

We have implemented a rigorous marketing campaign in the first half of the year and we have invested in advertising.

We have also introduced a number of initiatives to increase sales, particularly in the retail market.

Also worth noting is that we started to see a bit of acceleration in the Paris region, which is where we have a larger market share than any of our competitors.

In the French market, we must be able to control our expenses and improve our efficiency.

We've experienced for some time a slow top-line growth coupled with very tough pricing pressures, so we have to adjust our cost basis.

We are currently going through process right now to see how to create the best efficiency in our home office as well as our regional structure so that we can then reinvest that and put that into our permanent recruitment business, which we continue to see as a promising business.

We currently have over 130 full-time recruiters and are on our way in our plan to have a little over 150 by the end of this year.

We see next year as much more of a defining year for the permanent placement business.

As we adjust our costs over the next few quarters, we are likely to incur some reorganization costs related to the severance for the people in the home office and the regional structure, and naturally, we will call out these costs as they become better defined.

Switching to EMEA, which is Europe minus France, had another very solid quarter.

Revenues were up 7% in constant currency, reaching $1.4 billion, and operating unit profit was 47 million, up 38% in constant currency.

Needless to say, this moved up our operating unit profit substantially to 3.4%, which is an 80 basis point improvement on a year-over-year basis.

Our EMEA Group is getting very good profitability in sales growth out of some of the major countries.

Italy continues to perform extremely well.

Germany, Sweden, and Spain all had a very good quarter.

Elan continued to do quite well with top-line growth of 18%.

This is a little bit down from what we've seen in the last few quarters, but what is happening is we're beginning to anniversary some of those strong revenue growth rates.

Nevertheless, we are still seeing good expansion in IT contracting.

The balance of the UK domiciles business, the Manpower brand and the Brook Street brand, were a bit of a drag on the quarter.

The top line actually contracted slightly.

The economy in the UK is clearly slowing and this has resulted in a challenging staffing environment.

In some ways, EMEA is similar to what we've been seeing on an intraquarter basis or month-by-month basis in the U.S., and really for that matter what we have been seeing in France.

Germany in the second quarter, we're seeing trends that were just slightly turning down.

Now as we look to the third quarter, the trends are just slightly turning up.

This could also be said for Holland, Italy, and Norway.

Clearly a few months don't make a trend, but as we look at approaching the fourth quarter based on what we've been seeing coming out of the third quarter, there does seem to be a bit more life in the European market than what we would have expected we're seeing at this time a quarter ago.

Jefferson Wells continues to do very good work.

Our revenue grew 11% on a sequential basis to $104 million, clearly showing the depth of our product offering and customer base.

Since the beginning of the year, we have added 500 new clients, 15 of which are Fortune 100 companies.

We now serve over half of the Fortune 100 companies.

Revenue growth improved consistently throughout the quarter, but tailed off just slightly as we entered the fourth quarter.

This seems to be the usual seasonal pattern with some of the SOX work; however, we do not anticipate as much of a tail-off as we experienced last year.

Operating profit was 12 million, giving us a little over 11% operating profit margin, so we managed our costs well while continuing to expand, which is really the mantra within the Jefferson Wells organization.

While profits are down against the prior year, remember that the third quarter of last year was the peak quarter for SOX-related activity, which resulted in an unusually high operating unit profit margin.

We really believe that based on where we see the revenues and margins going, that we are setting ourselves up nicely for a good 2006 at Jefferson Wells.

The third quarter is a seasonally low quarter for Right Management, which we have talked about for some time.

However, revenues were somewhat less than we anticipated.

Revenues for the quarter were 96 million, down 7% in constant currency.

Operating unit profit was 2 million, reflecting the fact that the costs are much less variable at Right.

We continue to see good activity in the organizational consulting part of Right Management and in the U.S. and UK for career transition.

We have been able to secure several large accounts that we will be folding in as they move people out of their organization.

When we look the fourth quarter, we would see revenue going up, again because of the seasonal effect, and we will also see profit going up commensuratively with that revenue effect.

Having said that, we do not see a robust fourth quarter for Right Management based on what we are hearing from our customers and what they plan on doing with their staffing requirements for the fourth quarter.

The other operation segment performed extremely well.

Revenues were $533 million, up 19% in U.S. dollars, 15% in constant currency.

Our operating unit profit increased 50% in constant currency, with a third quarter contribution of 17 million on operating unit profit.

