ManpowerGroup Inc (MAN) 2011 Q1 法說會逐字稿

All participants will be a new listen-only mode until the question and answer session of today's conference call.

(Operator Instructions)I would like to introduce your host for today's call, Mr.

Jeff Joerres, Chairman and CEO of ManpowerGroup.

Sir, you may begin.

Good morning and welcome to the first quarter 2011 conference call.

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

I'll go through the high-level results for the first quarter.

Mike will spend some time going through the details of the segments, as well as some forward-looking items for the second quarter, as well as balance sheet.

Before we move into the call, Mike, could you read the Safe Harbor language?

Good 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.

First quarter was an exceptional quarter by many measurements for us.

The momentum that we established in 2010 continued into the first quarter.

In all major geographies and lines of business, we continue to see strong revenue growth and more importantly, very strong operating margin.

Revenues for the quarter exceeded $5 billion, an increase of 24% in US dollars, 22% in constant currency.

Our operating income was $86 million, up substantially in both US dollars and constant currency which yielded an operating profit margin of 1.7%, up 90 basis points which is good leverage in a seasonally weaker quarter for us.

This resulted in earnings per share of $0.43.

We executed extremely well and we continue to be optimistic about what we will achieve in 2011.

After Mike goes through the segment detail, I'll cover a bit more about the positioning and our approach to the market.

Mike?

Okay, I'll begin by making some overall comments on the quarter, followed by our segment analysis, a discussion of our balance sheet and cash flow, and finally our outlook for the second quarter of 2011.

As Jeff noted, our earnings for the quarter came in at $0.43 per share, or $0.13 above the midpoint of our guidance.

The $0.13 included $0.03 a favorable currency impact., $0.01 of favorable impact due to a lower income tax rate, and remaining $0.09 relates to the operational performance above expectations.

This out performance is primarily due to the revenue growth coming in at 22%, compared to a forecast of 19% in constant currency.

This revenue out performs occurred at all four of our geographical segments.

Revenue out performance combined with strong cost controls resulted in strong incremental margins in an operating profit margin of 1.7%, or 90 basis points above the prior year.

Our gross profit margin in the quarter was 16.9%, compared to 17.1% in the prior year.

This year-on-year decline was primarily the result of the continued contraction in our higher margin out-placement business which contributed 50 basis points to the decline.

Our overall Staffing gross profit margin added 10 basis points to our total gross profit margin.

This includes an estimated 30 basis points of favorable impact from the COMSYS acquisition last April.

We've seen improvements in the staffing gross margin in some European markets and the US as price increases more than offset impact of state unemployment tax increases.

These improvements have been somewhat mitigated by the direct cost increases related to lower payroll tax subsidies in France.

While we've exceeded our expectations and passing these costs on by way of higher bill rates in the first quarter, these direct cost increases had a slight negative impact on a gross margin.

Our Permanent Recruitment business positively impacted our overall gross margin by 10 basis points.

Growth in our Permanent Recruitment business was quite strong, up 32% over the prior year in constant currency.

We've see good growth in both Direct Hire and Temp-to-perm conversions in most markets across the globe.

Our ManpowerGroup solutions which includes our market-leading Global RPO offering, talent based outsourcing, borderless talent solutions, and TAPFIN MSP, also had a very good quarter, up 45% in constant currency.

This growth and higher margin solutions business favorably impacted our overall gross profit margin by 10 basis points.

Our SG&A expense in the quarter was $772 million compared to $789 million in the fourth quarter of 2010, excluding impairment and reorganization charges.

SG&A as a percentage of revenue for the first quarter 2011 came in at 15.2%, an improvement of 110 basis points over the prior year.

This decline in expenses reflects a reduction of variable cost moving into the lower seasonal first quarter and also reflects strong cost controls as we leverage existing network capacity with top line sales growth.

Corporate expenses came in at $32 million, slightly above the fourth quarter level and $8 million above the prior year quarter.

The increase above prior-year reflects higher short-term and long-term incentive costs and additional marketing cost related to our new branding.

Now let's take a look at our segment operating results.

As you'll recall, we reorganized the European operations in to Southern Europe and North Europe, effective January 1 of this year and therefore our reporting will reflect our new management structure.

Included in Southern Europe are France, Italy, Spain, Portugal, Israel, Greece, and Turkey.

Northern Europe includes the remaining countries in Europe.

We have filed an 8-K with restated prior year segment information according to this new classification.

This restated information is also included as an appendix to today's presentation posted on our website.

Revenue in the Americas exceeded expectations, coming in at $1.1 billion, an increase of 43%, or 42% in constant currency.

Operating unit profit in the quarter came in at $22 million, resulting in an operating unit profit margin of 1.9%, up 220 basis points from the prior year.

The largest market in the America's is United States, representing 68% of segment revenues.

In the US, revenues were $751 million, up 56% over the prior year.

This growth includes the impact of the COMSYS business which was acquired in April of 2010.

The COMSYS business is now fully integrated with our Professional Resourcing business in the US and therefore it is not possible to calculate a precise organic growth rate.

However, basis point estimates in our US business without COMSYS grew in the range of 14%.

While we are still experiencing good growth in the US, the year-on-year growth rate moderated from 18% growth rate experienced in the fourth quarter of 2010 as prior year comparable numbers became more difficult.

