ManpowerGroup Inc (MAN) 2010 Q1 法說會逐字稿

Welcome to Manpower's first quarter earnings results conference call.

(Operator Instructions).

I would now like to turn the call over to Mr.

Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Good morning and welcome to the first quarter 2010 conference call.

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

Together, we'll go through the results of the first quarter.

I'll spend some time overviewing the business, economic indicators that we're seeing and experiencing.

And then I'll cover the segments in a bits more detail.

Mike will then cover the financial side of the business, as well as any implications of the trends that I spoke about earlier.

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

Thank you, Jeff, and good morning, everyone.

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

Actual results may 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 here in by reference.

Thanks, Mike.

The first quarter was a very good quarter for us.

We entered the quarter with positive trends, but the year-end, always has noise in it because of the holiday times.

So it was difficult for us to get a sense of the trajectory as we were going into 2010.

From the outset of the year, we were experiencing in almost all locations a trajectory that was more pronounced than what we were experiencing in the beginning of December.

It's been a long time since I've been able to say on a conference call that by far and away the US is leading our revenue growth, far greater than any of our other major geographies.

Our major European entities, with the exception of Nordics in the Netherlands are showing improving year-on-year growth.

In the Nordics, in the Netherlands markets appear to be improving, but they really haven't reached yet, that year-on-year growth level.

The cost reductions that we implemented are paying off.

And in fact, we're very selective in reducing, in our fuel network, and we are yielding the returns from that.

And we're confident that our office network is rewarding us with heightened revenue and market share gains, with less competition for some of those offices right now.

The first quarter is seasonally soft, as many of you know.

Nevertheless, we saw initial signs of strong operating leverage across our staffing business.

And we expect further leverage throughout the year as we fill in the revenue capacity of our network.

Our first quarter revenue was $4.1 billion, up 13% in US dollars, 5% in constant currency, quite a bit stronger than expectations as trends improved throughout the quarter.

Given how seasonally slow the first quarter is, we are quite pleased with the top line growth.

As expected, we continued to see our year-over-year gross margin decline, which it did to 17.1%, 120 basis points down on year-over-year basis.

We are continuing to see lower margin business feather in without the support of our career transition business, or for that matter our permanent recruitment business.

Our operating profit was 33 million, a nice effort from our entire team in all geographies and all businesses.

Operating profit was helped by a $13.7 million reclassification that resulted for the French business tax from Cost of Services to provision for income taxes.

Mike, of course, will discuss this later in the call.

Operating profit before this reclassification was $19 million, far exceeding our expectations of a break-even quarter on a profit line.

Our operating profit margin was 0.8%, up 80 basis points compared to the prior year.

Our earnings per share was $0.04 which included a positive impact from currency of $0.03.

So we are off to a good start.

Each week is getting better than the previous week.

We were able to outperform our revenue expectations in the first quarter.

And we continue to see improving revenues, which gives us much more confidence as we move into the second quarter.

Our gross margin percent declined 120 basis points.

This is based on several factors.

One of the largest is the reduction of Right Management outplacement business, which in 2009 had a substantial contribution to our gross margin because of the counter cyclical nature of the business.

This reduced our gross margin by 80 basis points.

Permanent recruitment is up slightly year-over-year, as we are starting to see a rebound.

Our permanent recruitment business is up 1%, basically flat in constant currency from prior year, and is up 25% sequentially.

This includes our field business which is really growing quite rapidly, which is aided by the Australian Defense Force contract that we spoke about last quarter.

The gross margin percent dropped 70 basis points, related to our temporary recruitment business, which is right in line with our forecast for the first quarter.

Overall, we have experienced stabilizing gross staffing gross margins, and in a few cases, improvement.

However, we are still feeling the impact of pricing pressures from the second half of the year.

That won't be actually anniversaried until later this year.

There are other factors including business mix, as well as geographical mix that are all contributing to the decline.

The fastest growing part of our business right now is light industrial and major accounts.

Light industrial business is traditionally at a lower gross margin.

We will continue to close the gap with prior year, based on easier comparables.

But more importantly, on the efforts that we're putting in place right now in the marketplace.

We are selective regarding price and offerings.

We are moving into the second quarter, feeling that we've reached the inflection point, and are reversing the erosion in the temporary staffing part of our business.

We will continue to be challenged this year because of the reduction in the higher gross margin, Right Management business.

At the same time, we are starting to feel a slight tick upon the permanent recruitment business.

We believe over time, the permanent recruitment business will far offset the impact from Right Management.

Our gross margin was favorably impacted 30 basis points in the quarter, related to the reclass of the French business tax from Cost of Services.

Again, Mike will discuss this in a few minutes.

The Americas segment, America's revenue came in at $737 million, up 20% in constant currency, 24% in US dollars.

There were no acquisitions compacting our first quarter, so all of this is organic growth.

We have suffered revenue decline for last few years in the US.

As a result, we are still digging our way back to profitability.

We have a continued to see substantially improving revenue trends across the Americas.

The US is up 18% in US dollars, Mexico up 50%, Argentina down slightly, and all other countries combined were up 48% in US dollars.

As you can see, we continue to make great strides on the revenue side, and balance this out with a stronger performance, exiting the first quarter in gross margins than we had entered it.

We continue to see positive trends in all major locations across the Americas, particularly in the US.

I've spoken about this before, that in the fourth quarter after such a protracted initial recovery, it now feels as though we are in a classic recovery, light industrial leading the way.

US light industrial business for the quarter was up 31%, and that continues to grow with average growth over the last four weeks of over 55%.

What we are experiencing in the US is similar to what we are seeing in other parts of the Americas, just more accentuated.