We were also able to get over the 3% operating unit profit margin mark in this part of the world and we are still investing.

The lead organizations that contributed to the successful quarter were Japan, which increased 9% on the top line, Australia 4%.

Mexico continues to do extremely well at 25%, and also Argentina had a very good quarter; and for that matter, are having a very good year, as we have such a large presence there with a great management team.

Our top line growth in Argentina was up 46% in constant currency and our bottom line was even more impressive.

In Japan, we're making very good strides and the management team there has also done an outstanding job in increasing profitability.

We have dramatically increased our profitability compared to our top line, getting a tremendous amount of leverage and efficiency out of the organization as we have increased our focus on permanent recruitment and we have executed extremely well on our pricing strategy.

Overall, it was a very good quarter for the organization.

Based on what we're seeing in the second quarter, we are expecting to exit the third quarter with slower growth, when in fact we are starting to see just a slight uptick in many of the geographies.

Our increase in earnings in Q3 is based on a lot of hard-work in the organization and making sure that we are being efficient and prudent on all expenses.

As we look to the fourth quarter, we are anticipating solid earnings growth in the range of $0.82 to $0.86, with a bit of wind in our face when it comes to currency.

With that, I would like to pass it on to Mike to review some of the financial highlights for the quarter and discuss a little bit more in-depth of what might lie ahead for the fourth quarter.

Thank you, Jeff.

I'd like to begin today by discussing our balance sheet followed by our cash flow and then our outlook for the balance of the year and the beginning of 2006.

We ended the quarter of total debt of $756 million, which is similar to the end of the second quarter.

However, due to our improving cash position, net debt declined $67 million to $324 million.

Our balance sheet remained strong at quarter end with total debt to total capitalization improving slightly, down to 26%.

In addition to the debt outstanding, we have available credit lines totaling $850 million at the end of quarter for general corporate purposes.

Free cash flow, defined as cash from operations less capital expenditures, was strong for the quarter at $56 million.

This brings our total free cash flow for the nine-month period to $118 million, compared to $19 million the prior year.

Capital expenditures during the quarter were $20 million, bringing our year-to-date total to $56 million.

This investment supported the opening of over 100 new offices so far this year, as well as our normal branch office refurbishment.

Our accounts receivable at the end of the third quarter were $3.2 billion, similar to the prior year-end balance.

However, excluding the impact of currency, accounts receivable were up $300 million, reflecting the usual seasonal increase in our business.

Our DSO inched up by one day during the quarter compared to the prior year, reflecting a combination of business mix and slightly longer payment terms for certain of our customers.

We look to gain this day back in future periods through tighter collection processes.

Turning to the earnings statement, you will note that corporate expense is up only 2% compared to the prior year, but down 2.4 million from the second quarter of this year.

As I explained last quarter, this line item can be impacted by the timing of a variety of corporate initiatives, including things such as global IT projects and global advertising.

Anticipate this amount to increase again in the fourth quarter, back in the range of our second-quarter level.

Similar to prior quarters, we continue to follow APB No. 25 and do not expense the cost of equity-based pay.

Had we expensed this cost under Statement 123R, the earnings charge for the quarter would have been $0.02 per share, bringing the year-to-date charge to $0.07 per share.

On a full-year basis we expect this amount to be $0.10 per share.

As you are likely aware, we will be adopting Statement 123R beginning the first quarter of 2006, which will require us to record this expense through the earnings statement.

Currently, we are estimating our 2006 expense related to equity-based pay to be $0.10 per share for the full year.

Next I would like to discuss our outlook for the fourth quarter.

As you consider the fourth quarter revenue growth, it is important to note that many of our markets have less billing days in 2005 compared to 2004 as a result of the timing of the holidays.

We estimate this will negatively impact our overall revenue growth by approximately 2%.

On a consolidated basis we expect revenues to grow between 5 and 7% on a constant currency basis.

Based upon current exchange rates, we anticipate currency to have a negative impact in the fourth quarter of approximately 5%.

This brings our estimated U.S. dollar growth to range between flat to positive 2%.

Our revenue growth in constant currency terms for the U.S., France, EMEA, and Right segments is anticipated to be similar to the third quarter; however, again, remember the impact from billing days.

So in fact, we anticipate revenue trends in many of our markets to be improving just slightly on an average daily basis.

In the case of our Jefferson Wells business, we anticipate being down slightly from prior year and down slightly from the third quarter.

