ManpowerGroup Inc (MAN) 2011 Q2 法說會逐字稿

-- information is incorporated here and by reference.

Thanks, Mike.

The second quarter was a strong quarter for us, very much what we had expected.

In our first quarter conference call, we lifted our guidance for the second quarter, and we were able to exceed the higher end of our earnings guidance.

The quarter was well executed by our team, and emphasizes the secular growth of flexible staffing.

Our revenue for the quarter was $5.7 billion, up 24% in US dollars and 12% in constant currency.

On an organic basis, revenue was up 11% in constant currency, right at the midpoint of our guidance for the quarter.

Our gross margin, which we continue to focus on, was 17%, down just slightly from last year and in line with our expectations.

Mike will cover the details associated with that.

We were, at the same time, able to increase our operating profit through good efficiency and cost control management with operating profit of $151 million, up 91% in US dollars, 67% in constant currency.

This generated 100 basis point increase in our operating profit margin to 2.7%, and an earnings per share increase in US dollars of 118%, or 90% in constant currency to $0.87.

We were aided a bit by currency, but also exceeded what we anticipated in constant currency.

We have experienced a slight plateauing of our revenue in some geographies; this did not happen in all markets.

In fact, some of the markets didn't experience any plateauing.

The emerging markets of Asia-Pacific remained on a steady trajectory and a very positive trajectory.

These markets are experiencing solid, sequential month-over-month growth trends.

With that, I'd like to turn it over to Mike.

Okay, thanks, Jeff.

As usual, I'll begin making some overall comments on the quarter followed by a discussion of our segments, a review of our balance sheet and cash flow, and then finally our outlook for the third quarter.

As Jeff noted, our earnings per share for the quarter came in at $0.87 per share, or $0.09 better than the midpoint of our guidance.

Currency in the quarter was a favorable impact of $0.11 per share, or $0.03 better than our guidance anticipated, and acquisitions added $0.01.

The remaining $0.05 of outperformance was operational, and related specifically to good expense leveraging, as we were able to improve productivity and drive more volume through our branch network.

As Jeff mentioned, revenue and gross profit margin was in line with expectations, and our effective tax rate of 47.7% was very close to our 48% projection.

Our reported incremental operating profit margin was 6.6% in the quarter, or more importantly, a shade above 10% on a constant currency basis.

This drove a 100 basis point year-on-year improvement in operating profit margin for the quarter.

For the first half of the year, our operating profit margin is up 90 basis points, as we continue to focus on margin expansion with improved efficiency and productivity.

Our gross profit margin came in at 17%, or 17.1% on an organic basis, right in line with forecast.

Our gross profit margin continues to be negatively impacted year on year from the shift in business mix, as our higher margin outplacement business continues to decline from the prior year.

This impact, however, is moderating, as the impact was a negative 30 basis points in the second quarter compared to a negative 50 basis points in the first quarter.

Our temporary staffing business had a favorable impact on overall gross margin of 10 basis points, as we have experienced price stability in most markets.

While pricing remains extremely competitive, we have found some opportunity for price improvement, and have been more selective in tendering for new business.

Our permanent recruitment business was up 40% in the quarter, or 25% in constant currency.

We realize good growth in permanent recruitment across all segments, and is now approaching 13% of our overall gross profit margin.

Permanent recruitment had a favorable impact on our overall gross margin of 10 basis points.

Now let's turn to the operating segments.

Revenue in the Americas came in at $1.2 billion, an increase of 13%, or 12% in constant currency.

Operating unit profit came in at $40 million, an increase of 67% in constant currency.

The operating unit profit margin improved nicely, up 110 basis points to 3.4% on an improved gross margin, as well as improved operating leverage resulting from tight cost controls.

Our US operation, which represents about two-thirds of the Americas, came in with revenue of $792 million, up 9% over the prior year.

Operating unit profit was $27 million, an increase of 85%, while our OUP margin was up significantly to 3.4% from 2% in the prior year.

This improvement came from a higher staffing gross margin, and a 59% increase in permanent recruitment fees.

Additionally, expenses were well controlled, driving good operating leverage.

40% of our business is comprised of Experis Professional business, which was up 10% for the quarter.

Within Experis, our IT business was up 10%, and our finance business was up 3%.