Part of it, of course, is the comparables, as we have suffered so much for so many years in the US.

On a billable hour basis, we are still well below where we want to be.

But we are continuing to build, and numbers look like this, will allow us to climb out actually quite rapidly.

Part of the story that is yet to unfold, is what we've been able to do with gross margin.

Our target for pass-through of SUTA, the state unemployment tax previously was about two-thirds of our clients, who have been able to increase that to above 70%.

On a full-year basis, we are estimating the impact of the unrecovered SUTA increase on US GP to be about 20 basis points.

The first quarter impact was 50 basis points, as the impact is front-end loaded, due to the SUTA wage threshold.

And of course, the timing of the agreements with our clients.

Additionally, we are continuing to see slight improvements in permanent recruitment, with our US business up 5% sequentially from the fourth quarter, but still down 21% from the prior year.

I spoke a little bit about how our light industrial business is growing at a rapid pace.

To give you a bit more of a breakdown, our office business grew at about 10% for the quarter, and our professional staffing was flat from prior year.

In April, in early April, we completed the acquisition of COMSYS which has gone quite smoothly.

The integration team, during the last quarter has done an exceptional job.

So on day one of the completion of the transaction, we had designated the new management team, and as well as all the properties to be consolidated.

We are also implementing strategies for front office systems, and back office systems as well, as what we're doing in approaching our clients, which so far has received it quite well.

With the addition of COMSYS into Manpower Professional, our combined US professional business, which will now be run by Mike Barker.

Mike Barker, the COO from COMSYS is nearly a $1 billion.

Our clients on both sides received the acquisition very well, and therefore we are looking at driving revenue synergies, which was not in the financial justification for the acquisition.

The COMSYS acquisition closed on April 5th, and therefore the financial impact on the first quarter is limited to $1.1 million of acquisition costs included in the America's segment.

Our French revenues reached $1.1 billion, up 9% in constant currency, 16% in US dollars.

The revenue growth was spread across almost all geographies within France, which is a nice, healthy sign.

We do believe that there is, as would be true in the United States, some level of inventory replenishment, but there also appears to be underlying demand growth really driving this.

Our growth compared to the industry is favorable, which is reflective of efforts to reduce the cost reduction and the strategy part, and really introduce our strategy during the recession.

While our gross profit was down compared to prior year, we saw some signs of improvement within the quarter as we were very disciplined in our pricing.

Our French team did an extraordinary job in managing the first quarter, in setting us up for a very nice second quarter.

Operating profit from France was slightly positive, compared to a loss of $2.2 million the previous year, before non- recurring items.

Included in the first quarter SG&A is a charge of $3.3 million, related to the move of our French headquarters to a more cost effective location on the perimeter of Paris.

The revenue increases that we were experiencing continued into April.

On a weekly basis, we have see very solid, improving trends.

Our French average daily revenue turned positive in January, and from that point on, we have seen our revenue improve.

We exited the quarter with year-on-year average daily revenue increase of 15% in March.

We continued to expand our permanent recruitment business, our permanent recruitment business up 70% in constant currency on a year-over-year basis, and 64% sequentially.

Our [Pole Emploi] business is doing, which we are able to have 6500 people enter the program in the quarter, generating additional gross margin, which is now dropping to the bottom line.

The EMEA segment, had revenues of $1.6 billion, up just slightly in constant currency, or 9% in US.

dollars.

It generated an impressive operating profit of $24 million, and a operating unit profit margin of 1.5%.

Top performers from a revenue perspective were Manpower UK and Germany, Manpower UK of 1%, Germany up 6% in constant currency.

We are also seeing good revenue performance in Italy, performance across all European geographies have been improving.

We have also continued to see improvement trends in Belgium, the Netherlands, and the Nordics.

We are seeing much higher growth rates in eastern Europe.

Our IT business, Elan, which has been lagging light industrial and office businesses, which is very typical at this point of the recovery.

Eland is down 13% on a year-over-year basis, and constant currency, a nice improvement from the 25% decline in the fourth quarter.

Overall, for EMEA, trends are positive.

Revenue growth is higher than anticipated.

Our largest countries have experienced a better second half of the first quarter than the first half.

And our permanent recruitment business is starting to experience a comeback.

I say this with caution, as we still believe it will take longer for permanent recruitment to recover than previous recoveries.

Asia- Pacific revenues came in at $497 million, up 17% in US dollars, 5% in constant currency, generating an impressive operating unit profit of $13 million, and operating unit profit margin of 2.5%.

This represents a 32% constant currency increase in operating unit profit, if we were to exclude non-recurring items from the prior year.

The Japanese market, while showing some signs of improvement, continued to be challenging with revenues down 9%.

However, this is offset by our performance in Australia, which is largely up from the contribution of the Australian Defense Force, our PO project.

We will continue to benefit from this for the balance of the year.

We are experiences solid growth from the emerging markets, China and Taiwan are up 22%, and India up 25%, all in constant currency.

And our Asian location revenues are up over 50% in constant currency.

We've been able to stabilize our gross margin, and be very disciplined with our expenses.

As I have mentioned in the past, we put in a very -- we've put in a very strong network that is paying off.

We have a management team that is extremely focused, and we believe we have -- we got ourselves closer to a full run in the Asia marketplace, and are looking forward to the balance of the year.

Japan will continue to be challenging as it is a difficult economy, coupled with some upheaval from a legislative perspective.

The new administration in Japan is forcing strict adherence to the 26 job categories that are legally allowed for temporary staffing under Japanese labor law.

The DPJ has proposed legislation that would reverse the liberalization, which actually eliminated the adherence to those 26 job categories for one year in 2001, and three years in 2004.

