ManpowerGroup Inc (MAN) 2007 Q1 法說會逐字稿

Good morning, and welcome to Manpower's 2007 first quarter earnings conference call.

[OPERATOR INSTRUCTIONS] Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

Now, I will turn today's meeting over to our host Mr.

Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Thank you.

Good morning, all.

Welcome to the first quarter conference call in 2007.

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

As usual, we'll go through the results together.

I'll discuss overall the first quarter as we get -- and then get in a little bit more into the segment details.

Mike will add some color to the numbers on the income statement and balance sheet.

Mike will also spend some time covering the outlook beyond what I do in the general comments for the second quarter of 2007.

Before we move into the call, I'd like to have Mike read the Safe Harbor language.

Morning, everyone.

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 first quarter of 2007, we feel very good about.

It was a very solid quarter for Manpower.

Almost all segments had exceptional performance.

In fact, the largest segments of Manpower, other EMEA, you'll find out that we named the new segment, and France had absolutely outstanding performance and those are our largest segments.

Couple that with good growth in some of our key emerging markets and an absolutely great performance from a profitability perspective in the U.S.

and you get a very solid quarter for Manpower.

Not all cylinders were firing however, as we continued to experience some shifting revenue mix at Jefferson Wells in the Sarbanes and controls area.

Revenue for the quarter was $4.5 billion, up 17% in U.S.

dollars, 10% constant currency.

As I mentioned earlier, the revenue increases primarily came from Europe with top performers being Sweden, Lars Forseth on the team there, great job.

The Netherlands, Germany, Belgium, Spain and Italy.

And in fact, as I mentioned earlier, Italy has grown to the size that, according to the accounting rules, we're now required to call Manpower Italy out as a separate segment.

Before I get into -- I'll just get into a little of the financial details of Italy when we get to that point.

The performance in all of these operations were outstanding.

And then also leading to our overall healthy revenue number is the continued very good trends happening in France and I'll talk about that, as well.

Not all of the cylinders in Manpower Group were firing from a revenue perspective.

The U.S.

revenue was down 5%.

However, we continued to see very good margin expansion, a good mix of business and therefore, profits increased substantially in the U.S.

The Jefferson Wells revenues were down 15%.

Our consolidated gross profit number -- margin, I'm sorry was 17.6, which is a 24 basis point drop on a year-over-year basis.

Having said that, it really is a mix issue and I'll discuss that a little bit later.

Our expenses were well-controlled, as SG&A was reduced by 90 basis points to 15.4% of revenue.

Included in this improvement are some one-time items impact the prior year first quarter.

But excluding even those items, we've improved it 50 basis points.

So, good performance for us from that perspective.

Clearly, what we're seeing is the impact of many of our productivity initiatives under the efficiency strategy.

But we're also realizing a cost savings from the Titan project, which we announced on this call last year and many of those savings are now starting to come through.

Operating profit came in just over $100 million at $103 million, up 57% in constant currency.

Excluding prior year one-time items, our operating profit was still up a very solid 21%.

Our operating profit margin also showed a good increase of 70 basis points to 2.3%.

Again, if we adjust prior year one-time items out, the increase is 30 basis points.

This shows that we're very much on track on improving our operating profit margin on a consistent basis, which is a key goal for the organization.

This resulted in sizable increases in our earnings per share from continuing operations of 94% in constant currency and over 100% in U.S.

dollars to $0.69, a great accomplishment to the organization.

Gross profit, as I mentioned earlier, dropped slightly by 24 basis points.

I'd like to talk a little bit about this.

Our core temporary recruitment gross profit margin was stable throughout the quarter.

Permanent recruitment continues to add in a very positive way to our gross profit margin.

What must be noted is that when it comes to permanent recruitment, right now only a small fraction of that is sitting in the U.S.

So, what we're seeing is some very good growth in permanent recruitment in the markets where the economies are much better, stronger, and where the service is considered a much newer service.

Permanent recruitment fees were up 39% in the quarter or 30% in constant currency.

Equally important, permanent recruitment has positively impacted our overall brand, which is a key part of why we're doing this.

We are an integral part of our client's strategies to win in their marketplaces as we are assisting them in securing talent in key areas for these clients and really making a difference for them.

Our staff of dedicated permanent consultants have increased by 12% from 2,700 to 3,000 worldwide.

This increase in personnel is spread nicely across all the geographies.

What we're seeing In the U.S., France, Europe, Japan, Asia, China and India, with China and India both being primarily permanent recruitment markets right now.

All are increasing their staff and recruiters are becoming more productive and efficient.

We see this as a critical to our overall revenue strategy and one that we believe will continue to positively affect our clients and you, our shareholders.

The declining revenue in some of our highest gross profit margin businesses, like Right Management and Jefferson, is having an impact of -0.43%.

So those high margin businesses are not growing as fast as the other parts of our business and therefore, what you're really getting is kind of a mathematical implication to our gross margin number.

And overall, GP was 17.6%.

Given the change of mix, is very solid performance and something that I'm quite comfortable with.

We believe that pricing is becoming more rational as candidates are difficult to find across the world.

And as the industry is looking for ways to generate value and not just top line growth.

We don't see this in every single case in all countries, but for the most part, it is a trend that we really believe is real and is sustainable.

Looking forward, we continue to see these same positive trends in all of our major markets.

We continue to see the U.S.

revenue line challenge, however the profitability outlook is still strong.

Based on these trends and what we're seeing in our mix of business, we anticipate the second quarter earnings per share being between $1.12 and $1.16, which includes the positive $0.06 of currency.