In the US, we continue to see the greatest demand for our Light Industrial business, followed by Professional, and then Office and Clerical.

In the US, our Professional Resourcing business now comprises 40% of revenue, and was up 16% in the quarter after adjusting the prior year for COMSYS to get a like-for-like comparison.

About two-thirds of this business is in the IT area which is up 15% over the prior year.

Demand for highly skilled IT workers remains very robust.

Our clients are increasingly looking to buy these skills on a project basis rather than making heavy long-term commitments on system implementation projects.

In the addition of COMSYS along with our go-to-market strategy under the Experis brand has us well positioned to take advantage of these trends.

The Manpower Staffing gross margin in the US increase positively by more than 50 basis points over the prior year.

As we discussed on last quarter's call, several states have increased their unemployment taxes, effective January of this year.

We've taken the position that these costs must be fully passed on to our clients and the US team has done a very good job implementing price increases to more than recover these costs.

The overall US operating unit profit margins swung 370 basis points to a positive 1.2%.

Of course, this margin reflects the lower seasonal levels in the first quarter and I would expect the US operating unit profit margin to expand throughout the balance of the year.

Also included in the America's is Mexico and Argentina, both of which continue their strong growth, up 21% and 31% respectively.

Southern Europe revenues were $1.8 billion, up 21%, or 22% in constant currency.

Expenses were tightly controlled, resulting in strong operating leverage with operating unit profit improving to $27 million, or more than four times the prior year.

Operating unit profit margin increased 110 basis points to 1.5%.

Within Southern Europe, France is the largest country, representing 74% of segment revenues.

Revenue growth in France far exceeded our expectations, coming in at $1.4 billion up 22%, or up 23% in constant currency.

Our growth remained strong throughout the quarter.

We did see year-on-year growth rates tail off in late March and early April, as the prior-year comparable numbers began to ramp up.

Therefore I'm forecasting moderating second quarter growth which I will discuss in a few minutes.

French gross profit margin was down compared to the prior year, partly due to the impact of the law change on payroll tax subsidies effective January 1.

Under the new calculation, we estimate the reduced subsidies impact on gross margin to be about 90 basis points in the first quarter, before any price adjustments to our bill rate.

Our French team has successfully implemented a price recovery initiative and we expect that subsidies will be fully recovered on a go-forward basis by the fourth quarter of this year.

In the first quarter, we recovered over half of the law subsidies as many of these price adjustments already began to take effect.

Our Italian market saw improving growth in the quarter of 21% in US dollars, or 22% in constant currency.

Overall gross margins were stable at the prior-year and capacity was will leveraged, resulting in almost a doubling of operating unit profit and increase in operating unit profit margin of 160 basis points to 4.5%.

Revenues in Northern Europe were strong, increasing 19% to $1.5 billion, or an increase of 17% in constant currency.

The gross profit margin was up slightly and expenses were well controlled, resulting in operating unit profit of $42 million, more than double the prior-year period.

Operating unit profit margin expanded 130 basis points to 2.9%.

We experienced good growth across most markets in Northern Europe with Germany and the Nordics leading the way up 22% and 21% in constant currency, respectively.

Our Elan business, which represents IT contractors across Europe, also showed good growth, up 16% in constant currency leveraging that growth nicely to the bottom line, with operating unit profit more than doubling in the quarter.

Our UK business also had a strong performance with revenues up 60% in constant currency, as our team continues to perform well in somewhat challenging market.

Our Asia-Pacific segment, which we have renamed Asia-Pacific Middle East, also had a very strong performance in the quarter.

Revenue exceeded expectations coming in at $603 million, an increase of 21%, or 11% in constant currency.

Gross margins were stable compared to the prior-year and expenses are well controlled, resulting in operating unit profit of $17 million, an increase of 21% in constant currency.

The operating unit profit margin increased 20 basis points to 2.7%.

Within the Asia-Pacific Middle East segment, Japan is the largest country representing 40% of segment revenues in the quarter.

Needless to say, our Japan business was impacted by the tragic earthquake and tsunami but our management team responded extraordinarily well during the crisis.

Japan revenues were flat with the prior year and constant currency and operating unit profits were up, which is exceptional given the business interruption.

The effected Northeast Region of Japan, we have 19 branches which comprise about 13% of Japan revenues.

Shortly after the disaster, revenues in this region were off 30%,but they are now running about 95% of normal.

We've seen a pickup in demand in other regions of Japan as some production shifted to other markets.

Our Western region for example is running about 6% above normal billing levels which helped offset declines in the Northeast region.

Our Japan team has also done a tremendous job over the last several quarters selling higher margin workforce solutions.

This momentum has carried through well into the first quarter and has helped deliver good profitability.

Our business in Australia also showed very good growth, up 26% in constant currency.

We continue to expand our service offering networks throughout China and India.

Earlier this month, we announced the acquisition of a 74% interest in Web Development Company, which is a leading IT services and professional resources company with five locations across India.

This acquisition is consistent with our strategy of our acquiring strategic capabilities that strengthen our ability to deliver innovative workforce solutions to the professional market.

Right Management's results in the quarter were on par with expectations.

Revenues came in at $82 million, down 21%, or 23% in constant currency.

About two-thirds of Right's business is comprised of Outplacement services and the other third is related to talent management and coaching.

The countercyclical Outplacement business has stabilized in recent months, however, it was down 35% compared to the prior year.