It could potentially impact up to 10% of our business.

However, the DPJ proposes a five-year grace period to give the labor markets sufficient time to adjust.

All of the proposed legislation has yet to be defined, so it's too early to determine any impact.

However, our team has run several scenarios, while it will impact us, we believe the impact will be fairly modest.

We will continue to work with the government.

Our management team has taken an aggressive approach in working with companies and government to ensure that the flexibility of the labor market, which is needed for the economic growth in Japan stays intact as best as possible.

Revenues for the first quarter for Right Management were $103 million, down 24% in US dollars, 28% in constant currency.

Operating profits were down 57% in US dollars to $13 million, generating an operating unit profit margin of 12.1%.

Clearly, we are continuing to see the tail off of a large outplacement business opportunities.

We started to see this come down in the second quarter of last year in the US.

And there's been a continued reduction in the number of candidates coming through our doors.

At the same time, we've seen the European and Asian business go up slightly, and that too is now leveling off.

And we suspect that would start to turn down, as we move throughout the year.

We've done quite well at managing Right's costs on the way down.

We restructured very differently in this downturn, than in the last downturn, both from a physical property and web capability, as well as the use of our consultants.

This allowed us to be able to reduce our cost structure more in line with reduction or revenue.

Because of the efficiencies in the career transition business, it's difficult to maintain a high operating margin.

However, we believe that we would be able to hit a low point of a high single digit, and then begin to work our way back as the the talent management business begins to fill in.

We are securing large talent management engagements which involve training, coaching and consulting.

Our goals is to have the talents management business be in excess of one third of the total revenue for Right Management.

While career transition does drop off from its high, it's still a large components of revenue.

Companies will continue to change the talent within their organization, which drives on a consistent basis, opportunities for career transition services.

At Jefferson Wells, the market continues to be challenging, revenue was down 23% to $41 million.

We had an operating profit loss of $5 million.

We are seeing our average daily revenue improve, but is not at the level required as you can see.

Our backlog is improving, giving us a better outlook for the second quarter and for the balance of the year.

Our first quarter was a better than anticipated quarter for revenue, and then, of course, profitability.

Each of our staffing segments exceeded revenue and profit projections for the quarter.

We continue to see strong week-on-week trends across all the major geographies.

As we talk to our clients, there is still no doubt, a sense of trepidation as many of the economies have issues to work through.

However, as demand continues, this is a very favorable environment for us, as companies are looking at needing to get work done, yet having an uncertain future.

We would expect, given what we are hearing from our clients, that the second and third quarter will both continue to have strong revenue performances.

As this happens, we will have a more rapid fill-in of our infrastructure, therefore creating very good leverage which will generate a much higher level of flow-through from the revenue to profitability.

Improving revenue growth, our work on gross margins, as well as the continued scrutiny of expenses, will lead us to a second quarter earnings per share of between $0.14 to $0.22, which includes the impact of COMSYS acquisition, which we are projecting to be -- to have a negative $0.10.

With that, I would like to turn it over to Mike to cover some of the financials.

Okay, I would like to begin today by discussing a few elements of our earning statement, followed by a discussion of our cash flow and balance sheet.

I will conclude with details on the COMSYS acquisition, followed by some comments on our second quarter outlook.

Our first quarter operating results outperformed our forecast due to higher than expected revenue growth, while maintaining a tight control on cost.

Our SG&A costs were down year-on-year 5% in constant currency, were down 2% from the fourth quarter in constant currency.

The organization remains keenly focused on cost containment, allowing a large part of the incremental gross profit to flow through to the bottom line.

For unique items impacting our earning statement in the quarter, relates to a change in the calculation of business tax in France, which was effective January 1st of this year.

While the amount of business tax did not change materially in the quarter, the classification of the tax did change under US GAAP.

As a result of a new law, the calculation changed and the business tax is now more appropriately included in our earnings statement as a provision for income taxes, rather than Cost of Services.

Consequently, our reported Cost of Services was $13.7 million less than what it would of been, and our income tax provision was $13.7 million higher.

This change in classification had no impact on our net earnings for the period.

This classification results in an unusually high income tax provision of 86% for the quarter.

The income tax provision before this reclassification was 52%, still higher than normal, given the relatively low level of pretax profit in the quarter.

While US GAAP requires a classification of business tax in our income tax provision, we view this tax as operational in nature, and therefore we have not changed the financial reporting of our French operating segment.

That is for purposes of the French segment business tax will be included in Cost of Services, as it had been previously.

Therefore, in reconciling the operating profit of the segments to the consolidated operating profit, it will be necessary to add the business tax to the segment operating results, to arrive at the Company's consolidated operating profit.

This reconciling item is separately identified on the operating unit results page of our earnings release financial statements.

Our corporate expenses for the quarter were in line with expectations at $26.4 million, up 22% year-over-year.

The year-over-year increase primarily relates to global IS costs that are now maintained at the center, rather than being allocated out to the operating units, also additional marketing expenses and incentive costs.

Interest and other expenses in the quarter were $12.9 million, slightly higher than anticipated as it includes a $1.2 million translation charge related to devaluation of the Venezuelan bolivar in the quarter.

Free cash flow, defined as cash from operations less capital expenditures, was a use of $51 million of cash.

This usage was a result of an increase in working capital necessary to support the higher revenue growth rates, particularly near quarter end.

Our accounts receivable excluding impact of foreign exchange rates, was up $127 million for the quarter.

Accounts receivable increased despite the fact that our day sales outstanding in the quarter, improved markedly by five days from the prior year.

Capital expenditures in the quarter were $8 million, which is about in line with the prior year.