Our US solutions business, which includes RPL and MSP under TAPFIN, was up 29% in the quarter.

We continue to see relatively stronger demand for our higher-value Experis and solution offerings.

US is one of the markets that we did see demand for our services moderate throughout the quarter.

We began the quarter with 11% revenue growth in April, which moderated to 4% growth in June.

We are expecting to see this growth rate improve later in the year along with the improved forecast for a stronger economy in the second half.

Revenue growth in Mexico remained strong in the quarter, up 19% in constant currency, with operating unit profit growth in excess of 20%.

Argentina also experienced strong revenue growth of 30% in constant currency.

However, this was primarily due to inflation, as volumes were flat year on year.

Revenues in southern Europe exceeded expectations, coming in at $2.2 billion, an increase of 30%, or 15% in constant currency.

This resulted in almost a doubling of operating unit profit to $50 million, and an operating unit profit margin of 2.3%, up 80 basis points over the prior year.

This margin expansion was due to strong operating leverage, as we were able to manage the expanding revenue growth with only a small increase in operating personnel.

Within southern Europe, France was the largest operating unit, representing 75% of the segment.

French revenues exceeded expectations, coming in at $1.6 billion, an increase of 31%, or 15% in constant currency.

French revenue growth was strong in the quarter despite more difficult comparisons of the prior year.

We did, however, see growth moderate a bit during the quarter with revenue growth in June coming in at 10% in constant currency.

Our gross profit margin in France was down against the prior year, primarily as a result of the reduction in payroll tax subsidies, which was effective January of this year.

As you will recall from our last quarter's call, this subsidy reduction negatively impacted our French gross margin by about 90 basis points on a gross basis.

Beginning with the first quarter, we began putting a number of pricing initiatives in place focused on recovering this lost payroll tax subsidy through higher bill rates to our clients.

These initiatives have been effective in reducing the impact of the subsidy change.

In the second quarter, we recovered over 0.75 of the lost subsidy, and continue to expect to recover all of the impact of the payroll tax subsidy change by the fourth quarter of this year.

Our Italian operation also saw good growth in the quarter, up 33%, or up 18% in constant currency.

The gross margin in the quarter was favorable, and expenses were well controlled, resulting in strong operating unit profit margin expansion of 120 basis points to 6.5%.

Revenue in northern Europe was $1.6 billion, an increase of 24%, or 9% in constant currency.

Operating unit profit in the quarter was $56 million, double that of the prior year, up 72% in constant currency.

Operating unit profit margin expansion was very good, up 130 basis points to 3.6%.

This was a result of improved gross margin with a higher staffing gross margin, as well as a 25% increase in permanent recruitment fees.

Expenses also were tightly controlled, delivering good operating leverage to the bottom line.

Revenue growth in northern Europe moderated through the quarter, as prior-year comparable numbers became more difficult.

While we still experienced good growth of 10% to 13% in constant currency across most geographies, including the Nordics, the UK, and Germany, that growth rate was a decline from what we saw in the first quarter.

The Netherlands continues to be a difficult market, with revenue growth of 3% in constant currency.

Revenue in our Asia-Pacific Middle East segment grew 31%, or 16% in constant currency, to $663 million.

This included acquisitions in China and India, which contributed to our overall growth rate.

On an organic constant currency basis, revenue was up 9%.

Operating unit profit for the quarter was $19 million, up 59%, or 43% in constant currency.

Our OUP margin grew 50 basis points to 2.8%.

This margin expansion was primarily due to operating leverage, as we were able to improve productivity on tight expense controls.

The operating unit profit margin was not significantly impacted by the acquisitions.

Within the Asia-Pacific Middle East segment, Japan represents over 40% of revenue.

Our Japan business contracted 1% in constant currency but recovered extraordinarily well from the tragic events in March.

Our Japan team continues to drive higher value solutions business, which grew 40% in the quarter, and now presents almost 20% of the Japanese business.

This growth in higher value solutions business drove an increase in operating unit profit margin of 100 basis points in the quarter.

Australia is the second largest operation in this segment, representing over 0.25 of segment revenues.

Australia's revenue growth remained strong in the quarter, up 20% in constant currency.