However, this reflects the lower-level of billings due to the higher vacation period for professionals rather than a loss of sales momentum in the marketplace.

In our Other segment, we expect revenue growth to be in the low double digits, reflecting a slight slowdown from the third quarter.

This reflects a continuation of good growth trends that we've seen in Japan over (ph) some modest slowing in the exceptional growth rates that we have achieved in Mexico and South America.

We anticipate a stable gross margin similar to the third quarter, however slightly down from the prior year for similar reasons that we saw in the third quarter.

We expect our overall operating margin to expand, reflecting our focus on initiatives to drive for greater productivity.

We continue to estimate our tax rate to be around 36.5%; however, this will undoubtedly be adjusted somewhat in the final year-end closing.

We are estimating our weighted average share count to be 88.3 million, which results in our estimated earnings per share range of $0.82 to $0.86, allowing for $0.05 of negative currency.

As many of you are aware, our policy is not to provide guidance beyond one quarter.

However, I would like to take this opportunity to make a few remarks on the first quarter of next year.

First of all, the first quarter is seasonally the weakest revenue quarter for many of our businesses.

While we are able to adjust our variable expenses to some extent, we are not able to fully compensate for the seasonal revenue decline, which results in deleveraging of our SG&A and compression of our operating margins.

Also note that in the first quarter of 2005, our corporate expense level was unusually low.

As I explained earlier, this expense fluctuates depending on the level of investment initiatives we may have.

Currently I expect our first-quarter corporate expense to be more in line with our forecast for the fourth quarter of this year.

So while the sequential increase could be fairly modest, it will represent a significant increase over the prior-year level.

Another factor to consider is the impact of stock option expense in the beginning of the first quarter.

This will reduce earnings by $0.03 per share.

Lastly, based upon where exchange rates currently are, I would expect a negative foreign currency translation impact in the quarter.

The euro rate on average was over $1.30 in the first quarter of 2005, which is more than 8% above where it currently trades.

So as you work your models for next year, I do encourage you to take these factors into consideration.

I do not believe a number of the Street estimates have fully considered these factors at this point in time.

Jeff?

Thanks, Mike.

With that, we will open it up for questions.

(OPERATOR INSTRUCTIONS) Jim Janesky, Ryan Beck.

When you look at France, Jeff, what do you see on the horizon that you think can either help or hurt the top line and margins different than what has gone on in the past?

Well, Jim, there's a couple factors.

One is that for some period of time now the French market has been, if you will, soaking up some of the expansions that have occurred in office openings.

About 18 months ago we saw several hundreds of office openings, particularly from the mid-tier companies.

And now that we are starting to see -- so what was happening was there was a lot of pressure in the marketplace to fill that capacity in.

Now what we are seeing is a slightly better top-line growth for the industry, and as a result, they are filling in that capacity.

So that is one thing is that when we look at it, we think that there could be some stabilization on the gross margin side based on that capacity being filled in.

Secondly, there is just a slight movement right now in the marketplace that employment is starting to pick up a little.

The market is still somewhat fragile as it does not quite have its feet from a manufacturing perspective or from a general business perspective.

So I don't want to put a lot into the employment data because it's just so new right now -- it's just a few weeks that they have started to see that.

So I look at our own situation and say that what we need to do is to really look at our structure and our organization and base it on a slower growth environment, but somewhat more of a stabilized margin environment as we look at 2006.

So without getting way out there, I think 2006 can look pretty similar to 2005 in many ways.

Okay.

Mike, you mentioned about the possibility of a restructuring cost in France.

Is that worked into your outlook for the fourth quarter, if indeed that is when you're going to take it?

It is not and (indiscernible) I think that is the question.

Obviously the accounting rules are fairly specific on exactly when you take these types of charges.

And right now we're just in the early stages of the plan, so we would be unable to estimate either amount or timing at this point in time.

Okay, great.

Thank you.

Brandt Sakakeeny, Deutsche Bank.

Mike, congratulations on the quarter.

I just want to drill down on the right numbers.

They came in on the margin side a bit below what I was expecting.

Expectations for the fourth quarter, do you think that for the margin side that should pick up pretty nicely?

I would expect it to pick up.

The third quarter is the seasonally weak quarter.

And what happens -- in the Right business, we don't have the variability in the cost structure like we do in the Manpower side, not only just in SG&A but also in the direct cost line as well as (indiscernible) in the GAAP.