Turning to the balance sheet, total cash at quarter end was $944 million, and total debt was $718 million, bringing our net cash balance to $226 million.

Since quarter end, we have used $239 million of cash related to the COMSYS acquisition, which I will discuss in a moment.

Our balance sheet remains strong at quarter end, with total debt to total capitalization improving to 22%.

As of quarter end, our primary borrowings are a 300 million Euro note coming due in June 2012, and a 200 million Euro note coming due in June 2012..

Neither of these notes have specific financial covenants.

As of quarter end, we do not have any borrowings outstanding under the $400 million revolving credit agreement.

Before I turn to the second quarter outlook, I'd like to discuss the acquisition of COMSYS IT partners which closed on April 5th COMSYS is the third largest IT staffing solutions company with 52 branches across the US.

The total purchase price for COMSYS shares was $380 million, of which $192 million was paid in cash and 3.2 million shares were paid in Manpower stock valued at $188 million on the date of close.

Additionally, we retired $47 million of COMSYS debt outstanding at the close of the transaction.

As we discussed on the last call, we expect synergies totaling $20 million annually by 2011.

We also get the benefit of a $35 million income tax shelter which will be utilized over the next ten years.

Integration costs are expected to be $25 million, of which $14 million already incurred in 2010, $8 million of which will fall in the second quarter.

We are in the process of valuing the intangible assets and goodwill related to the transaction, Based upon a preliminary analysis, intangible asset amortization will be approximate $21 million this year, or $7 million per quarter.

For a second quarter, we expect COMSYS to be $0.10 dilutive.

This is primarily due to transaction and integration costs incurred in the first quarter of ownership.

As we look to the second half of the year, COMSYS is expected to be EPS neutral, which includes the impact of intangible asset amortization.

We expect second half EBITDA margins to be above 7%, as we begin to realize the synergy benefits of the integration.

As we complete the integration of COMSYS, we have become aware that under the Manpower accounting policies, we will be treating revenue related to some of the subcontractor -- subcontracts, as net versus gross.

This will result in a somewhat lower reported revenue amount for COMSYS, but will have no impact on operating profits.

Now let's turn to the outlook for the second quarter.

Overall, we expect improving revenue trends in all operating segments, with the exception of the counter cyclical Right Management business.

We are projecting our consolidated revenue to range between 16% and 18% in constant currency.

Foreign currencies will have little impact in the quarter based upon where rates are today, but could add about 1% to our consolidated revenue.

The (inaudible) revenue outlook is the positive impact from the COMSYS acquisition, which is approximately 4%.

Revenue growth in the Americas is expected to range between 28% and 30% in constant currency before COMSYS, or 52% to 54% including COMSYS.

We expect the French market to continue with strong showing with constant currency growth of 14% to 16%.

It will also show improving growth in the quarter between 10% and 12%, and Asia-Pacific will also grow between 9% and 11%, all in constant currency.

Right Management will see some growth sequentially from the first quarter, but is expected to be down from prior year about 30% on a constant currency basis.

Likewise growth at Jefferson Wells should improve sequentially, but will still be down against prior year, between 11% and 13%.

Our gross profit margin is expected to improve 40 to 60 basis points on a sequential basis, but will be down against prior year due to the strong performance of the higher gross margin Right Management business in the second quarter of 2009, and a slightly lower staffing gross profit margin compared to the prior year.

Our operating profit margin is expected to range from 1.1% to 1.3%, or between 1.4% and 1.6% if we exclude the impact of the COMSYS acquisition.

Our income tax rate for the quarter is expected to be 63%.

This rate reflects the inclusion of approximately $16 million of French business tax in the tax provision, If we exclude this item, our rate would be 40%.

Our earnings per share for the quarter is expected to range from $0.24 to $0.32 per share before the COMSYS acquisition, or $0.14 to $0.22 per share if we include COMSYS.

This assumes weighted average shares outstanding of 83.3 million, which includes the shares issued for the COMSYS purchase.

It is important to note, that in reviewing our guidance for the second quarter, many of the published analyst estimates do not include the impact of COMSYS, since they were waiting for a better indication of the intangible amortization before updating their estimates.

In reviewing our second quarter operating profit forecast compared to the prior year, there are a few things worth noting.

First, Right Management had a record quarter a year ago, reporting operating profits of $42 million.

Given with fall off of the counter cyclical business outplacement business, I expect profits of about one third of that this year in the quarter.

So still a good performance at this stage of the recovery, and about in with the bottom line of the second quarter of 2008.

Additionally, corporate expense was unusually low last year at $19 million, due to the reversal of some long- term incentive accruals.

This year we expect corporate expense to range between $26 million and $28 million, which is more in line with our current run rate.

Both of these items, mask the strong operating leverage that we expect from our staffing business in the second quarter.

In fact, the combined operating unit profit margin of our four staffing segments, the Americas, France, EMEA, and Asia- Pacific is expected to be up over 100 basis points over the prior year.

The key elements we monitor closely is in the recovery cycle is incremental margins, to ensure we are utilizing our network capacity, and getting strong operating leverage.

Based upon our second quarter forecast, we expect year-over-year operating profit margins of 8%, excluding Right Management, COMSYS, and the impact of 2009 non-recurring items.

Looking at it on a sequential basis, we expect over 75% of the incremental growth and growth profit from the first quarter to the second quarter to flow through to operating profits.

Again, this excludes its impact of Right Management and COMSYS as well.

On both measures we're given strong operating leverage in the early stages of recovery.

So with that, let me turn things back to Jeff.

Thanks, Mike.

And with that, we'll open it up for questions.

Thank you.

(Operator Instructions).