We are seeing stronger growth in the talent management portion of the business which is up 25%, compared to the prior year.

During the last several quarters we reduced expenses to better align with current volumes.

As a result, Right was able to produce a profit of $3 million in the quarter, an operating unit profit margin of 4%.

Now let's turn to the cash flow and balance sheet.

Free cash flow, defined as cash from operations less capital expenditures, was the usage of $171 million in the quarter, compared to a usage of $51 million in the prior year.

During the quarter we added $232 million of net working capital to the balance sheet, $165 million more than we did in the prior year.

This increase relates to significantly higher revenue growth this year compared to the prior year, as well as higher tax payments and incentive payments.

Our accounts receivable were well manage during the quarter with overall days sales outstanding about half a day below the prior year.

Our cash balance at the end of the quarter was $649 million and our total debt was $746 million, resulting in a net debt position of $97 million.

Our total debt to total capitalization was stable at 23%.

At quarter end, outstanding debt was primarily comprised of a EUR300 million note to June 2012, and EUR200 million note due June of 2013.

At month end, there were no borrowings outstanding under our $400 million revolving credit agreement.

Lastly, I'd like to review our second quarter outlook.

Overall we expected good growth in all of our segments, with the exception of the countercyclical Right Management business.

We are forecasting our consolidated revenue growth to range between 10% and 12% in constant currency.

This lower year-on-year growth compared to the 22% in the first quarter is due to the fact that we [anniversary] the COMSYS acquisition in April of this year and because growth in the prior-year began to significantly ramp up in the second quarter, making prior-year possible numbers more difficult.

On a reported dollar basis, we expect consolidated growth to range between 20% and 22%, as we expect currency to add about 10% to our growth rate, as the dollar currently is weaker relative to many currencies compared to the prior year.

On a segment basis, we expected the growth of the America's to range between 12% and 14% in constant currency and growth across Europe to range between 10% and 13% in constant currency.

Growth in our Asia-Pacific Middle East region will be softer, ranging from 7% to 9% in constant currency, as we expect to see some impact on our Japan business from the earthquake.

Our Right Management business should be up slightly sequentially but still down 10% to 12% from the prior year in constant currency.

Our gross profit margin should range between 17% and 17.2% which is slightly below the prior-year, as we still see the impact of the contraction in the higher margin Right Management business on our gross margin.

This should result in an operating profit margin in the range of 2.4% to 2.6 %, or an increase of 80 basis points at the midpoint.

Our overall tax rate is estimated to be 48%, or 38% if we exclude the impact from the French business tax.

This will result in earnings per share ranging from $0.74 to $0.82 per share which includes an estimated $0.08 favorable impact from currency.

I should mention that the midpoint our guidance reflects an incremental operating profit margin of 9%, as we continue to maintain tight control on expenses, drive for increased productivity, and improve utilization of our branch network.

As a reminder, as you think about operational leverage, you need to think in constant currency terms.

Revenue growth from changes in foreign currency does not significantly impact our operational leverage, as expenses are also impacted by currency changes.

Or said another way, our operating unit profit margin is not impacted by changes in currency and when calculating incremental operating profit margin, it must be done on a constant currency basis to get the true picture.

So with that, I'll turn things back to Jeff.

Thanks, Mike.

As you can tell, the first quarter was an outstanding quarter for us.

As I said earlier, we believe and are quite confident that the momentum will continue.

Clearly, we are going to be climbing up the hill regarding last year's comparable's.

Even with that we believe that the operational leverage as well as some of the programs we put in place regarding our sales and our offerings will allow us to grow as Mike has outlined.

We announced the World Economic Forum in January that the world is entered a new era, the Human Age, and it has resonated extremely well.

You will be hearing more about in the future, about the chaos, the complexity, and challenges that this Human Age brings forward, where there are incredible amounts of demands, not only for productivity innovation and talent, but all of that comes down to how companies need to do more with less.

This gives us tremendous opportunity as we've been able to create the offerings in anticipation, and more importantly, create an organization both from delivery and sales that is better positioned and uniquely qualified to have industrial strength, high impact solutions.

This highlights are differentiated competitive position.

Our trusted brand, our global footprint, particularly in emerging markets and then of course the thought leadership which we have stepped up the last two years and we will continue to create differentiation in this area.

Most importantly is that we've spent years building our offerings.

And with the acceleration of happening with the Human Age, we are prepared with sophistication of these solutions.

We lead the world in recruitment process outsourcing.

We're one of the largest in MSP.

We have the most complete footprint in the mature markets but also in the emerging markets, particularly China.

We added, as Mike said, 25% to our Talent Management business and Right Management, and in our Professional Resourcing, with the advent of Experis, we are ready to go in that area.

It gives us our new go-to-market strategy, which is very robust.

In total, we're spot-on with our suite of services.

Additionally this quarter, we announced on the 30th of March we are ManpowerGroup, and our family of brands and the suite of services and solutions that go along with that.

It has resonated extremely well with our clients, prospects, candidates, and internally, and we've already seen the benefit.

It clearly is an outside-in view.

We are organizing ourselves the way our clients want, not with multiple brands competing with one another, but a true industrial strength, with unique offerings that addresses these complexities that are in Human Age.

Front and center to this is what we are doing with Experis, which is a global leader currently with nearly $3 billion in the Professional Resourcing area.