Growth across emerging markets in the region also remained strong, with China and India leading the way.

Revenue at Right Management came in at $85 million, down 14%, or down 20% in constant currency.

Despite this decline, Right was able to produce an operating unit profit of $3 million for a margin of 3.3%.

This revenue decline at Right was due to further declines in the countercyclical outplacement business, which was down 32% compared to the prior year.

While we seem to be approaching the bottom for outplacement fees, we still saw a modest sequential decline from the first quarter of 5%.

With the further declines we have seen in the outplacement business, we will be reducing our cost structure to better align with revenue levels.

Right's Talent Management business, which represents one-third of all revenues within Right, continues to experience good demand, with revenues up 14% in constant currency in the quarter.

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

Free cash flow, defined as cash from operations less capital expenditures, for the first half of the year, was a use of $220 million compared to a use of $94 million in the prior year.

Of this usage, $171 million relates to the first quarter, and $49 million relates to the second quarter.

In the first half of the year, we added $323 million of net working capital to the balance sheet.

This increase primarily relates to an increase in accounts receivable since year end due to higher revenues and a slightly higher DSO resulting from shifts in geographical and business mix.

Tax payments and incentive payments are also higher the first half of this year compared to the prior year.

During the quarter, we repurchased 306,000 shares of common stock for $18.8 million, leaving us 2.9 million shares authorized for repurchase under our current program.

Our cash balance at quarter end was $544 million, and total debt was $759 million, resulting in net debt of $215 million.

The balance sheet remained strong throughout the quarter, with total debt as a percentage of total capitalization of 23% at quarter end.

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

There were no borrowings outstanding under our $400 million revolving credit agreement.

The last thing I'd like to review is our third-quarter outlook.

As you know, changes in the economy can have a significant impact on demand for our services.

With the direction of the economy in question, it is somewhat challenging to provide a forecast for the third quarter.

Rather than speculate on where the economy may be headed, we have taken the view that economic activity will be similar to what we experienced in June and the first part of July.

With this as a backdrop, we are estimating constant currency revenue growth of 8% to 10%.

Based upon foreign exchange rates, this would imply a reported dollar revenue growth of 16% to 18%.

From a segment standpoint, we expect each of our geographies to achieve organic growth similar to our consolidated growth range, with the Americas being a touch softer and southern Europe being a touch a stronger.

In the case of Asia-Pacific Middle East, the second-quarter acquisitions will add about 7% growth to their third quarter, bringing their overall growth to the mid-teens.

We expect Right Management to be down year on year, although the rate of decline is moderating, and should range between 9% and 11% in constant currency.

We expect our gross profit margin to range between 16.5% and 16.7%, down 40 basis points sequentially at the midpoint, which is the typical impact on gross margin from seasonal changes and business mix during the summer months.

Our operating profit margin should range from 2.6% to 2.8% for an expansion of operating profit margin between 40 and 60 basis points, as a result of continued operating leverage and improved productivity.

This assumes continued strong incremental margins above 8% in constant currency.

We are estimating our effective tax rate to be 46.5%, which includes the French business tax, similar to the prior year.

This results in earnings per share ranging from $0.90 to $1 per share, which includes a favorable impact from currency of $0.10.

With that, I'll now turn it back to Jeff.

Thanks, Mike.

As you can tell, we did have a very strong quarter.

Our revenue was solid, profitability very good, and we achieved solid operational leverage.

Our team did extremely well in maximizing all 3 of those areas, while at the same time continuing to drive the brand and positioning for us for an even stronger future.

I'm confident that we are and still in the early game regarding what we do and how we handle operational leverage and margin expansion.

Additionally, we are just beginning to reap the benefits of our branding, professional resourcing, and emerging markets initiatives.

Our new branding continues to be well received, and in fact, gaining momentum.

Manpower Group is now identified clearly with our clients, press, and within the organization, which clearly identifies our commitment to the innovative workforce solutions and our suite of unique offerings.

Experis is well seeded where the countries have been certified, and Manpower Group solutions have grown nicely.

Our clients and prospects get it.

They understand the simplicity of it, the fact that we've organized ourselves from a brand perspective and internally for them to succeed.

They are not confused with multiple brands and brands that are competing with each other, or brands that are just local that have nowhere else to go or not draw from a knowledge base that is well connected within a single entity.