Our first question is from Sarah Gubins with Merrill Lynch.

Hi, thank you.

Good morning.

I was hoping you could talk a little bit about bill and pay rate trends.

Your comments sounded somewhat more optimistic about what you would expect for bill rate trends.

And I am wondering how those discussions with clients are going?

Well, Sara, I think we are kind of out of the environment where everything is a rebid and retender with a squeeze on it.

It doesn't mean that the pricing hasn't remained difficult, it is.

I mean it's still a difficult environment.

But I really think, when we look at what we have done in the first quarter, how we have been able to extract some business out of the portfolio, that just didn't have that right pay bill gap.

And then when we see some of the new tenders coming in, they are very difficult, but I think less difficult.

So I am not saying that we are out of the woods in this.

This is still -- we still got some challenges when it comes to pricing.

But it is really not something that is the number one conversation in the meetings.

The number one conversations in the meetings internally is how do we swap some of that business out, where are we going, what are some of the things that we can be doing in the small, medium sized businesses, to try and offset some of that key account pricing.

Okay, great, thanks.

Turning to Europe, could you talk a bit about where you are seeing strength in terms of the type of business.

Also, is there any concern about the impact from the recent travel issues in Europe?

Yes, so where we would be seeing the recovery happen, very similar to what we'd be seeing in the US, which is primarily is coming from some form of light industrial, or industrial where you actually are kind of part of putting together this product, either assembling it, shipping it, the logistics part.

So what we are seeing in Germany, what we are seeing in the UK, primarily would go around there.

And then France, when you look at 75% of the business there is really in that category, you are seeing a lot of things driving out of there.

But when it comes to the -- to the ash that is dropping in Europe, I would say it's too soon to tell.

And what I mean by that is, is that if the skies start to open up -- and flights are now flying into de Gaulle -- still held up in Heathrow.

The most recent thing, an update that I have gotten is, is it has is very minimal impact if at all, if it were to clear up now.

If this goes on for a period of time, now, it would start to have an impact.

But frankly, when you look at our business, mostly indigenous, in place business, I would say, slight hiccup, but probably not noticeable.

But if there is another plume that comes out, or some more news that comes out, the end of this week and into next week, then I think it will start affecting the business.

Okay, great.

And then just last quick question.

I just wanted to make sure I understood in the details of the 2Q outlook, the reclassification related to the VAT tax, that is now in taxes, that's been excluded from your gross profit margin -- your operating margin forecast.

Is that correct?

So, the way we did the outlook was to do it under the new reporting.

So effectively, that -- the tax itself, which is roughly -- if you look at it -- and for those of you that I know are probably going to be trying to model this throughout the day -- it's roughly, if you take 85% of the French revenue.

And then take that times 1.5%, you will get a pretty close estimate to the tax.

So based upon our guidance, for the French market in the second quarter, we'd be looking at something on the order of about $16 million of -- of business tax in the quarter.

So, in terms of the guidance, that is, we did effectively take that business tax out of GP, which we would do under the new reporting.

And then included it down in the tax provision.

And on the $16 million, that is in US dollars as well, just to be clear.

Thank you very much.

And our next question is from T.

C.

Robillard with Signal Hill Capital Group.

Great, thank you.

Good morning, guys.

Just a quick point of reference.

Mike, can you give us a sense of just how much perm revenue was in the quarter, whether you want to talk about a percent of GP or percent of revenues?

And if you could kind of put that in the context of how it's been relative to the last couple quarters?

Sure, sure, happy too, T.

C.

Just slightly above 10% of GP right now.

If you go back to the last couple quarters, we'd be sitting in the upper 7s, the low 8% range.

So it's starting to pick up a little bit.

As Jeff said on the call, we are seeing signs of some slight improvement in a number of markets.

We did get some help in the quarter from the Australia Defense Force, which Jeff referred to on the call earlier.

And then the [Pole Emploi] Business in France as well.

So, yes, we -- and as I look out to the second quarter, I would anticipate something on that order as well, around 10% of overall GP.

Okay, and it is -- so would that recover -- I am just trying to triangulate with the comments you've made that -- Jeff's specifically, is this type of a progression, is this a little bit slower than what you've seen coming our of kind of prior downturns?

I think on that note, there is a couple things that you kind of have to pull out, that ADF and the Pole Emploi.

When you look at that, yes, there is some okay growth.

I think the best proxy is the US, and the US is a little slower than what we would have seen before.

I think it makes sense, as you would -- to look at the BLF numbers and see less permanent hiring and job growth in some of those categories.

So our view is, is that there is permanent hiring happening.

It is increasing.

It is doing it at a very cautious rate, and it all makes sense given the backdrop of uncertainty.

And is it inventory replenishment, or is it really pull-through consumer demand?

So I think it is good news, that we're going to -- that we can see companies and clients using our service, instead of hiring their own recruiters.

But at the same time, I think it's still going to be a bit slower.

Yes, I think to emphasize, T.

C., I think that is the way to expect it.

At this stage of the recovery, there is still uncertainty for permanent job hiring, so no surprise to us at all.

We certainly expect as the economy improves here, that this is going to accelerate here, and be quite a nice push for us in the upcoming cycle.

But it's behaving about what -- like we would expect at this stage.

Okay, that's great context, thank you.

And then just lastly, last quarter you mentioned that you had various programs in place, that you were looking to capture or recapture some lost margin, on the gross margin side.

And obviously, you saw stable gross margin quarter-to-quarter, which is really solid performance, given the seasonal trends.

Could you just give us a sense as to what some of those programs are, and maybe kind of a time line as to when you would expect to see that recapture?