We believe that there is substantial room for growth in this sector.

In fact, growth in excess of our core business.

Our key differentiators that we've been working on now for 24 months through this project will clearly act as an acceleration to growth.

As of today, we have certified three countries to this new go-to-market strategy, the US, Canada, and France.

Our goal is to have 20 countries certified by the end of this year which will strengthen our capabilities and accelerate our growth.

We are looking forward to the second quarter, and for that matter well beyond that.

We are confident that we are positioned well and will continue to leverage the strength of our offerings and our culture.

With that, we'd like to open it up for questions.

Thank you, sir.

(Operator instructions) One moment, please.

Vance Edelson, Morgan Stanley.

Congrats on the quarter.

On the RPO front, can you just provide an update on the number of new accounts.

It seems like as long as economy continues to grow that business should still be doing well, I'd imagine?

Yes, we track and have some of our metrics that track for the whole organization.

So we came in, in the first quarter, right around 30 new accounts in RPO and then we collect those across the world.

That was above our expectations.

We continue to see RPO doing well.

We added last year in excess of about 100 new accounts last year.

One of the things with RPO, as you get the mandates.

We're doing the hiring, but we are still seeing some trepidation.

So 30 new accounts pretty much spread across, with the US leading, Asia-Pac probably coming in second, and then Europe following the third, in the number of new accounts secured in the RPO area.

And is a lot of multi-nationals?

It is, but at the same time, in Asia we've got some, in Vietnam we have accounts that are Vietnamese accounts only.

What we're seeing is, as we bring our tools to the other parts of the world, that helps.

But also what we are seeing is, because we've created a strong presence in the US, they want to be able to expand beyond that and we have the offering beyond that, in pretty much of a unique way when it comes to the industry so we are leveraging that dramatically.

Okay, great.

Thanks for that.

And how about on Jefferson Wells, is the pipeline continuing to improve their?

Is that a fair way to characterize it?

Yes, I think, Vance, that's a fair way to characterize it.

We fully integrated our Jefferson Wells business into our Professional Resourcing business as part of the Experis brand now within the US market.

So we track our total FnA vertical together, but we did see some growth on the FnA vertical within the US market, not nearly to the level of IT growth and engineering growth.

But we are seeing that business pick up a little bit more, albeit gradually at this point.

It's basically we had anticipated.

We had done some research that we've been following of those 3 verticals and we've got a healthcare vertical in some countries.

But the 3 verticals, our projection is that for probably the next 2 years, the growth would be a number one IT, number two, engineering and number three, finance and accounting .

That doesn't mean finance and accounting would be bad.

It's just we don't see the same kind of growth that we see in the other

The outlook for pricing, if we view it as, first you see the light industrial strength, and then office and professional.

Do we still have a while to go before we see the really robust pricing power in the cycle?

I think it is, in this cycle, as we all know.

But I think we must continue to remind ourselves, this is a different cycle.

There are 2 major characteristics that are different.

One is that it was global downturn and it is a global upturn.

Secondly is, each one of these have 2 speeds.

So you've got the emerging markets and then you have the more OECD or mature markets.

In the mature markets, what we are seeing is that some can characterize it that we're about 2 years into the cycle.

Well, we're 2 years into the cycle but we're only passing, about to pass, the first gate which is where we are seeing some anniversaring of some pretty big numbers in light industrial still leading, which normally by 2 year in, light industrial is not leading.

This also says, that while there is a talent shortage because of this sophistication of hiring by clients, we are probably still about 18 months away, depending on the market.

Because I think in the case of China and India, we are starting to see that we can be doing some price actions because of the tight labor market there.

But for the balance of the world, I think before we can really come up with pricing because of talent would probably be about 18 months away.

Paul Ginocchio, Deutsche Bank.

Just on the 10% to 12% organic growth guidance for the second quarter, can you talk about the exit rate in March, relative to that?

Thanks.

Yes, hello, Paul.

Certainly, we saw things come down a little bit as we get up against a little bit tougher comps through the quarter.

Overall, an organic basis, our March growth rate was right around that 14% level on a global basis.

So that's why we're certainly seeing it come down a little bit, but still looking for good growth nonetheless in the second quarter and the type of growth that'll still let us get very good leverage down to bottom line and produce good profitability overall.

If I could sneak one more on the French gross margin, it sounds like you've got everything you wanted.

It sounds like we were getting some chatter out of Europe that maybe some of your competitors weren't getting quite everything they wanted out of French gross margins with the passing on that lower tax subsidy.

Is there any way to comment on that, what you're seeing in the marketplace?

We talked about it last time and we felt as though some of our competition was going after the recovering of the subsidy are harder than others.

We went after it very hard.

We were a little bit above our expectations and as Mike had called out by the end of the year, we think we'll have the full recovery from that.

The team did a very good job.

I think it goes back to how we've organized our sales force and how early we try to get ahead of some of these things and then the metrics we put in.

It's hard to comment on the competition, other than we have felt some of the competition going after it hard, and we felt a few others not.

So it was a little bit confusing to us, but we've been able to articulate a very compelling case, very mathematically-based, and it's worked out quite well for us.

Kevin McVeigh, Macquarie.

Great, thanks.

Mike or Jeff, it looks like France came in well above the guidance on the topline, as well as the market data overall.

Was anything one-time-ish, or is it market positioning?

Any thoughts on that?