Moving on to the segments.

U.S.

segment revenue was slightly less than what we had anticipated.

We went into the quarter announcing with you last quarter that we would see revenues flat to down 2%.

And in fact, they came in down 5%.

We finished the quarter at $484 million in revenue.

To offset that, however, our gross profit was up over 100 basis points in the U.S.

SG&A, expenses were well controlled, which gave us an increase of 22% in our operating unit profit of $12 million.

Translating into an operating profit margin of 2.4%, up 50 basis points.

A very strong performance for the U.S.

given the sluggish revenue and the seasonally slow first quarter.

Remember, this quarter is very hard for us to achieve operating leverage because it is so seasonally slow.

U.S.

market conditions, in the first quarter, in some ways are similar to what we're seeing in the fourth quarter.

We're still seeing our clients looking at their business in a very sophisticated way.

In no way are they desperate or panicked.

We've got few industries that are hurt more than others.

But across the board, they're not desperate and panicked.

We're continuing to see office staffing as the weakest.

Light industrial staffing actually is a bit stronger.

Both, however are in negative territory with our professional segment picking up the slack, growing at over 10% on a year-over-year basis.

This 10% is slightly down from what we've seen in the last two quarters and we don't believe it will continue to persist.

Primarily, because two large contracts were actually fulfilled.

In other words, we didn't lose or migrate these contracts to any other suppliers, but in fact, the assignments were off and therefore, we lost a couple of percentage points on the revenue line.

We remain confident in the positive direction of Manpower Professional, which is a very strategically important element for us and we continue to gain momentum.

In U.S.

revenue, trends bounced around a little bit during the quarter with March being slightly weaker than January and February.

But we see recent trends being much more stable.

As we look at the second quarter, we are anticipating some improvement, with revenue down 4%.

This is primarily due to anniversarying of some very large account terminations.

Let's move across to the Atlantic where the growth picture is very different.

Our French operation is performing extremely well.

Revenue was up 20% in U.S.

dollars, $1.5 billion, up 10% in constant currency.

Our gross profit was stable as we are seeing just the beginning of some signs of good pricing discipline.

Our expenses were well controlled and in fact, we achieved very good leverage within the organization.

Yielding an operating unit profit increase of 33% in constant currency, $44 million, which translates into a 2.9% operating unit profit, up 40 basis points.

Again, similar to the U.S., this is a seasonally slow quarter for us.

So, for us to be able to get the leverage and get that kind of achievement to achieve the almost 3% is quite a feat.

In fact, you'd have to go back and look back five years to be able to find a first quarter operating unit profit that was nearly 3%.

In addition to the strong operational performance in France, we continue to work on our strategic initiatives and they are an imperative.

We clearly have to make more progress in the areas of the specialty business, focus on permanent recruitment.

All of these things are being assessed and executed by the management team.

Our new President in Manpower France has gotten off to a very quick start and onboarded very quickly and she's already having a very positive impact on the organization.

We now have a new segment called other EMEA.

Other EMEA is Europe, Middle East, and Africa, excluding France and Italy.

Italy's performance dictates that we must break it out in a new segment.

We have recast the previous years, so you can look at the comparables appropriately regarding the growth rates.

As you start looking at -- and you should really start looking at these growth rates because other EMEA had a phenomenal performance.

Revenue was up 28% to $1.5 billion or 17% in constant currency.

Our gross profit margin increased in the first quarter and our SG&A, as a percent of revenue, decreased.

Resulting in a phenomenal 169% increase in operating unit profits of $37 million.

Truly a spectacular accomplishment and one that has been building for years.

The investments that we made in office openings, different lines of service, and pricing discipline is paying off now.

And we are seeing it pay off and we will be seeing it pay off for us into the future as we continue to be optimistic about the economic prospects in Europe.

The Nordics increased revenue 44% in U.S.

dollars, 32% in constant currency.

Sweden increased 46% in constant currency and Norway 24%.

Manpower UK is getting on the right track.

We've been working on Manpower UK for some time, the team there is doing a great job.

And we're now starting to see the appropriate revenue growth at 5% in constant currency.

More important right now than revenue growth, we're seeing substantial profitability growth.

Elan continues to do well, with constant currency revenue growth up 8%.

What's very excited about Elan is we are continuing to see growth and growth opportunities as we're opening new offices.

Equally important is we were able to increase our profitability on a year-over-year basis in excess of 30% at Elan.

Germany, continuing to do well, revenue was up 22% in constant currency.

We're continuing to aggressively approach the market but in a price disciplined way.

The Netherlands, after coming off a great year last year, achieved growth of 22%.

Spain grew at 18%.

And all other countries combined were at 17% in constant currency.

We continue to invest heavily, yet appropriately in Eastern Europe and we anticipate these geographies will be solid contributors for us in the future.

The new segment, no creativity named here, the Italy segment.

Italy is now 7% of our revenue and had another stellar quarter.

Revenue was up 15% in constant currency to $305 million.

Now operating unit profit was at $16 million, up 60% in constant currency.

You can see that in a market like Italy we have continued to maintain our pricing discipline with our operating unit profit at 5.4%.

Also understand, like all of the other parts of our geographies, this is a soft quarter for us from an operating unit profit perspective.

Therefore, we anticipate all subsequent quarters of the year being higher than the current operating profit margin.

Moving on to Jefferson Wells.

To put it simply, we are disappointed with the first quarter results from Jefferson Wells.

We went into the quarter thinking we would see revenues down about 4% to 6%, when in fact it was down 15% to $81 million.