So when you get a situation where revenues are slightly weaker, it falls to the bottom line fairly quickly.

And that's what we saw in the third quarter.

I do think we will see operating margins rebound as we go into the fourth quarter.

We will see a little bit stronger revenue, and I think operating margins will strengthen up a bit as well.

Right.

With respect to the perm business in France, can you just talk to the opportunities there?

Do you think the investment -- I guess the timeline on the investment in terms of headcount that you're doing, when do you expect to start to see some payoff on that?

I would say that some ways we are already seeing the payoff in that.

For us to be able to have about 130 recruiters going into the fourth quarter with a plan to get to 150 in a market that just opened itself up in January.

We went into the year saying that we would look at what we were seeing and what we were planning for in France as a breakeven -- the recruiters could basically pay for themselves in 2005.

And I suspect we will be there to slightly above.

So we are setting ourselves up for 2006 and we are still optimistic that the market, based on what we're hearing from our clients and the kind of movements that are happening in the market, that it could be an additive part to our gross margin.

Not much on the sales line, of course, because of the volume, but it would be additive to the gross margin line as well as the operating and the profit lines.

Great.

Thank you, Jeff.

Greg Cappelli, CSFB.

I wanted to touch on EMEA and just get your thoughts on sort of the maturity, I guess, of that area.

It looks like year-over-year growth moderated pretty considerably -- 6% this quarter, not that the similar from more mature markets as you kind of saw in France historically.

Is that what we are seeing here -- is this market just getting more mature for you?

I think it is too early to say that the market is really getting mature.

I think when you look at markets like Italy and Germany, the workforce, the temporary penetration is still so low -- 1% or less, which is much lower than many of the other geographies we are in.

So I don't think what you are seeing here is maturity.

I think you're seeing -- it is a bit challenging to dissect the EMEA Group just because there are so many economies within there.

And part of what you have here is clearly we saw some slowing within the UK market itself and that certainly has slowed the overall growth rates.

Also, while we have seen very good growth in Elan business, up 18%, they were coming off of a second quarter growing upwards of 40%.

And really that was not a slowing of the market so much as it was we're starting to anniversary some very good prior year growth rates.

So I think part of what you're seeing is a combination of what is happening in a few of the markets.

When you look to markets like Germany, still up 19%, still very good growth, Italy seeing growth of 11%, I think those markets still have a long way to run and I think a lot of growth potential going forward.

Okay, that's helpful.

Just back on margin in the U.S., how sustainable are the margins, do you think?

The third quarter is a bigger quarter.

But having said that, there has been work done that is structural.

We are seeing our ability to get some gross margins.

So sustainable at 4.3?

No.

Sustainable at a higher level than what we've seen in the past?

I am confident about that.

If we could get a little bit more on the top line, then we could start to get the leverage picture.

But internally, we are not aligning our expenses with an exorbitant top line.

We're going to continue to work very hard on the efficiencies.

But I believe that the U.S. organization has set a new watermark, if you will, for that operating unit profit line through the work that they have done over the last couple of years.

Okay, I understand.

Just one more quick one for you guys.

Not to read too much into a one day move in DSO, but are you willing to accept better terms for your clients on that for higher margin?

I think it is a good trade-off for the shareholder; it's a very easy trade-off.

So I think the answer to that is yes.

But the one day DSO, I am not sure if you could say that's what that's (multiple speakers).

When you look at our large accounts on an account-by-account basis, we are negotiating terms and gross profit margins.

So both of those elements go into our customer profitability analysis.

And sometimes, depending upon where the customer is, a little bit longer-term may be more important to them than a lower gross margin or vice versa.

So it is those elements that we are negotiating on and that is what we're focused on, is really maximizing the overall profitability of the accounts after considering the total amount of capital we've put in.

But that doesn't mean that we won't be relentless in trying to improve DSO, because in my view there is always opportunity to get better.

That's helpful, thanks.

Kelly Flynn, UBS.

I have a couple questions.

First of all, on the margins, can you give us, Mike, some rough guidance by geographic region for the fourth quarter?

I gave you the overall, Kelly, and I don't think I want to get into that level of detail on the call.

But I think overall we're looking at a 30 basis point improvement, and I think you can fill it in yourself along the way, I think, and probably come up with probably as good an estimate as I could anyway.

All right.

Let me talk about margins another way.

Year-over-year, the French operating margin declined significantly.