I think the market overall was stronger than we expected and part of it is just trying, again, with the comparable numbers just trying to get some assessment of how things are going to come off a little bit.

But I think our team did well within a relatively stronger market.

I think our sales force has improved there and I think they're doing a good job.

Clearly, nothing one time, overall and things are -- we're quite pleased at how they moved through the first quarter.

In fact, we saw some tail off.

Mike, you might have more detail, but the tail off in some of the things that we've been doing what the government.

So [employee-employ] which was giving us some growth, has actually been tailing.

So we made that up through more of the commercial business as well.

And then Jeff, obviously there's been a pretty good emphasis on the professional side.

As you think about the business in the next cycle, without getting too specific, do you have a targeted percentage of revenue that you'd like that to be?

As we think about the scale up, does that all come organically or are you going to continue to target specific assets?

I think it's a combination.

Clearly inside we've set some markers of what we think is right.

I think that some of that though is a little misleading from a percent of the business because we're also not going to turn away other business.

You can get a big chunk of other business.

We've got great opportunities we're working on in China and India, and it throws that balance off.

Really what we are doing is looking at it on a vertical or line of business basis.

And what we are saying is that when it comes to the Experis, the new launch of that line, as I had said in my area, we've already seen some growth.

When we first came out, we were looking at about $2.5 billion.

We're at $3 billion because we have the whole of the acquisition of COMSYS in there.

We'd like to see that grow higher than the normal business, which means it will take on a higher percent of GP because the GP, of course, is anywhere from 50% to 75% higher in many cases.

That will be the path that we're heading down.

We still believe that organic growth is the right way to go.

Having said that, like we made the acquisition in India of a company that fits squarely in how our go-to-market strategy is.

There will be a few adjustments.

We'll continue to look for those, but we are not running around thinking that's what we want to do.

We're confident that our go-to-market strategy, and with the base of $3 billion, put some decent growth rate compounded on there, and before you know it, you're at $5 billion.

Jeff Silber, BMO Capital Markets.

I really appreciate the color about Japan.

I was curious if you're seeing any impact of the tragedy in some of your other regions.

I know some of the US staffing companies that have a lot of auto and auto aftermarket exposure have been talking about this.

I'm just curious what's the impact on your business?

Right.

We are looking at that and that is something that is a little harder to estimate.

There's clearly noise out there and it is legitimate.

And it really falls into what we would consider to be 4 major areas.

1 is in France, where we have Peugeot as a client.

We've lessen our dependency in the last 3 years on automotive.

But there could be some delays in there.

Germany, particularly in the South of Germany, Bavarian area, it's not so much.

BMW is a very large client of ours.

It may not be so much BMW, it might the first-tier suppliers for that.

And then we've heard a little bit of Canada with some chips that has affected a couple of our clients.

Then of course, the US.

When we aggregate all of this, make some assumptions on it, it's pretty hard to come up with, this will total 2% or 3%.

We believe that it's too dynamic right now, while it is creating some starts and stops in a short period of time, meaning over a period of 60 days.

Sometimes those short starts and stops actually equalize themselves out in our business, so it comes down to what happens over the next 6 months.

What we've been following the Japan, what we've been following with some of our major clients, is they believe that there will be some disruptions.

But it really will be more start/stop, which actually could be kind of neutralizing to us over a period but 6months.

It might hit us one month more than another, but then it would neutralize.

I say that all with the disclaimer, that means the Fukushima plant would get under control and the rolling brown-outs would be able to be managed appropriately to keep the supply chain going.

Okay, I appreciate that color.

Just shifting gears a bit, Mike, I think when you were talking about some of the corporate costs, you mentioned some of the marketing spend for branding.

Can you call that out roughly how much was that?

And what are you expecting for the second quarter incorporated in your guidance?

Yes, we've done some of the creative work both in the fourth quarter and the first quarter, so I think I put it in the ballpark of a few million in each of those quarters.

And we'll have a little bit more on the media side in the second quarter, which again would be a few million.

So, that gives you a bit of a feel what we're spending.

And total corporate expenditures in the second quarter guidance is roughly how much?

I would expect that to be a little bit up from the first quarter.

The first quarter is $32 million, so I would expect that to be probably somewhere between $33 million and $35 million.

Kelly Flynn, Credit Suisse.

Sort of a follow-up on Paul's question, but related to pricing, you talked about what's going on in France, but we've been hearing about farming and some improving in pricing in US, which I think you also alluded to.

Could you just speak to what's going on with pricing in the bigger markets and basically what you read into that?

I think, Kelly, you've got to take the business apart a little bit in terms of which market, and then which type of accounts, whether it is the key accounts or the SMB accounts.

Of course, each market is further in different places in terms of where it is in the cycle.

In the case of the US, our US team has done a tremendous job getting pricing improvement, more so on the SMB accounts, although we've had some success on the key accounts as well, particularly in recovering the state unemployment taxes with the key accounts.

Just on SMB in general, we've been able to get some pricing through.

Our overall US staffing gross margin was up 50 basis points, year on year, and that's after considering the cost increase, the SUTA increase coming through.

I think we've make some good gains there in the US, and so we're seeing some positive moves.

I think when you look at other markets across Europe, there are some markets where we are seeing some positive moves and a few other markets that I would say are still stable.

We're still not seeing any traction.