Our operating unit profit was also reduced by 82%, primarily based on the lower revenue, since we have a bench model.

Leaving $1 million of operating profit and 1.2% operating unit profit percent margin.

We continue to experience a reduce spend in SoX and at the same time, we were up against the quarter last year that had two large projects.

Those two items combined accounted for $22 million in revenue in the first quarter of last year.

It's our responsibility to though to have backfilled that business, we did not.

We are looking carefully at an office by office break down of revenue and there are some encouraging signs in many offices, which are not impacted by these large contracts but we have more work to do.

Our new office openings are creating positive impact for Jefferson Wells.

We remain confident about the future of Jefferson Wells.

We have a great management team there, a strong model.

That being the case, however, we have -- we will be having some similar challenges in the second quarter due to some of the prior year comparable numbers.

Switching over to Right Management, it had a good quarter.

Revenue was down 5% to $94 million, however operating profit was up 32% to $6 million, up 29% in constant currency.

It had an operating unit profit margin of 6.5%.

What's even more encouraging is we're looking at our backlog of business and we're seeing major opportunities ahead.

These opportunities are not necessarily about downsizing as a result of the economy, these are businesses that are reconstructing their business.

Moving out of certain lines of business and moving into others.

As a result, we have sizable opportunities.

Therefore, when we look at the second quarter, we are much more optimistic, even at a time when we do not have massive downsizings as a result of any bad economy.

We still have some very good revenue opportunities.

Our organizational consulting practice within Right Management is showing good growth, with coaching and leadership training being our lead offering.

We have several others but these offerings are taking on a tremendous amount of opportunities within the marketplace.

Particularly in China, India, and some parts of Western Europe.

The Right Management team has done a nice job across the world of staying focused and addressing the changing marketplace.

And we believe that we have the best opportunity of anyone in the industry to break away and further our industry leadership position.

We have continued to further our leadership position between the other two top competitors.

And we believe in 2007 we will actually put much more distance between us and them.

The other operation segment did well.

Their revenue was up 11% to $603 million.

Operating unit profit was down by 28% in constant currency, bringing our operating unit profit to $13 million.

It's always best to dig underneath the covers when you see numbers like this.

And what you would see is we implemented a major advertising campaign in Japan for candidate attraction.

It took a fair amount of courage to do it in a small quarter the first quarter but we wanted to affect the balance of the year.

We're finding our Japanese market is having much more and more difficulty in finding the Japanese candidates.

And therefore, in the first quarter and some of the second quarter we'll put a tremendous amount of effort into advertising.

India and China continue to move nicely.

China's revenues were up over 50%.

India's revenues were up over 150% in the first quarter of 2007.

Of course, both of these markets are very strategic for us.

Looking more closely at the segment revenue growth, you'd note that Japan had two less billing days.

So, growth on an average daily sales basis was actually 8%, an improvement from fourth quarter.

Our growth in North America, outside the U.S., also showed slowed, with Mexico posting growth of 8% in constant currency and Canada, actually declining by 11%.

Overall, the other operations segment is producing a little less than what we had anticipated.

While we planned for the additional advertising investment in Japan, we had not planned for the normal deleveraging occuring in Mexico and Canada with the weaker than expected top line.

We had a very solid quarter and one that our organization is very proud about.

Our largest operations, as I mentioned earlier, are in a period of time where we are seeing great growth on the top line and getting very good operating leverage.

The first quarter of 2007 set a record for us in operating earnings, and it was done the right way.

The team did a great job in executing all the elements in the first quarter, and we are looking to the second quarter and feel optimistic about the trends in Europe, our largest operations.

And we feel as though we are seeing some stabilization in the U.S.

marketplace.

Having said that, we are anticipating coming in between $1.12 and $1.16, with $0.06 currency impact, positive $0.06.

This represents increase in earnings per share of 26% at the mid range of our estimates.

With that as the segment detail, I'd like to turn it to Mike for a bit more details on the financials.

Okay.

I'd like to begin today by discussing our balance sheet, followed by the cash flows and then I'll finish with commentary on our second quarter outlook.

Our balance sheet remained in great shape at the end of the first quarter, with total cash of $728 million and total debt of $837 million, bringing our net debt position to $109 million at quarter end.

Our total debt to total capitalization remains strong at 25%.

Our accounts receivable decreased $62 million or 2% since year end.

On a constant currency basis, the decrease was $93 million.

This decline reflects normal seasonal impact as the revenues are at their seasonal low in the first quarter.

Our days sales outstanding improved by a half a day from the prior year.

Effective January 1, we adopted FIN-48, the new FASB interpretation related to income taxes.

As expected, this rule did not have a material impact on our financial statements and resulted in a $4.3 million reduction to our beginning of the year shareholders equity.

Free cash flow, defined as cash from operations less capital expenditures, was very strong in the quarter at $86 million, an increase of 46% over the prior year.

This increase primarily relates to the higher earnings in the quarter.

During the quarter, we used a substantial amount of our free cash flow to repurchase shares of common stock.

During the quarter, we acquired just under 1 million shares for $73 million.

This leaves a remaining authorization of 4 million shares.

Next I'd like to turn to our second quarter outlook.

Overall, we are expecting the strong revenue growth trends in our major markets to continue into the second quarter.

We estimate that our consolidated revenues will be up between 14% and 16%, or 9% to 11% in constant currency.

We expect our U.S.

revenue trends could improve slightly due to easy comparables, with an overall contraction in the range of 3% to 5%.