You've touched on some of that, but can you just get into more detail there?

How much of that was pricing pressure versus some incremental spend on perm or marketing?

Could you help us with at?

Then I just have another one after that.

Sure.

If you look to France on the gross margin line -- well, we went from 4.0 to 3.4, so down about 60 basis points.

About 50 basis points of that is on the gross margin line, and that really is a continuation of what we have seen through the first half of the year as well.

So if you will recall from our second-quarter presentation, we also talked about some decline on the gross margin line; so it's really a continuation.

What we did have in the first half of the year is a little bit of SG&A leverage that we were able to absorb some of that.

We did not absorb -- did not have any opportunity for that in the third quarter; however, we did have a little bit more expense with some of the perm costs, a little bit more on the marketing side.

But effectively, what you're seeing is the fact that some of the cost initiatives that we had toward the second half of last year are starting to anniversary themselves here in the second half now this year, and so we are not getting the SG&A leverage that we did in the first half of the year.

Okay.

As of the end of last quarter we thought you had 70 perm recruiters in France and now you're saying 150.

Is that an accurate comparison?

We're saying 130.

130, sorry.

So is it 70 versus 130?

That's correct.

And then just another one on the revenue growth.

Jeff, I think you said in talking about both the U.S. and France and I think as well even EMEA that you were optimistic towards the end of the quarter, things started to pick up a bit.

Your guidance does not seem to carry that through.

Could you just get into more detail on that?

I think you said something about maybe expecting things to slow at the end of the fourth quarter, but just what is your mentality on that front?

Well, for one, the guidance has some currently in it.

There's $0.05 there. so --.

Even constant currency, it seems not to imply a pickup.

Well, we're missing a day, so that makes a difference.

And what I mean by the uptick -- and you are right when I had said U.S., France, and most of EMEA.

And if you were to take six months, the second quarter and the third quarter, what you would see is the beginning of the second quarter was higher than the end of the second quarter on average daily sales, and the beginning of the third quarter was lower than the end of the third quarter.

So we are seeing a little there, but this is not any kind of hockey stick growth; so I want to put some caution on that.

So we are talking about when I go down and look at each country month by month, you can see, ha, there is something here, so we are baking in some of that.

So when we look at that in relation to some of the slowdown, I think when you see a 20 to 25% increase in earnings for the fourth quarter, I am feeling that that is a good hump for us.

Kelly, if I might take one geography just be a little bit more specific, as well, to just expand on what Jeff said, if you take the U.S. in the third quarter, revenues were flat.

However, in the month of September, revenues were up 1.5%.

So now as we look to the fourth quarter on an average daily basis, we're looking for revenue growth of about 2% from the U.S. market.

However, we do lose a billing day there, so that takes that 2% growth to about a flat on the fourth quarter, so that is what is occurring here.

We are seeing a little bit of an uptick, but we are basically giving that back, if you will, by the loss of a billing day.

So that's why you don't see any -- if you look at consolidated revenue guidance, you don't see it accelerating in constant currency because of this one-day decline.

Okay.

Just one follow-up on that and then I'll turn it over.

The Q1 number of days, is that the same year-over-year or is there something we need to factor in there?

Going into Q1 of --?

Yes, the '06.

-- '06?

You'll recall we have this issue with where Easter falls and it is back in April this year.

Last year it was in March.

So we actually do get a slight bit of help in some of the geographies.

In some geographies, Easter does not really have that much of an impact, but in some of the geographies, particularly within the EMEA region, we will get a little bit of help because Easter is back in April.

Okay, great.

Thank you very much.

Chris Gutek, Morgan Stanley.

A couple questions focusing on the U.S.

You talked generally, but did you quantify specifically the year-over-year growth for light industrial versus clerical?

You're stretching my Rolodex now.

Mike, do you have that handy in front of you?

I've got it.

So if we look at clerical growth, we're looking at right around 2% in the quarter.

And then on the light industrial, if I combine light industrial and industrial together, we're looking at what looks to be right around 3% combined, and our professional business is a bit down year-on-year.

More generally, again, sticking with the U.S., when you talk to your customers, I'm curious what you're hearing in terms of the customers concerns about energy prices, rising interest rates, declining consumer confidence.

Is it your interpretation that your customers are willing to look through those issues and that is why you are seeing a bit of an uptick late in the quarter going into October or do you think those issues haven't necessarily factored fully into the demand and we could see some softening within a couple months?