Our identification of the human age, and our supporting insights has clearly positioned us as the thought leader.

This positioning is driving a much better level of conversations, and we are prepared to respond with our unique suite of offerings.

This is aiding our financials, and continues to solidify Manpower Group as the leader of innovative workforce solutions.

Our gross profit mix is improving, and we are confident as we continue down the path that this will continue to increase.

Manpower Group solutions is growing nicely at 21% in constant currency, primarily driven by our success in recruitment process outsourcing where we added 31 additional contracts, and continued success in MSP through TAPFIN where we are winning additional contracts, which is substantially adding to our annualized dollar amount under management.

And an important component to the Manpower Group solutions is our drive towards talent-based outsourcing where there is a large component relying on human capital, the ability to access, retain, and assess these employees, deploy them is our expertise and it's based on outcome pricing.

This service is going extremely well for us.

Experis is growing quite well also, with gross profit growth of 15%.

With certification of an additional 4 countries to the Experis model, it is being well received by both candidates and clients, and resonating throughout the organization.

Additionally, we added strength to Experis in India with the acquisition of WDC.

Our Right Management business continues to be challenged by the sluggishness of the outplacement business.

We are feeling the results of companies having downsized as far as they can and there's not much excess talent.

At the same time, as Mike mentioned, our talent management business grew at 14% in constant currency.

The calling card to the entire Manpower Group is man power, and it's an exciting time for Manpower.

We are seeing growth in all areas.

In fact, one-third of our number of people out on assignment come from the emerging markets now, which gives us great confidence as we move into the future.

As you may have seen, we announced some acquisitions in China, which further our position and expand our footprint.

Additionally, we are experiencing secular growth.

Of course, this is masked a bit by the soft patch or plateauing that we are going through right now, but in general terms, secular growth is good and is strong.

We know from conversations with our clients that there is an intention to increase their percent of flexible workforce to increase their agility, and align their agility of one of their inputs with their talent input.

This is happening throughout the world, not just in the mature markets.

This has been triangulated, if you will, from a different source, which is from a recent McKinsey study called The Economy That Works, Job Creation and America's Future.

McKinsey conducted a study of how companies' workforces will change over the next 5 years.

It is clear to see that companies of all sizes are focused on flexibility and different work models.

In fact, 57% of the companies interviewed said they would use more temporary and contract workers.

We are confident that we will be able to continue to create operational leverage and profitability through this so-called soft patch.

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

All right, we do not have our operator --.

Sara Gubins.

Hi, thank you, good morning.

A couple of questions.

First, could you talk a bit more about what you're seeing in pricing and how that varies by region and by line of service?

Sure, I'll take that and Mike you can add some cover to it.

Pricing is, as you pointed out -- is quite regional and even within regions there are some real pricing differences.

I would say for the most part, pricing has become stabilized.

It's still aggressive in some parts of Europe and then in certain accounts.

So in the US for example, our book of business in the US in the second quarter on an annualized run rate business we took out about $50 million to $70 million of business where we just didn't renew it.

We just said the price is too low.

So there is still some of that, but for the most part I would say our large accounts are understanding that there's not much lower you can go in some of these -- they want value.

And on the other side, which we've talked about previously, our SMB business we are starting to see some pricing.

And in the US we actually saw a bump-up in some of our gross margin and some of that contributed to-- from the SMB side.

Across Asia and Europe I would say a few European markets, France still remains to be competitive, UK is a difficult market -- team is doing well there.

Asia, Japan is even with all of the discontinuity there from the natural disasters, pricing has been fairly reasonable as well.

Mike, anything to add to that?

I think all I would say is from an overall perspective I look at the quarter as being favorable from a staffing gross profit margin perspective.

Overall, we're up 10 basis points organically on staffing gross margin, or I should say the staffing gross margin improvement healthy overall gross margin by 10 basis points.

So I think that's positive and when you go across the markets as Jeff did, a number of markets are showing improvements.

US on the staffing gross margin adds our number of markets within Northern Europe.

Southern Europe is down a little bit from a staffing gross margin, but that really has to do with the French payroll tax subsidy that we've been working to pass on, and we've had some good success with that, but we're not fully recovered 100% so thus it's putting some overall pressure on.