Well, each country has a little bit of a different levers to pull.

So in the US it's working a little bit harder, for example, on SUTA.

In France, it might be working on some of the components between that pay and bill rate, that you can actually make some differences on.

When you get to the basics of it, by country, we know what are the lowest 10%, the lowest GP, what that GP is, where that contract is, should we move on, how do we augment a lower price contract with higher level services, as we introduce Right Management or Jefferson Wells.

And we review that on a monthly basis, in a very intense way.

So, we are looking at our portfolio.

We are now being more selective in the ones that we are taking.

And we are walking away from more accounts in the first quarter, by far than we did in the fourth quarter.

So it's a program that is typical during this period of time.

We are also looking, which will have a longer payback, on things like our RPO, and MBF, the task based outsourcing.

Some of the things that we are doing in the professional staffing area, which will all augment the total.

But what we're really focusing on is that one segment, which Mike came in at -- how many basis points down in the temporary staffing?

90?

Yes.

About 90 -- that is really what we are looking at right there.

How do we start to reverse some of that.

And that's a longer road, but one that is all profit, once we start to reverse some of that.

Got it, great.

Thank you.

Our next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much.

I want to focus on the US market a bit.

The numbers you put up were extremely impressive, especially in regards to the context of how the market is growing.

I know the comps were somewhat easy.

But if you could give us a little bit more color what is going on, are you being a little bit more aggressive in certain areas than other companies?

No, I have a hard time saying this, I think we are doing well.

You just don't turn on a spigot of a sales team.

We carry the sales team.

If you go back three conference calls, each conference call I talked about switching out sales.

We implemented a global sales program.

We trained our people.

We have our own process called Strategic Client Management.

We have technology involved in it, and we're beating hard on the marketplace.

So, and with an office structure that is a more robust office structure, some of those offices are saying, this is really nice, because I don't have as much competition as I had before.

So, so, we are hitting it hard.

We still have a lot of work to do, but I think across the board, when you look at those sales increases and some are more dramatic than others, depending on the country, my hat is off to the sales teams and the managements that have kept their wits during the downturn.

And this is where you make a difference on the kind of decisions you've made during that difficult dark days of 2009.

Alright, that's great to hear.

Just a couple follow-ups on some recent regulatory changes in the US.

Are you seeing -- or do you expect to see any impact from the hire act on your business?

And also, if you can tell generally over the long haul, what you think the impact from the health care reform will be?

Sure, I will take that first part of that one, Jeff.

So on the hire act, it's where we would employ -- employees that haven't been working for 60 days, and not pay the FICA tax for that this year.

Now we do see some benefit.

We will have some employees that will certainly fall into that category.

Of course, you always look to, and in some cases that savings will be passed on to our clients as well.

Also, we get a Workforce Opportunities tax credit, the WOTC credit, and that to the extent that you are getting the higher credit, you no longer get the WOTC credit.

So you got to play those two off each other.

So do expect some favorable impact to the US operation this year, but I would say relatively modest.

It would be a few million, perhaps.

Something of that magnitude.

Yes, and about healthcare, the story has yet to unwind.

We have been able to take the bill, as other companies have, and tried to sift through, and sort through, what it would mean to us.

It is a fairly substantial number, we really look at this as one of the more easier ones to pass through, because they are in the same position.

We still offer flexibility.

So we look at it, there is a higher cost to it.

I think it levels the playing field in the staffing industry which is helpful.

We had one of the most robust health insurance plans, so we were paying for something that our competitors were not.

This has now leveled the playing field.

In addition to that, we believe that we would be able to have many more people attracted to us as an industry, because they don't have that concern.

And then thirdly, we have got until 2014 to lobby undo, redo, and really understand the ramifications.

So right now, pretty heavy cost, one that would be passed through, but some positives.

And then, there is a lot of road to be traveled between now and the time it starts to be interacted -- enacted.

Okay, great.

Thanks.

Thanks, Jeff.

Vance Edelson with Morgan Stanley.

You may ask your question.

Hi, thanks a lot.

Regarding the upcoming cycle, before the downturn you had some long term guidance out there, regarding operating margins, which I think you were correct to quickly pull, when things took a turn for the worse.

Any thoughts now, given the COMSYS acquisition and other changes to the business the past year or so, on what a new operating margin target might be on a consolidated basis down the road?

Sure, Vance.

Our longer term operating target, EBIT target, has been 4%.

And in fact, we didn't retract that, although we did -- although we -- it was a bit on hiatus.

We took a vacation from it.

(Laughter).

But we still have conviction around that 4%, we still believe it is an achievable goal for us.

Certainly, the mix of business will still be a little different, when you look at what we will be doing with some of our more professional and specialty businesses, our Manpower Business Solutions, some of the permanent recruitment.

So, I think that mix of business will be a little bit different, as we get to that 4% range, but certainly we see that in our sights.

In terms of COMSYS, that certainly -- they do have certainly a higher EBIT margin, but with that goodwill that they are bringing, at least in the near term, it will not be additive to our operating profit margin, since this is an EBIT target, not a EBIT top target.

So that's how we view that, today.

Okay.

I would also say, I think I think it's important to add a little on, and we've said this before, and we're not backing down from it.

What we really do believe is we're building something.

And once we get to 4%, and how we have done our mix of business, what you see happening in India and China, which is almost a large part of it is permanent recruitment.

Our view is, is once we get to 4% we will then explain how we're going to go beyond that.

But until we get to 4%, it all is conjecture, hypothesis, and things that, if I were you, would look at with some level of skepticism.

So, we'll get to 4%, and then we'll tell you where we are going to go next.

Okay, that sounds good.