That is a hard question because it almost goes to -- let's preface it, as everybody knows, but I prefer to say it -- I'm clearly not an economist.

But if you look at what was happening in housing and how it was defying certain things.

I'm not saying the energy is not going to have an effect, but when we talk to our customers, our customers are not saying things are really getting tough; we're going to have to cut back on hiring because of the energy.

What we are hearing is that the business is still stable to growing and that they have such a tight hold on labor that when they do see some growth, they can't almost do without any more because then they will be hurting their top line.

So I suspect where they will be getting some of the savings to try pass through some of their increase in energy prices is going to be on the procurement side, not necessarily on the hiring side.

They will still need the people, and that is kind of what we are hearing.

And in fact, if you look in our fourth quarter employment outlook survey, it still showed that there is some appetite out there, in fact about the same appetite as we've seen in previous quarters, for companies to hire.

Great.

Thanks a lot.

Mark Marcon, R.W. Baird.

I was wondering if you could talk a little bit about the potential to take some of the learnings from the U.S., particularly in terms of the operating margin expansion that you have been able to achieve over there, to France and maybe some of the other more mature markets within EMEA, like the Netherlands and the UK.

It is a good question and clearly that is something that we do a lot of.

And in fact the U.S. was benchmarking France a couple years ago and it brought some of those learnings back and have improved it.

Is there something that the U.S. is doing that the UK could do, which is a market that is more mature and slowing slightly compared to the rest of EMEA?

The answer to that is yes.

And we do that in a fairly rigorous and active way.

So Mark Cahill in the UK clearly gets the benefit of what the U.S. team is doing in how they are approaching margins.

We take those best practices and talk about at our executive management level.

So yes, that is underway and I think one of the strengths that Manpower has is that the units together, whether it be Jefferson Wells, Right, or the U.S., work very closely in trying to make sure that best practices are shared quickly.

So we are working down the path right now, particularly for what we might be seeing in the UK.

And we have also spent the time in Japan, which was more of a maturing market to some extent and have tried to bring some of those practices into Japan as well.

When do you think, Jeff, that we could actually start seeing some evidence of those steps manifest themselves in the financials?

I'd like to think that you could start to see some of that into the second half of next year.

But when we try to do these things, we don't use the scorched earth method because we don't believe that that is sustainable.

So some of these are how do you create efficiency on the intake process, how do you make sure that you support or consolidate your support centers so that you can still put out every payment for a temporary on time?

These are not things that are quick silver bullets, but are a little bit more systemic.

And therefore I don't think you'd feel them right away, but would definitely feel them, and all of you on the shareholder side should know that we are working hard to make sure that happens.

I think that speaks to Jeff's earlier comments about what we do make the gains that they are sustainable.

And when you look the U.S., this was not something that they did last quarter that really rolled into this quarter.

If you look at the last several quarters, you can see that they are starting to gain some operating leverage in each of those quarters, and really this is a result of some hard work and some heavy lifting that they've been doing really over the last two to three years and we are really starting to see the benefits now.

So there is not a silver bullet.

But it is a lot of hard work and a lot of blocking and tackling, and I am happy to see the results that are starting to come through.

And then if I could follow up, with regards to France, my recollection that is during the first quarter, that is when you end up seeing the beginning of the gross margin pressure.

Would you say that that is stabilizing, and if so, would we kind of annualize that gross margin pressure in the first quarter of '06 so that next year, should we continue to see some revenue growth, we should actually get some leverage there?

You're forcing me to think out a little bit.

But while we're certainly seeing pressure on the gross margin as we did so, we have seen that now for several quarters.

And it seems while there is still no doubt pressure there, it seems to be at a stable level or a continuous level.

As I think out towards next year, I would be thinking about operating margins in a similar range of this year.

I don't think that -- right now, our plans are not calling for a significant further deterioration of gross margin which would then impact the operating margin at this point.

Great, thank you.

Michel Morin, Merrill Lynch.

A couple of things.

First, you gave us some really good color on the intraquarter trends for some of the markets.

I was wondering if you could do the same thing for the UK.

And then secondly, could you update us on permanent placement percentage of revenues in terms of the total and perhaps also for EMEA, the U.S., and Other?

On the UK side, we did see it get a bit softer as we went through the quarter overall.

If we look at overall, we are looking -- from an average daily perspective, lower teens growth starting -- whoops -- I'm sorry, I'm on the wrong page.