A we talked a little bit, we are getting some pricing improvement in France, but that really at this stage is offsetting our direct cost increases as the subsidies are lower.

It's more of an offset.

The pricing is coming in some markets, but I think as Jeff mentioned earlier in the call, I think pricing is a little bit further out there in terms of seeing significant development overall.

Okay.

And then, this is just a quick one.

I'm sorry if you said this on the call, but can you tell us what the organic growth rate, constant currency organic growth rate, was in the US in the first quarter?

It was 14%.

Organic?

Okay.

Tim McHugh, William Blair.

First one to ask, Mike, you'd talked about how you would calculate the incremental margins.

I'm not sure if I missed it but did you say what the first quarter was on that?

On that basis?

I didn't actually give you the first quarter.

It's a little bit more involved because of the COMSYS acquisition and the fact that pulling out COMSYS is actually a bit difficult for us now because it's fully integrated and so that's where it becomes a bit of a challenge.

If I take a bit of a swag in estimate, it's going to be in that 8% range on an organic basis.

And then on Right Management, you mentioned it's stabilizing.

It sounds in the second quarter guidance, you expect it -- implies to be flat to up a little bit?

Does it feel like you've hit the base level or the bottom of that business from a cyclical perspective?

Yes, I think on the outplacement side that's exactly right, Tim, and we're expecting sequentially for Right Management's business to be up a little bit.

That's still down against prior-year just given how the business was tailing off, but up a little bit sequentially.

We really think we have found the bottom from an Outplacement standpoint.

And so things are settling in there.

As we mentioned earlier, the Talent Management side of the business, which is about a third of the business, continues to do quite nicely for us and that's shaping up quite well.

Okay, and then lastly, can you talk a little more color on the UK market, which the growth there seemed to pick up slightly there, given how the UK government budget cuts, how it's commercial versus the public sector business trending there?

Yes, overall I think our team in the UK has done quite a nice job and have done a great job over the last year growing revenue.

I think we've taken market share in every quarter and in the right type of market share, which is of course the most important.

So they've been driving good profitability there.

Overall, the public sector, we are seeing areas where that has been weakening a little bit.

We've been able to back fill that with other business that we've been able to begin.

So I expect we're going to continue to see a little bit of lesser demand and that area.

But we're also seeing opportunities, new opportunities, in that area as well.

While it is something that we're watching and keeping a close eye on, I don't think it's going to dramatically impact our overall UK results.

Have you seen the most significant of the budget cuts impact the business at this point?

Are you past that risk?

In some cases, different actions have been taken different on the county level, if you will, and that's where we do a fair amount of our business.

So there has been some puts and takes because we've actually picked up some government business.

So there's more pressure in the austerity programs in the UK.

Their GP was a bit softer.

Their retail sales were bit softer than what they were hoping for in the first quarter.

So I think we can see a little bit more dribble out.

I don't think it's the bottom, but we're not overly concerned because we've been able to manage it thus far and we think over the next 4 to 6 months, we'd been able to the same.

Sara Gubins, Bank of America.

Thank you, two questions.

First, is there any update to your longer-term operating margin target?

And then second, can you talk about plans for the dividend over time?

Thank you.

In terms of the operating margin target, those of you who'd followed us, it's 4% and continues to be 4%.

Our view continues to be one of, we're going continue to build out the business and continue to improve on the mix of the business.

As you know, we're continuing to focus on our professional business, our workforce solutions.

So, we'll continue to drive that, in terms of driving the operating margin is about enhancing the GP, as well as driving productivity.

We see that 4% goal is certainly achievable.

Once we get closer to that 4% goal then we'll talk to investors about what we see as the next platform from there.

But at this point, we have not changed our overall margin target.

From a dividend standpoint, that's something that the Board is always actively looking at.

We did of course maintain our annual or semiannual dividend during the recession.

We didn't cut it or take it out, so it was at $0.37 semiannually, or $0.74 on an annual basis.

We'll continue to look at that.

Historically, as earnings have grown, we have grown the dividend with that.

I'm sure that's something that the Board will actively consider going forward as well.

Gary Bisbee, Barclays Capital.

The first question, you've talked a lot about the new go-to-market strategy, but I don't know that we've gotten great explanation of exactly what it is.

Is it more just the marketing of the different groups within our businesses within the ManpowerGroup?

Or is there some sense that there's a different selling strategy or you're selling into a different part of the business or have someone that's selling each of these solutions, a higher level person in a company?

What exactly is going on?

Good question.

We've used the go-to-market strategy really mostly in the context of Experis.

So let me describe that first.

And if you look at the slides, the 4, 5 key differentiators we put on the one slide, is the research we've done of how we are creating different kinds of platforms and go-to-market strategies for how we recruit rare candidates versus core candidates, what do we do for vertical expansion, how do we have experts selling to experts, and experts recruiting experts.

Those sorts of things are in there, as well as technology, and how the digital platform will be affecting the industry.

If you were to raise it up and say at a higher level, when we look at the entire architecture of ManpowerGroup, Manpower Experis, Right Management, and ManpowerGroup solutions we have adjusted over the last 2 years our sales force both physically, meaning the different kinds of sales people, but also how we sell.

So we now have connected systems through Salesforce.com, which will be by the end of this year for 500 accounts, all information sharing, how the group, how ManpowerGroup, is selling the solutions and how we can offer higher impact solutions.