Revenue growth should remain strong in France, other EMEA and the Italy segments.

In France, we are expecting local currency growth of 10% to 12%.

In other EMEA, 15% to 17%.

And in Italy, 14% o 16%.

We expect our Jefferson Wells revenue to be flat to slightly up sequentially, resulting in a decline of 16% to 18% from the prior year.

As Jeff mentioned earlier, the prior year comparables are difficult in the second quarter due to two large projects and more SoX business in the prior year.

We expect Right revenue to be about flat with the prior year, or down between 2% to 4% in constant currency.

Revenues in the other operations segment should increase between 11% and 13%, with minimal effect from currency.

We expect our gross profit margin to be stable sequentially ranging from 17.6% to 17.8%.

This is down about 20 basis points from the prior year, reflecting the similar mix issues that we discussed related to the first quarter.

We're forecasting our operating profit margin to range between 3.2% and 3.4%, reflecting continued improvement in productivity and efficiency.

We estimate our tax rate at 36.5% and the resulting earnings per share of $1.12 to $1.16, which includes an estimated $0.06 of favorable currency impact.

Lastly, I'd like to call to your attention that Easter falls in the first quarter next year versus the second quarter this year, resulting in less billing days in the first quarter of 2008 versus 2007.

This will significantly impact our seasonally weaker first quarter results next year.

So, please keep this in mind as you begin your quarterly modeling for next year.

That concludes my remarks, Jeff?

Thanks, Mike, we'll open it up for questions right now.

Thank you.

[OPERATOR INSTRUCTIONS] Jeff, your line is open, please state your Company name.

It's Jeff Silber with BMO Capital Markets.

I want to congratulate you on the quarter.

I was wondering if we could talk a little bit about French politics.

I'm not asking you guys who you're endorsing.

But I'm just wondering, with the upcoming elections, do you think there will be any major changes in either the economic outlook or policies changes that might impact your business?

Jeff, it's a good question.

And I think the French politics would be identical to politics across the world, which is possibly what is said up to election isn't exactly what is going to occur after election.

But having said that, there are a few things.

Those of you who follow it, there would be three potential candidates right now, Royal, Bayrou and Sarkozy.

With a runoff coming in a couple of weeks that will narrow it down to two.

And then I believe on May 11 -- 6 is the election.

So, there's a couple things.

One is you would find that Royal is interested in boosting the minimum wage to 1,500 euros, about $2,000 U.S.

a month, which is about a 20% increase.

If that were to happen, that would actually assist us because we're paid on a markable repay, in most cases.

Bayrou is looking more to free employers from social charges.

But yet to do that through some new job creation programs.

And Sarkozy is looking at; How do you possibly keep the 35 hour work week but do it in a way where some of the social charges and income taxes aren't paid for -- aren't levied on anything over 35 hours?

The 35 hour work week would be looked at in different ways by the different candidates.

So, my view right now is we don't really need to and wouldn't endorse anyone.

We're keeping very close to the elections.

We believe that job creation is going to be an integral part.

And what we have seen in the past, whether it be through subsidies or through other kinds of endorsements to try to create movement in that way, we would see it as a fairly positive for us.

Right now, unemployment is less than 10% harboring -- hinging a little bit on less than 9%.

So the economy, from an employment perspective, isn't bad.

There just needs to be a little bit more bounce in their step from an economic perspective.

And we believe that would help us.

Great.

If I could switch to the U.S.

for my follow-up question.

You mentioned in your comments about France about a potential increase in minimum wage being beneficial.

In the U.S.

I think, January 1, it was about 20 states or so that increased the minimum wage.

Some of the other companies in the states said that contributed to lower gross margins for them in the first quarter but your gross margins were up.

Can you provide a little color on that?

Not really.

We haven't really seen it work through the system enough to really be able to discern what effect it is having.

The deteriorated gross margins, we would not have seen that nor have seen that based on that.

What we tend to see is that the markup stays the same as the pay rate increases, particularly on what's called a markup contract, as opposed to a bill rate contract.

If you have bill rate contract, then of course, you might see a little bit of a margin squeeze.

But frankly, we're not at that level.

So, the minimum wage isn't affecting us yet.

It will take awhile to work through the system.

It might be another year before it has an affect, since our average pay rate is closer to around $11.

So, we're not really at the minimum wage level.

That's the end of my answer.

Okay.

Thank you.

Okay, thanks, Jeff.

Next question.

Mike Fox your line is open.

Please state your Company name.

Hi, it's Mike at JPMorgan.

Congratulations on another strong quarter.

I had a couple questions.

First, can you just talk about in the U.S.

business despite the revenue being below expectations, can you talk about what were the big drivers for the margin expansion?

Sure.

Overall, the U.S.

had a pickup of 50 basis points on the operating margin, as Jeff had mentioned.

That really is coming off of the gross profit margin line where we saw over 100 basis points of improvement on the gross profit margin line.

If you look at the expansion on gross profit margin, about -- roughly 2/3 of that, a little less than 2/3 comes from permanent recruitment.

The U.S.

is doing a very nice job growing that business.

Certainly, there's more opportunity there and they're working hard on that.

But that has certainly had a positive impact.

And then, the balance of that pickup would be to related to primarily to workers' compensation and state unemployment taxes.

We're still getting some benefit of lower state unemployment taxes as states are adjusting their rates with the better overall employment environment.

And then, our workers' compensation costs are being managed quite effectively in the year.

I've mentioned on previous calls where we've been much more aggressive managing our case load.

And certainly, in a better economic environment that is also helpful in terms of how the claims come in.