There we go.

We would have started with fairly flat growth in the first month of the quarter, and then we were down a little bit in August and then down about 8% in September.

So we clearly saw some softening as we went through the quarter.

On the permanent placement side, permanent placement business is up overall 30% year-on-year.

From an overall mix perspective, we look at it as a percentage of our gross profit.

Right now, we're running just above 7% of the overall gross profit.

Some markets would have a little bit more than the average, of course.

The EMEA market, where we have been stronger in permanent placement, certainly has a little bit more than average.

France, of course, being new, much less than average.

And the U.S. is fairly close to average as you look at the specific markets.

And in the Other area?

The Other area, actually we do good permanent recruitment market work there as well.

While Japan is still, I would say, on the front end of that market, Australia is actually quite developed.

And as you may recall, we do all of the recruiting for the Australian Defence Force, which adds a fair amount of permanent recruitment fees into that region as well.

Additionally, our prime business in China and India is permanent recruitment.

Those are a bit smaller bit, but as we grow in those markets that is probably, what, 90% of our business in those two markets.

Jeff, I just wanted to clarify also -- you mentioned for France perm placement your expectation was that that would pay for itself in 2005.

Should we think by the end of 2005 or are you really saying for the full year 2005 permanent placement in France is paying for itself?

I would say for the full year.

Remember, France is a huge organization.

I'm not saying that it is easy to add 150 people, but the people are placing people, getting paid for that.

So kind of in a broad stroke look at it, what we invested is about what we got out.

Didn't make any money, didn't really lose any money, and we positioned ourselves for 2006.

You also, I think, mentioned for Jefferson Wells that you are expanding the business or you have expanded the business.

What specifically were you referring to there?

We have expanded the business both in offices in the U.S. and offices in Europe, so we're going to continue to do that.

We're going to do it in a way that we can ensure that the Jefferson Wells model stays true.

We have a lot of our clients that, as I mentioned earlier, are Fortune 100 and they would like us to get into some of these other countries.

We are seeing the controlled environment be as strong in Europe as it is in the U.S.

It might be under different rules and regulations, but the awareness of the controlled environment is as strong in Europe, and we think that that is a good opportunity for us.

And you are not running into any supply constraints in terms of your ability to hire permanent employees there?

We have not yet.

It is difficult because we have got a minimum seven years before you can even apply to us from an experience factor.

But if you were to ask the team is supply hurting your growth, is the ability to bring in talent hurting your growth, they would say it is hard but it is not hurting our growth quite yet.

Because we have a model that you have some with 7, 10 years' experience or 15 years' experience, we get to put them in an environment where it is a lot more satisfying to them with a lot less travel and therefore we're getting a lot of people from other firms that are saying this is the kind of lifestyle I would like to have.

Great, thank you.

Rob Harris, CSFB.

I joined this halfway through, so you might well have answered the question.

I was just wondering if you could give a little bit more in terms of what you think is going on in the UK recruitment market specifically.

And did I hear that you thought that you already had been taking actions in the UK -- and you thought it was going to be a low-growth market medium-term (ph)?

Can you be a little bit more explicit in terms of what you've been doing in the UK market?

We are sizing up the UK market.

As Mike had just talked about, we're seeing some downward trends on the turnover line, and as a result, we are going to be making the appropriate moves.

But right now, I don't want to go into the depths of our plans of what we are doing.

We're going to be looking at what has been successful in other countries.

We have a very good management team both at Brook Street and at Manpower.

We see that market being a bit troubled probably for the next few quarters from a growth perspective.

So we're going to look at the account basis, which accounts are the right accounts, where is the profitability coming from.

We're very bullish on the retail market there and permanent placement, so that has just started to slide a little as the UK economy seems to be in just a little bit of a doldrum right now.

And from what we have done our research in the market, we clearly feel that we're not alone in looking at the UK market with a bit of skepticism right now.

Right.

And just (indiscernible) to France, I'm just trying to understand why on the face of it the French EBITDA number in the third quarter was so far below, as far as I make out, analyst estimates.

And secondly, in relation to you guys operationally, as far as I make out what you are saying is that the pricing pressure is (indiscernible) but it hasn't -- you don't think it is particularly exacerbated, but on the other hand you now feel the need to slightly reorganize your French business.

Is that more on the basis that you don't expect any sort of amelioration in pricing in 2006 so you might as well reconfigure your infrastructure accordingly?