And then, you mentioned some market share gains, there is less competition out there now.

Does that competition come back easily in your view, or would you say a lot of other players were dealt a bit of a knock out punch from which you might benefit for years?

Well, I think you do benefit for years.

So if you just logistically say, okay, now I want to go back in, you are looking at six to nine months before you are back in.

You've already secured it, so now I have to take companies away from you, and business away from you, which is then one, two, three years beyond that.

And our view is, we are going to get very aggressive in those markets where we know we have less competition.

So we increase our market share, increase our reputation, which then means it's harder to take it away from us.

So we are going to work really hard in those areas.

We've identified those offices where we think we've got a little bit more of a greenfield from a competition.

Local companies can set up a little bit faster, so this is not an easy walk through the park, far from it.

But we are seeing in many locations, without naming them, because I don't need to go through that, that we've got some uplift because of that network, and because we got people on the ground ready to go, and knowing and have been cultivating that territory, and knowing how to get that business.

Okay, that's good to hear.

Okay, and one last question.

How would you characterize the difference in mood, if there is a difference, between the small and large businesses, there's been some talk that smaller businesses are a bit more on the pessimistic side about the economic recovery.

Are you seeing anything similar?

I think so, it's a little different in that some of the very large companies can look at it from a global demand perspective, and maybe get a little bit more of a pickup because of what is happening in the Asian market.

Both in market for them, but also the export market.

They also reduce possibly a little bit more.

When we do talk to the small and small medium sized businesses, there is some good demand happening out there.

They are very demand- focused.

They are not going to be in any type of anticipatory hiring.

But there is more trepidation about and around what could happen to me.

I don't have many levers to pull, so if certain things happen with health care or taxes, or whatever, it is going to make a difference.

Now if some of the new tax abatements happen in the US, that might help out.

When you get to the small businesses overseas particularly, in Italy, they are cautious.

And banks are still cautious to lend them money.

So I think that SMB market is lagging a bit, still very important, but is probably a good, four, five months before they start to pick some confidence up.

Okay, got it.

I'll leave it there.

Thanks a lot, guys.

Yes, thanks Vance.

Mark Marcon with Robert W.

Baird.

Good morning, Jeff and Mike.

Hey, Mark.

I wanted to ask, first of all, a big picture question, clearly the cyclical environment is improving on a global basis, I'm wondering if you can talk a bit more about the secular trends and some of the bigger strategic changes you've made, that would impact how you're thinking how this cycle may unfold, assuming that we don't have a double dip, and we do have some continuation here with regards to the macro global pickup.

Okay, so it's a little difficult, because I'm talking to the man who has every number in his head right now.

So, but I'll take a CEO approach at it, I alluded to it, and I don't know if you picked it up in the press release.

I did.

I did not discuss it in the conference call, but in the press release I said something that I feel strongly about, is that we are getting a cyclical pickup.

But more importantly, a secular, an improved secular pickup.

And if you do some very simple math, and use the US as a proxy, and look at the BLS number, the number of jobs growing in the BLS, versus number of jobs in the temporary help industry, it is extremely disproportionate from previous cycles.

So what you are really seeing, is that companies, maybe it's the trepidation.

But we also, as I have stated in previous conference calls, companies who had 5% strategy, for flexible labor are now at 15 or 20.

And we're actually starting to see that unfold.

So what is happening is, because of how we entered the recovery, there is this appetite and a satisfaction of recruiting high quality people, being able to have the agility, and being able to know that I have some flexibility along the way.

So I actually think we are getting more growth, when you look at industrial output in the US, industrial output in Germany, and industrial output in France.

And then compare that to what is happening in the temporary staffing industry, I think you might be actually getting a little bit more wind, from a secular trend than a cyclical trend.

And that does not happen very often.

So, it may change.

It may reverse itself.

But I think that we've got ourselves, where you would see the percent penetration of temporary worker to the workforce has a very good chance of going up in this cycle, in almost all geographies.

That is what we are seeing as well, and I just wanted to confirm that.

And then, can you talk a little bit about your strategic changes?

Because you -- some people think of you still as this being a traditional temp staffing provider, and maybe not having the strategic relationships that you may be developing to a greater extent with some of your clients.

So if you were to look closely at our annual report, outlining the strategic priorities, each of our four strategic priorities move us beyond that.

Our, GP, that is coming as a percent from solutions bayed is growing, our new sectors and services, whether it be RPO, what we're doing in healthcare, what we're doing in government services, what we are doing with government affairs, how we're managing the digital strategy.

And now the number of people we are entertaining, and working down a virtual work strategy, what we are doing in actually a digital backbone from MyPath to others.

And then of course, how we're wrapping that with the experience and professional staffing side.

So we are really are seeing, that so many of our major clients, one client we have a relatively modest GP percent per core staffing.

We were reluctant to sign it, since we've signed it, we've won over 15 contracts for sophisticated solutions that are running between 25% and 50% gross profit.

So we are definitely driving in that area, we are resourcing in that area.

During the downturn, on a worldwide basis, we have hired over 200 people on that specific area alone.

And we are going to continue to push that.

Great, and then a couple of quick questions.

COMSYS, what -- the expectations with regards to accretions for the first full-year, and what exactly the charge is for?

Sure, yes, so over all, for this year, we expect it to be $0.10 dilutive so basically for the three quarters.

And you saw that $0.10 of dilution coming in this quarter.

So the second half of the we look at being a break-even.

So I think the important point under that , Mark, is with that, I'm using estimates for goodwill, which I'm estimating right now about $7 million per quarter.

So $21 million for this year, and that is a preliminary estimate, we're still just finalizing some of our valuation work.