So, that's been beneficial, as well.

The SG&A side, I think they've managed quite well, as well.

You don't see the leverage on it as you look at it as a percentage of revenue because what you're seeing here is we're adding permanent recruiters to the mix.

And of course, that's driving more GP.

So, if you look at it as a percentage of GP, we're actually improving our leverage, as well on the SG&A side.

You just don't see it as a percentage of revenue because of how the mechanics of the permanent recruitment comes in and the headcount we're adding to drive that.

Okay.

Great.

And I assume that those two trends are likely to continue in the second quarter?

Yes, I would expect continued gross margin expansion in the second quarter.

We'll continue to see good growth in permanent recruitment.

Overall in the U.S.

in the first quarter, permanent recruitment was up just over 60% and that's been quite strong.

I think we're going to see continued good strength on the permanent recruitment side.

And I don't see anything that's going to change the benefits coming from our effective cost management on the unemployment taxes and the workers' comp.

Okay.

And then I had a question about one of the things that Jeff said about candidate shortage, you alluded to.

Is that at the point where it's more difficult for people to hire people and that's helping drive your perm.

placement business?

Or is that at the point where it's difficult for even you guys to find candidates and it could be curbing your growth at this point?

Well, where I had mentioned it was in Japan, which is where you see it more acutely, demographics as well as skill issues.

So we implemented some advertising campaigns targeted right at candidate attraction.

If I were to open that question up on a more macro perspective, I think permanent recruitment and the growth in permanent recruitment might be aided slightly by the fact that it's difficult to find candidates.

I really think there is more of a structural change happening where companies like Manpower are being able to use the network, use our systems, use our candidate attraction in a way that companies are now saying; "I don't need to do this, you can do this for me." So, I don't think this is normal perm.

recruitment that might have been the same as eight years ago.

The market is different.

Is it slowing our growth down?

Right now I don't see it growing -- slowing our growth down as much as I see it maybe stressing the offices a little.

So it's a little harder to squeeze out some of the efficiency because you're basically interviewing maybe candidates that are not qualified.

But even that is still on the margin right now.

And it's mostly a U.S., UK issue and Japan.

The others haven't quite felt the same degree of impact.

Okay.

And then one last question.

With regard to the Jefferson Wells business, do you think that it was impacted at all by the expected change in regulation in Sarbanes Oxley where people are a little less urgent about getting their work finished and they're going to see how that plays out before they really focus on that?

I think that might be one possible explanation for what might be happening out there.

I think also what we're seeing and we've seen it with companies as 2004 was the first year.

And I think the some of the leading companies we saw incorporate a lot of the SoX and internal control work is part of their daily operation and just part of how they do business.

As they've done that, they brought more of that SoX documentation and testing into their organization.

And we continue to see more companies doing that.

Certainly, we saw some of the leading companies do that early on in 2005.

But that trend continues.

So I think certainly, there may be some delay of some projects but I think it's really as much just an ongoing trend of how companies are managing the overall SoX business, as well.

And really just making it part of what they do to manage their business.

Okay.

Great.

Thanks a lot.

I appreciate the time.

Gary Bisbee, your line is open.

Please state your Company name.

Hi, Lehman Brothers.

I'll add my congratulations on the good quarter.

Can you give us a sense as to what impact the growth of perm.

is having on the margins in France, in particular and also the EMEA region?

Sure.

On the gross margin, perm.

is adding about 10 basis points and in the EMEA region it's adding about 30 basis points to gross margin.

When you look at operating margin in France, we're ramping up right now quite dramatically.

So I would -- from an operating margin perspective, there really isn't much of an impact, at this point, on operating margin in France.

I would expect on the other hand in the EMEA margin, certainly that because we've been operating in the permanent recruitment space much longer and while we're still adding recruiters there, the impact, the ramp-up isn't as dramatic.

So, the gains we're making in EMEA are falling down to the operating margin, as well.

Okay.

And so in France, is it just getting leverage off the revenue growth?

Are you at this point seeing the pricing really helping drive that operating margin improvement there?

Well, the operating margin improvement is primarily generated off a 10% top line growth with stable gross margins.

So, we're not really seeing that increase in operating unit profit at all coming from perm.

We're investing in perm.

right now, so none of it's dropping.

So it's really about classic leverage, top line to bottom.

That being said, I don't want to take anything away from the French team.

I think they've done an extraordinary job driving some efficiencies and productivities within the organization and they've been active under our project Titan program, as well.

So don't get the idea we're just sitting here waiting for the top line to help our expense line drive some productivity.

We've got some good key initiatives that are driving, as well, which is helping us get a little bit more than just the normal leverage that you might think.

Okay.

You mentioned a minute ago that the difference between the bill rate and the markup contracts.

Can you give us a sense as to what the mix of these in the U.S.

and then across the whole organization are?

I would not have a good sense across the whole organization.

I would say that as you get outside the U.S., you see much, much less bill rate contracts.

Bill rate contracts are primarily in the higher skilled areas.

And I would say it's probably no more than 15% to 20% at most in the U.S.

Okay.

And then given the stocks falling off at Jefferson Wells, are there any areas you're trying to move more aggressively into or new verticals to expand into or areas beyond stocks that you're investing in today to drive better growth there as we look forward a few quarters?

Yes, clearly, I think one that we've talked about for sometime is the area of tax.

Tax has recurring revenue associated with it.

Right now, the best we could determine, we would be the number two tax provider from a federal perspective.

Right now we -- if anybody has any friends who's good at tax, we're looking at hiring a couple hundred people in that area.