They are compensated, trained, and motivated to do it in a different way.

We still will sell and we still love transactional staffing.

We still love career transition business, but there's opportunities where you can take these assets and combined them through ManpowerGroup solutions, and really offer something very compelling.

We have been working in earnest on this for 2 years and we felt as though we had to do that before we went to the branding.

And that's really the path that we have been on.

So there is a different sales team, how they're connected, what they sell, and how they're incented, is really how we're working.

And we're seeing the result of it because it is more complex.

Many of our midsize, as well as larger clients, are saying there is no more gross margin left.

We realize that we are not going to be hitting you for more pricing but we need to have some ways of doing this better.

That's when we go to things like talent based outsourcing, where we get to output based pricing, where we share some risk, but we also are very careful with that.

We have a process for that.

And in the end, if we do it right we actually have some more margin and the client has more wins in it.

I appreciate the question.

That is our total play-book that we have been executing in the brand launch, really just bringing it to life.

It's a journey; we're going to continue work at it.

But those top 500 clients of ours across the world, and even many of those that we call key accounts in-country, it is very much resonating.

They want to have an account manager, an engagement manager, looking after the different elements to actually make it better for them, not just piecemeal it one-off.

Okay, and then second question.

I know you over the last few years focused on trying to do more in the SMB space.

Can you give us an assessment of how that's worked?

I know it was a priority in the US, in France, in a few markets.

Is that something that is working well and has that grown, as a percentage of the business?

Our SMB strategy had shown some very good progress and we had projects in countries to really focus on that.

I would say at the downturn, we made a difficult, but we believe appropriate, decision that we would maybe do some combining of the SMB and major account.

And we knew that combining might take away some emphasis on the SMB.

We did not do that in all countries, but we did.

It's also very typical, the beginning of the cycle of the larger companies come back first.

They took out the largest amount of people and they bring in the largest amount of people back in.

So we've actually skewed in the last 6 months to a little bit more in what we would call the key account sector.

Now what we are seeing a lot of emphasis to get back to that SMB, we're doing some SMB marketing in what we call the metro markets across the world.

We are changing our branch footprint in some of those metro markets to really address that SMB.

We're back on it.

We do believe that's a big part of our full service and a big part of our margin story as well, our gross margin story.

We're back on it.

I would say that it was one of the ones that took a step backward during the downturn and we had to make some tough decisions where to cut costs and we decided to do it there.

Now we're back on trying to beef that up was a little bit more.

Andrew Steinerman, J.P.

Morgan Chase.

Mike highlighted branch utilization as one of the key parts of the incremental operating margin story.

I also know relative to the competitors, Manpower's very strategic and holding on to more branch capacity coming out of the recession.

Could you just give us a sense of where we are in branch capacity?

Do we have the right capacity and the right locations where we think the growth would be?

How long do you think that this leg of incremental operating margin story will drive for?

When you look at overall branch offices, I think it depends a little bit market to market, in terms of where we are.

I think in some markets, we still have a little bit of capacity left.

In many markets we have what I'd call a fair amount of capacity and as we think about our network overall, we think we can run larger branches and larger footprint.

So when you --

That's particularly in the largest cities.

Yes, particularly in the metro markets overall.

When you look at our overall office network right now, we're just over 3800 offices overall and that's down a little bit from the fourth quarter.

We're still finding areas that we can consolidate a little bit within markets and go to these larger footprints within some of the metro markets.

On the other hand, in some of the emerging markets, whether that be in Eastern Europe or in Asia, we are still expanding and opening new offices.

So I think it's a bit of a mix in terms of where you are.

I think to the heart of your question, I think is still, can we still keep driving productivity and utilize this capacity, and do we have a fair amount of runway left yet?

And I think the answer to that is yes, we do.

I think coming out of this I expect, given a lot of the moves we've made in the downturn around productivity, some of the moves in terms of larger offices I expect our productivity to be higher coming through this cycle, than it was the previous cycle.

I think it will certainly work to our advantage.

I see several quarters of improved utilization and operational leverage as result.

Related to that, I also see as perhaps an opportunity to centralize some functions maybe even past these larger offices, maybe at a country level.

I know that Manpower spent a lot of effort during the recession investing in your internet and remote assets.

Could you talk a little bit about that?

Is that really a long-term opportunity?

Is that more of a medium-term opportunity?

I think it's both because you have to, what's called in our organization, dial it up and down depending on the country and the market.

We have centralized lots of our recruiting in US for major accounts.

We have centralized our recruiting for Experis, for example in the US, through what you saw in one of the slides, called a research and support center.

We do that out of Manila.

We do that different places.

We outsourced and offshored our back office in Asia and in many parts of Europe.

And in fact, having offshored our Japanese system really helped us during the downturn.

The digital aspect of having Direct Talent, which is our own job board, we believe that very shortly we'll be able to eliminate, except on an exception basis, most of our work with the job boards.

And it ties directly into our front office and goes in and does the matching part of it.

We believe that there's a lot of room for efficiency and productivity.

Between our digital strategy, centralization strategy, both in-country and in-region as we would call it.

So for Northern or Southern Europe, our areas we are working on, as long as it doesn't deteriorate that experience that is so important to us.

There's a lot left in there, and Mike's got 6 different teams in his finance group, each on different projects to improve those areas.

Mark Marcon, R.W.

Baird.

Congratulations.