And so that's in play, and I mentioned earlier in terms of integration costs, we're looking at a total between now, and over the next three years of about $25 million, most comes this year or next year.

But overall, about $14 million of that is this year.

And of that $14 million, $8 million actually happens to be in the second quarter.

And that would be things as you might imagine, given some synergies, we have some severance costs in there, some costs related to integrating back offices and systems and that type

Properties.

Property closures and those types of things, so the normal stuff.

So, but so far, the business when you talk -- look at the business, the business is on track, they are doing extremely well.

First quarter revenue growth was strong, and things are moving quite positively.

So from a business standpoint, it's moving well, and a little bit better than expected.

And from the other expense side, things are on track, so no surprises at this point in time.

And they still have to file their Q, right?

Yes.

Yes, right, they would, because we actually acquired them, closed on the 5th, so I'm quite certain that would be the case.

What was the Q1 revenue?

Q1 revenue growth, I don't have final numbers for disclosure purposes, but I would expect their revenue to come in up year-on-year about 8%.

Great, and last question, France, GP on an apple for apples basis, how should we think about pricing trends in France?

And what are you seeing out of Adecco and Randstad?

I think from a pricing perspective, it's still a difficult environment, probably a little bit harder to reverse the course there, though we are doing some of that.

I think we are also looking at some of the other things as mentioned, the permanent recruitment is offsetting some of that, but if we just go to core staffing, we have a ways to go in there.

But I think we've got a very good plan, the management team there has a very in depth understanding of what's between pay and what's between the bill rate, and how we might be able to maximize that more.

So I think from a French perspective, I think you'll see some leveling out from an industry, meaning the pricing is, is stabilizing and on going forward basis, you probably won't see much more deterioration, other than a few feathering in here and there.

Great.Thank you very much.

Andrew Steinerman with JPMorgan.

Hi, there.

With the whole concept of disengaging low margin contracts as revenues pick up, do you think this is a Manpower unique strategy?

Or do you think this is kind of rationale, kind of marketplace activity?

I think in general it happens, I think we might be at it a little earlier.

I get a list of doing that , a list of those that have happened around the world where we've done that, it's in the tens and tens of millions of dollars.

I can say, as soon as we disengage, within in 2.3 seconds, somebody else picked it up for the exact same price.

So it is something we're careful about, because you don't disengage from a client easily, because you are going to be in business for another 60 years.

So you have got to do it carefully, and do it with the respect of our employees.

But it is something that is part of the program, and each of the operators are asked which ones, how, and how we are going to do it.

or how we are going to renegotiate it.

And we review that on a

And, Mike, idle time is a key gross margin driver in certain segments.

Can you talk about idle time in general, how is it trending, and how is it affecting gross margins in those kind of key regions?

Well, overall, the two regions that it would impact us most dramatically would be Sweden and Germany, and of course, the Jefferson Wells business.

But we're back to normal times, now that the business is on the other side, and we're starting to see good growth in Germany, and things have certainly have stabilized and better trends in Sweden.

We are back to what I'll call normal utilization.

So that's one of the things as we look to the EMEA gross margin in 2010, as we look forward.

We will have that advantage compared to prior years is, so that is going to be a net positive force through the year.

And then Jefferson Wells, we've done a lot of reorganization and restructuring as well.

So we've done good work there to reduce the bench, so it's about where it should be, maybe it could be trimmed back a little bit, but we are right about where we want to be, from a utilization standpoint as well.

Perfect, thank you so much.

Alright, last question, please?

Thank you.

Kevin McVeigh with Macquarie.

You may ask your question.

Great, thank you very much.

Hey, Jeff, Mike, nice job.

Could you talk about the tenure of your sales force coming out of this cycle relative to the last up of cycles?

I guess I'm trying to get a sense of how much more experience you have heading into this upturn, as opposed to the last couple of upturns.

It's dramatically different.

Not only did the people who have been here, I think it's the training we put in.

This has been about a four year process, how we've trained their people, certification to do it, the technology we go, how they are expected to have leads on a global basis.

And we have a very organized global account, and strategic accounts across all countries.

We know what they're doing in every one, we know bids that that are happening nstantaneously, the teams that have meeting, and we approach it in a concerted way.

When we go into a presentation, one of the biggest comments we get is that is completely different then anything I've ever seen.

You guys really do know what's going on across the world.

And we've had to augment with some new people, we've had to move some people around.

There's some people have have been in this company for 20 years, and have gone through multiple cycles that are much better prepared, using the automated CRM system down at a laptop, before they go in.

Briefing reports are done in a different way.

Price margins, how we are managing the margins, each one is responsible for generating pro forma that gets approved on whether that is the kind of profitability.

And then, they are evaluated on their ability to have estimated that pro forma correctly or not.

So we still have a ways to go.

It is still a major effort in the Company.

We're still introducing some new things right now in our CRM tools, particularly to approach the SMB market, which we believe has to be a slightly different strategy than a classic kind of knock on some doors, and give away a coffee mug.

And we are really going after that hard as well.

So we're in a very different spot than in 2001 and 2002, dramatically different.

That's super helpful.

And just real quick, Mike, the $0.10 dilution for COMSYS, does that include the goodwill amortization, or is that excluding it?

Yes.

and that does include the goodwill amortization.

And I think on the last call, we disclosed that overall accretion without goodwill we anticipate to be about $0.10 per share this year.

So, that would be after integration costs, but before goodwill of $0.10 accretive, and I think that's still a pretty good number.

Great, thank you very much.

Thanks, everybody.

As usual, we will be here for questions, so thanks a lot.

Thank you for your participation.

Today's call has concluded.

Please disconnect at this time.