So, tax is clearly important.

Classic kind of finance operations, we worked hard on that.

Larger projects maybe not as sophisticated, but larger projects.

So the balance of our business, if you look at it, when you see the drain of SoX and some of the controls work, we're actually seeing some okay growth coming out from some of the areas.

It's just that there's an awful lot of that other stuff.

So frankly, we're a little bit more skewed than we had anticipated and the drop was a little faster.

But are working on new lines of services that are still within our strong suit.

We are not going to branch off into things that look like they're good money but they don't stand up to our brand the right way.

So, we are working on them.

And I think over the next few quarters you'll start to see those come out a little bit more.

I think just to underscore Jeff's point.

When you do take a look at our non-SoX business and take away a couple of our large accounts, we've got a core business that actually is growing quite nicely around 15% or so.

So certainly, there's a healthy market out.

We don't have to get crazy about coming up with new ideas.

There's a good market.

We've got to go out there and get it.

We're opening new offices both domestically and internationally.

So, while it's a bit painful to drain out some of the SoX business and some of the nice business we had related to hurricane Katrina last year, certainly the market is healthy and we've got a strong business with a good brand and reputation.

So, we just have to go out and get that business.

Okay.

Great.

And then just one clarifying question.

On the U.S.

Man professional, you said the growth was slightly slower than the past couple of quarters.

But did you say that would likely persist or are you thinking maybe slightly faster than this as we look out?

I think we'll see a little pickup in Manpower professional into the second, third, and fourth quarter.

We still have to anniversary a little of these contracts that came to completion.

But some weekly numbers are showing that we have some good traction in Manpower professional.

Great.

Thanks a lot.

Mark Marcon, your line is open.

Please state your Company name.

Good morning R.W.

Baird.

Just wondering, with regards to other EMEA, as well as Italy, tremendous margin performance there.

Just wondering, can you talk a little bit about -- with the upside that you've seen in the first quarter, which is traditionally a seasonally weak quarter, what the implications are as we look out towards the balance of the year?

And was there anything unusual in this quarter that may not necessarily translate to the normal seasonal patterns that we would typically see?

I think, Mark, one of the things that as you look at other EMEA, where we came in with an operating margin of 2.5% against last year reported, was 1.2%.

We had some restructuring costs in the prior year.

So just to be fair, if we adjust the prior year, we'd be looking at 1.9%.

So, we had about a 60 basis point improvement in that other EMEA group overall.

And as we look forward, assuming the economy holds with us, we think we're going to see some good operating profit margin expansion throughout the balance.

Because perm.

recruitment continues to go strong.

We're leveraging our expense base with some good top line growth.

The productivity initiatives that we put in place are working.

Project Titan is coming through.

So, as I look at the EMEA group, I look for some good margin expansion both there and frankly out of the Italy segment for the balance of the year.

And that happens to be a segment, over the last couple of years, I've received a lot of questions on.

Is there more opportunity there?

And those of you that have been with us for a number of years recall when it used to be much higher.

And I think that now we're finally starting higher.

And I think that now we're finally starting to see EMEA come back into its own.

It took some time, of course, for its to work its way through the recession and was quite a bit behind the U.S.

from a recovery stage.

Now, we're starting to see that recovery.

And with that recovery are coming back operating margins in a number of countries.

Most countries moving back to nice levels where they would have been prior to the recession, which is now some years ago.

That's terrific.

And just a follow-up on the U.S.

Two questions on the U.S.

One, did you benefit at all from workers' comp accrual reversals?

And if so, how much?

And secondly, with regards to your comments that March was weaker than January and February but we would expect to see a dimunition of the year-over-year decline.

Is that just purely because of easier comps or are you seeing any signs of firming or improvement in the U.S.

economy?

On the workers' compensation, there weren't any specific reversals, it really is more a matter of us lowering our overall workers' comp rates as we're looking at experience.

We look at this from an actuarial standpoint, of course.

And we've been able to lower our rates just given our recent historical experience on an improving trend overall.

In terms of in the direction of the market, I think our view would be that we see things fundamentally continuing as they are today.

The fact is that because of the way a few of our contracts that terminated our rolling off, our comparables are getting just a bit easier.

And therefore, we're calling for some modest improvement.

But at this point, we're not taking a stand anticipating improvement, nor are we thinking right now that things are going to get worse.

But we'll see how that plays out across the quarter.

Great.

Thanks.

Great job on the quarter.

Thank you.

Brandt Sakakeeny, your line is open.

Please state your Company name.

Thanks.

It's Deutsche Bank, actually.

I think most of my questions have been answered.

One quick technical question.

Mike, do you have the share-based compensation expense for the quarter?

I don't have that right at my fingertips, Brandt.

I could take a guess and get pretty close.

But rather than do that, why don't I just send you a note with that detail?

Perfect.

That's great.

And then with respect to your commentary around the way the quarter behaved and the softness in March, was that consistent or was that true also at Jefferson Wells and in the perm, business, as well, starting off strong and sort of softening through the quarter in the U.S.?

The perm.

business is not softening.

Part of that is is that we continue to grow it so we might be clearly not at our peak from a performance perspective.

So no, we're not seeing softness in perm.

we're seeing accelerated growth.

When you look at what we are seeing in Jefferson Wells, I think that they are very difficult types of phenomenons.

We've talked about it, we've tried to relate what we're seeing in the U.S.

our core business to Jefferson Wells.

And other than the fact that both revenues are down, I'm not sure if there's a great corollary.