Yes.

I think -- you got a lot tied in there, Rob.

But I think maybe starting with the last point, I think as we look forward, I think our goal clearly is to run that operation as efficiently as possible and we're going to do that.

So regardless of what is happening on the gross margin, we're going to try and strive for improved efficiency, and that is part of the plan in terms of what we have underway right now.

But certainly some of the pressure we have seen in the last several quarters around gross margin has put a little bit more urgency, I guess would be fair to say, around those plans, so that is part of what we are working on.

In terms of the overall margin for this quarter, I guess I have an advantage, but certainly it really came in about where we had anticipated; so there wasn't a real surprise there.

I suppose if perhaps others may have thought we were looking for little bit more strength, a couple things to consider.

Last year was actually an unusually high third-quarter operating margin for the French market.

They had a very good third quarter of last year.

And then I think while we did experience similar price pressure in the first half, we were experiencing some good SG&A leverage in the first half that we weren't planning on coming through in the third quarter.

And so perhaps that is some of the differences from what you might be seeing up there.

I see.

One final point, if I may.

Obviously, you have given uncharacteristically some guidance for the first quarter of next year.

Can you quantify what that means on an earnings level versus as far as you can make out market consensus for the first quarter, if current consensus is struck off a slightly erroneous SG&A basis?

Our intention is not to be that specific on guidance for the first quarter.

But as I mentioned in my prepared comments, clearly we do not feel that the numbers that are out there fully consider these factors, so I think once the analysts think through that, my guess is they are probably going to come up with somewhat lower numbers in the first quarter.

But I'm not prepared to give a specific range at this point.

Thanks very much.

(indiscernible) of Wachovia Securities.

Jeff, I wondered if you could provide some more color as to why you do not anticipate as much of a tail-off as last year in the Jefferson Wells unit.

Last year if you look at the third quarter, the third quarter was a feeding frenzy as Sarbanes was brand-new, regulations from the Big Four were coming out kind of every day differently as they were getting some instruction from the PCAOB.

So it really created a massive or a much larger bubble.

When we now look at it, it seems to be normalized 404 work.

Yes, it does roll off a little in the fourth quarter as some of the testing is done, some of the documentation possibly of new systems are done.

But there is not this, we will spend anything because we've just got to get it done.

Much more is known.

So Sarbanes work, as I have characterized it before, is not like Y2K.

It does not stop -- this is now something that is going to be baked in.

Right now probably less than 50% of our business at Jefferson Wells is Sarbanes, in that Sarbanes work is just good annualized Sarbanes work, not a lot of first-time filers that are running around panicked, if you will.

So that is why we sense there would be a little bit less of a rolloff.

We now will start to get to where we can see an environment where we might see seasonal patterns in Sarbanes as opposed to not knowing what is coming next.

So we're starting to see a seasonal ebb and flow that we will now be able to bake in and all of you will be able to bake in a little bit better as we get maybe two, three more quarters ahead.

And I guess as you look across the quarters in your year, how do you see that seasonality ebbing and flowing?

I think what we see is that third quarter will be a bigger quarter for Jefferson Wells.

That's when a lot of the Sarbanes work kicks in and gets ready for the board meetings -- in October that tends to happen.

And so until Sarbanes maybe takes -- I shouldn't say controls in general -- maybe over time will take less of a percent of the Jefferson Wells business.

But as we look to next year, I would think the third quarter is going to be bigger than the fourth quarter and could be bigger than the second quarter, because that's where a lot of that work is being done.

We still have a little bit more to ascertain and figure out as companies settle down in this controlled environment.

I guess switching geographies here on to India, how additive do you think this work could be to your gross margins in 2006?

Or are we really looking beyond '06 here?

When you're looking at how additive it would be, we're quite confident it's not going to take anything away from 2006.

We think it is very solid and a tremendous operation that we've joined to approach the market.

But you're right.

This is more of beyond 2006 as that market, that talent gets a little bit shorter, what happens is is your permanent placement actually becomes more important because the only way for you to find the talent is maybe through more of a search firm like what we have an operation in India.

So 2006, nothing is going to be hurt as a result of the JV.

Beyond 2006 is where we'd start to see things become a little bit more accretive, if you will.

Thanks, guys.

Thanks, everyone, for attending.

As usual, if there's any questions at all, you can feel free to contact us.

Thank you.