I just have a couple of questions, one short-term and one long-term.

With regards to the short-term question, it's a follow-up on Jeff's question, which is, to what extent does the guidance, whether it's for Southern Europe or the Americas or northern Europe or Asia-Pac, incorporate the fluidity with regards to the supply-chain disruptions?

We are just getting -- Toyota made an announcement yesterday.

We're just starting to get those announcements in terms of what the production schedules are going to be cut down.

They're normally quite conservative.

So how are you looking at that and also incorporating higher input prices and what you're hearing from your clients, just in terms of potential global GDP to slow down a little bit in the second half of this year?

Mark, as Jeff talk a little bit earlier, it's difficult to put a number on exactly what the impacts of these can be, and I think you're probably wrestling with it as we all are, in terms of what we have seen so far and what we could see in terms of disruption.

My own sense right now is, given what we are hearing in our businesses, there are some pockets.

There is going to be a little bit of impact in the second quarter.

Certainly in respect to the guidance, while I don't have a specific number in there for what this disruption might mean, it certainly was a consideration in setting that range.

If something goes terribly wrong or we find massive disruptions, could we find that we may fall out of the guidance range?

Sure, but there's all kinds of factors that could result there.

But I think in terms of the range of 10% to 12% in constant currency, I think there's some element of there could be a little bit of disruption that we're seeing through the second quarter.

I would've at least taken that into consideration, if not specifically, at least subjectively in how we came with the range.

That's what I suspected.

I suspected that you've own internal models, in terms of how things would shake out based on what your current volumes are.

And then you'd make some additional adjustments above and beyond your normal conservatism in order to adjust for those elements that might come along but haven't as yet.

Yes.

The longer-term one, can you just talk about the response from some of your larger clients to the new go-to-market strategy?

What are you seeing both in terms of your brand perception, the level of discussions that you're having with these clients?

To what extent is it leading to incremental business opportunities within certain markets that you're not currently doing business with?

Is it leading to a lot of new opportunities with them?

It has, simply put.

We are having in our conversations with small groups of 10 to 25 clients, lunches, breakfast, talking about these complexities in the Human Age, and how we have this solutions without being so forceful of it.

But we are in the middle of all of this and therefore, the discussions are very robust.

It's brought us to whole new levels of conversations and complexity that we invite.

There is some a-ha moments, wow, I didn't really know you were the largest in Outplacement.

I didn't know you were the largest in Coaching.

So you actually have the biggest presence in China?

We're really struggling with talent and coaching in China.

It's bringing us opportunities.

It's bringing us margin and it's dragging with it, in the best of sense, good old-fashioned permanent recruitment and staffing and engineers.

So we are quite excited.

I think our largest clients applauded the fact that they could clearly see we were inside set up for them, not for us.

We didn't look at our own org chart and say it would be very convenient for all these people to report to that, when the client doesn't want that.

So, when they come to us and say we want to do IT resourcing, on a 9 country basis, we have 1 organization, a person to go to, and we know how to do that.

Our largest clients are ready.

Our largest client of all has already called us and said, we like it, let's do more business, let's get a plan together.

We're quite excited.

Having said that, it's a tough market out there.

It's competitive.

No one likes to have only 1 at a table to negotiate with.

We think we're in a better position than what we were before March 30, but I also want to say March 30 was not a flip of the switch.

We worked our way to this over the last 2 to 3 years, from an organizational perspective so that when we launched it, knowing 2, 3 years ago we were going to do this, we launched it based on really getting ourselves set, so that it wasn't what I call a graphic design announcement.

It really was an organization and go-to-market announcement.

Great, nice to see it come all to fruition.

Thanks.

Konrad Zomer, Berenberg Bank.

It's Konrad Zomer, Berenberg.

A question on the gross margin development for the full year.

I think you did really well in Q1.

I was wondering if you can talk us through some business mix effects that you expect for the remaining 3 quarters of the year.

When do you think that the business mix effect on your overall gross margin can turn positive?

And is it likely that we're going to get an '11 gross margin about that in '10?

Thanks, Konrad.

Overall, we don't give specific guidance outside of the forward-looking quarter.

I think as we look to the second half of the year, I do expect we're going to see a number of favorable elements start to more positively impact our overall gross margin.

Certainly we will not have drag or certainly much less drag on the Outplacement business itself as that has stabilized.

I think that's positive.

I do anticipate Perm Recruitment will continue to get a little bit better.

French subsidy will find itself leveling out?

The French subsidy will work in place as well.

And we're going to continue to drive on the mix of business on the Professional and Experis side.

And then lastly, as Jeff mentioned earlier, right now we're at the stage where key accounts are going faster than the SMB business, and so you get a bit of a mix movement in our GP as well.

I think there are more favorable things coming ahead.

In terms of where our overall gross margin lands on a full-year basis, whether it's above 2010 our below 2010, we'll see.

But I think from here it's moving in overall favorable direction in terms of the number of elements that will start to have a more positive impact.

Thank you all.

The team worked extremely hard for this performance.

We really want to let you know that we've got a lot of plans in the future as well.

I like to think that maybe part of the performance was that today is Mike's birthday and they wanted to make sure that they made the quarter as easy for Mike as possible.

So, hopefully the calls won't be as much, or they'll be cheery, so happy birthday, Mike, and we'll wait for next year's.

Thanks all.

Thank you for your participation.

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