Because when you dig into an office by office or product line, as Mike mentioned earlier, we're seeing 15% growth on product lines that aren't kind of draining out that revenue.

So, I would be hesitant to say that there's a coupling of issues that are causing both of those.

Okay.

Great.

Thank you.

Brandt, while I have you, we do actually disclose our cash flow separately the stock-based compensation information, which was $5.7 million in the quarter, relative to $4.6 million in the prior year quarter.

Okay.

And should we use $5.7 million, Mike, going forward?

Yes, I think that's a reasonable number.

Okay.

Great.

Thank you.

Jeremy Davis, your line is open.

Please state your Company name.

Yes, it's Credit Suisse, thanks.

Wondering if you could provide a little bit more commentary on the hiring at Jefferson Wells?

I know you said that you're looking to add people in the tax area, specifically.

But wondering broadly, if you're still hiring kind of across the board at Jefferson Wells or if you've taken your foot off the pedal a little bit with revenue coming in light?

And then just as a corollary to that, how fungible are some of the people you have in terms of being able to move them from one area of specialization, whether it's in the SoX area, and into those other areas where you might be seeing stronger demand right now?

Yes, that is kind of the holy grail for a professional services Company.

One is; What skills do I have out on engagement and what skills do I have on the bench?

And getting that matched up right is the tremendous impact on profitability.

We are hiring in specialty areas.

We are not hiring completely across the board because, for example, the controls people we don't need as much anymore because some of the controls work is rolling off.

So, we're more surgically hiring.

But from a net basis, you would probably see about the same head count at the end of the year, maybe slightly up if we can find the tax people.

From the people skills perspective, we have a model that has a large number sitting -- that are our employees that would be considered bench employees and then we augmented with Manpower professional and other contractors.

Where we can get those that are our employees that typically have the 10 to 15 years experience and we would like to get those out on the engagements.

And we're working on that.

But we're not going to do that at the cost of disrupting some client process and progress that's going on.

But that's the kinds of things that that team is doing every day looking at utilization, looking at skills, and looking at skills across geographies.

So, how do we get somebody from the Birmingham office into the Tampa office?

And things like that.

So, it would be what you would see in other professional services companies.

And right now, it becomes a little bit more of a challenge as the revenue drains off like that.

Then what you really get is you've got to get much more detailed and sophisticated on the utilization and the bench.

Okay.

Great.

And as we look across Europe and all of your segments in Europe, it's great to see some of the traction finally coming through and the economy there is certainly supporting the growth that you're seeing.

Wondering if there are any things that you would point to that might be of particular concern or that you're just watching?

And then specifically, if the currency at some point, with the euro continuing to strengthen, if that makes you nervous at a certain level?

And then if you're seeing anything new on the competitive landscape?

Thanks.

If I don't remember all those questions, Mike, you can fill them in.

But if we were to look at it from, in general, there's not a lot that is concerning us right now.

We live in paranoia anyway, so of course, we're looking at everything.

What I would say, which is an obtuse answer to some of what you have, is that we are really seeing in some ways a decoupling from the U.S.

and Europe.

So the axiomatic, U.S.

has this and now it goes across the Atlantic and gets over there.

It's a global economy with the U.S.

being a piece of it, not the lead in it as it has been before.

So I think that's a key part of it.

What you would also see when you look at what's happening in there is we've got a lot of elections going on right now and it tends to stabilize and tends to also have a nice little run rate after that.

So when we look at Europe across the board, the geography not our segments, we feel as though there are a lot of things in there that show some very good strength.

Exports in Germany are going up.

Labor unions are looking at making sure that the flexibility models are appropriate so that they can maintain some of the jobs.

The influx of some of the new EU entrance from Eastern Europe has settled out and we're not seeing that be major issues.

So, that's pretty much the way I would look at that.

Mike, do you have anything to add?

In terms of the question on the euro/dollar relationship and is there a level that makes us nervous, your question is a good one.

Certainly, as the euro strengthens, exports into the U.S.

get more expensive and there can be some impact.

Although, when you look at the European economies, really most of their exports are trading within the euro zone, itself.

And not that much to the U.S.

But there always can be some impact but obviously to the extent the euro is getting stronger, that helps our reported numbers, as well.

So that's the converse of that.

So I don't think there's a level that we're necessarily concerned about.

Sometimes just being stability just seems to help because then we don't have to keep pointing out how much the currency impact is on our numbers.

But so I -- that's nothing we spend a whole lot of time thinking about.

I think the last part of the question, Jeff, was just in terms of competitive landscape.

Yes the competitive landscape, I mentioned it a bit in my opening comments.

We do see a bit more of a discipline in pricing.

But pricing discipline the first year or nine months is easy.

It's when it starts to affect the real loss of accounts that it comes to; Do you really have the fortitude to do that?

And we've been working on price discipline now for about five to six years, getting better and better at it every year.

So, we do see it as stabilizing, UK, France, two of the most competitive marketplaces.

So we're fairly optimistic right now.

But we're going to continue to street fight every day out there.

Okay.

Great, thanks.

Thanks for all the color.

David Feinberg, your line is open.

Please state your company name.

David Feinberg, Goldman Sachs.

Good morning, gentlemen.

Two questions.

With regard to the U.S., was wondering if you could provide a little bit more color in terms of the weakness you were seeing in office in light industrial, either if there was any differences either by vertical and/or region where you are seeing particular weakness and/or strength?

Mike, do you have the break down on that?

Yes.

In terms of verticals, we don't pull specific numbers on an overall basis to specific verticals.

So, I don't think there's anything I would -- but I don't think there's anything we would see if we'd actually go anecdotally to the offices on the verticals.

When you look regionally, again, I would say, it's -- the softness on the office is fairly broad based across regions.

Some regions may be slightly weaker.

But I don't think there's enough there that I would point out or call out one area of the country as being particularly stronger or weaker than the others.

More of it has to do with some of the accounts we have.

The larger accounts moving the numbers more than anything, I think.

So, I think it's more of a general trend as opposed to a region-specific trend.

Okay.

And then in terms of the second question.

I apologize if you've answered this already, I dropped off for a few minutes.

With regard to project Titan, is there any milestones or particular savings that we should be looking for over the next, call it, six to 12 months?

Project Titan, we started that program January of last year.

It really was -- the first five months were really coming up with those initiatives that we're going to implement and then implementation started in June of last year.

And this really has to do with reducing our nonpersonnel expense.

And so, now we've been implementing since June.

And as of today, roughly about half of those ideas are implemented and the balance of those ideas will be implemented pretty much throughout the balance of this year into early next year.

So, the program is in place, it's working well, working effectively.

Certainly, we have specific milestones ourselves that we're targeting.

And as we continue to save money, the idea here is certainly to use some of those moneys to invest further in our operation, whether that be into more permanent recruiters, into advertising.

But really investing that money prudently to drive further growth and further expansion of operating profit margin.

So, I'm pleased with the program, it's working quite well.

And I do think that will certainly help our overall operating margins but certainly, we're going to look at how we invest that money to get better returns going forward, as well.

Have you been able to quantify what the savings have been to day or what the target is of the program, regardless as to whether or not you've reinvested that in other parts of the business but what you've identified and what you've saved?

We are tracking every line item by every country.

On a monthly basis, the senior management team does that.

If they invest it, we're going to give extra $0.01 back to the shareholders to show what we're doing in efficiency.

And if you invest it, you have to call it out and keep it as a separate line item, as budgeted that had been saved and invested.

And if you don't get the return, you give it back to us.

And I'm assuming by your comments you're not comfortable at this time sharing with us what that dollar amount is saving?

I'm not sure if it's helpful because what happens in that is, I want the organization not to be constricted by a number that we have committed to.

And if somebody comes up with an idea that says, "you know what?

If I could spend $2 million here, I can get you 25% return on capital".

I want to have the flexibility of doing that without having to explain in a conference call that we missed our Titan number by $2 million and it's this reason.

So, our view is you're going to continue to see some expansion in our SG&A efficiency through the offices getting better and more efficient, which is driving through that efficiency strategy.

And we're saving money along the way, so you're starting to see the benefits of it in the first quarter.

Thank you, gentlemen.

All right.

Last question.

Michel Morin, your line is open.

Please state your company name.

Yes, good morning, Michel Morin from Merrill Lynch.

I just wanted to hone in on Italy for a minute.

Am I correct in noticing that you're the leader there with a about a quarter of the market?

Is that about right?

Well, it's about right about the quarter of the market.

I think what you would find is is that over the past few years we've been gaining rapidly on what would be considered the higher revenue volume Company in that marketplace.

We are closing the GAAP rapidly.

I have not seen the latest figures but it's going to be pretty close.

But I think, in all honesty, I think I'd still put ourselves as number two.

Yes, we would still consider ourselves the leader in the marketplace, Michel, but I think revenue-wise, we're number two.

We're catching up fast.

Right.

Well actually, that's where I was headed was the growth rate.

Your growth rate does seem to be much faster.

And I just wanted to know, you've been gaining share, what's been driving that and how sustainable can that be?

It's called Manpower.

It's a great brand with a great management.

They're very focused.

They know what they're doing.

We all visit them often and we do to get energy from them because they are a damn good team.

So, it comes down in this business, in the service business, focus and a good team.

We've got it and they've got a lot of momentum going right now.

So, there isn't anything structural in terms of how you're positioned in the market, perhaps exposure to different segments that competitors may not have?

No, there isn't that.

And if there were a secret sauce, I wouldn't tell you anyway.

And then, just switching to the Nordics.

The growth rate there has been phenomenal for some time now.

And obviously, the labor markets are very, very tight in that part of Europe.

How much of that growth would you say is really cyclical as opposed to secular?

Is there still a very strong secular undertow here?

Well, I think there is.

We are getting some cyclical growth, particularly when you look at the impact of oil in Norway and the impact of Ericsson doing better in Sweden.

Having said that, though, you look at the percent of the workforce that works as a temporary or contractor, it's still not at the levels of some of the other places within Europe.

So, we are still seeing some secular growth.

And because in both places, we are a very lead player with the largest by far both brand recognition, quality and revenue.

It makes candidate attraction a bit easier for us, which gives us a bit more margin, as well.

What's your ballpark assumption or latest figure in terms of the penetration of temps in that region?

I don't know the region, Mike.

I'm going to guess Sweden is still under 1%, about 1%.

Norway would be slightly higher than that, but not much.

So, right around there and if you figure 2% to 2.5% is kind of what's out in the rest of the world.

That's why I'm saying they're still a little secular.

Well, we'll look forward to that being the next segment you break out.

We've got India and China, which will take a little bit longer but those are some real promising segments for us.

Great.

Thanks very much, guys.

All right, thanks, everyone for attending the call.

As usual, if there's any questions, Mike and myself are here and we'll be here all day.

Thanks a lot.

Thank you.

That does conclude our Manpower conference for today.

Thank you for participating.