So I think from an overall perspective, I feel pretty good about where pricing is generally.

Certainly still competitive, no question about it.

But we are seeing some signs that we're able to move it a bit more positively.

Second question?

Yes, Mike, if I'm running the numbers right the-- when we plug in the revenue in EBIT forecast for guidance we come out a little bit lower than what the guidance range is.

So I'm wondering are you assuming any share repurchases or something else that might be below the line?

I am not assuming any share repurchases at all.

I suppose, certainly my model works from top to bottom, so Sara maybe off line that we can go through and I can-- maybe we can figure out where some of the differences are, but it should flow all the way through.

Okay.

And then just very last quick question.

Jeff, there was an interview with you in the Wall Street Journal earlier this week and at the end in the article there was a quote from you saying that recovery from this point on will be a jobless recovery.

Could you give us some more context and color on that comment?

Sure there's some pretty compelling data that goes back probably somewhere in the neighborhood of 40 years of how many months it has taken to get back the lost jobs.

We still haven't done that and if you just extrapolate out, it will be longer than the one before.

There's some rationale behind that.

One of them is us, meaning that our amount of services are used more and are flexible, still counted in the BLF numbers but you end up doing what we've seen over the last year which is some very high months for a staffing and some lower ones as it goes up and down.

The primary reason for it is quite simple.

Companies are very sophisticated now and demand proceeds hiring.

Whereas before in previous recoveries, hiring was done in an anticipative way.

This is part of what's driving this secular trend.

Demand higher, see the demand go down, you can turn the volume down which is what we were seeing in the end of June.

They were listening to the news, saw the volume plateauing a little, they turned it down, but they can turn it up just as quickly.

So I think it's all part of the bigger picture of how secular trends are positive to us but maybe a little shaky and harder for economists to figure out in total.

Thank you.

All right

Andrew Steinerman.

Hi, Mike and Jeff.

My question is about threshold levels of real GDP growth, let's talk about the US and temporary help.

My thoughts were, historically if you do the correlation, you need about 2.25% real GDP growth, which we didn't have in the US in the first half of the year, but still temporary help growth at Manpower in the market was pretty good.

What do you guys make of it, has threshold levels of necessary real GDP growth to drive temporary help growth in the US and at Manpower changed?

Yes, well there's a couple of things and you being the scientist that you are, you may have R squared this a little differently than we have.

But over a period of time we've looked at GDP in the US not to be as good of a correlation to our business as you would see for example in France, where it has a lot of light industrial component to manufacturing component.

I also think within the-- what you're seeing is that we are seeing some subtle shifts -in what makes up the drivers of GDP and where our business is focused in it.

So as a result, and how house companies are using us.

So you have a lot of factors that are being pushed into that number and creating a lot of noise and any kind of correlation that is determined.

What's most interesting is that when you look at and hear from our clients and talk about their demand, most of them are fairly confident that demand is going to be jagged but on an overall basis across a 6-month period or a year period is the jaggedness is still a left to right upward trend.

I think the other thing, Andrew, which you well know, I think it also depends upon where you are in the cycle to get-- when you get-- we can grow at a higher rate and lower GDP early in the cycle just because we're just coming out and that growth has been fed by flexible labor versus permanent labor as well.

So I think that's the other component that influences somewhat, which I know you're aware of.

Right, but Mike I agree with that in the first year, but we've already anniversaried the first year of temporary help growth in the US.

Right but we have the slowest recovery ever.

So what's happening is when people are saying, and I've heard this if you use as a baseball analogy, wow it looks like you guys are in the sixth or seventh inning.

And I keep saying I think we're closer to the second inning, it's just taking a long time.

There's a lot of hits and foul balls and strikes and balls being thrown, it's a long inning, and therefore it'll be a little choppier.

But we are really at the beginning of this still just based on how we've seen this unfold.

How much longer perm needs, it kicked in.

It kicked in not in the 6 to 9 month but closer to 18 month after some of the recovery.

Perfect, thank you so much.

Gary Bisbee.

Hi, Gary.

Hi, guys.

Good morning.

I've noticed the number, I guess I'd say a flurry of press releases since the last time we spoke regarding China and India.

Can you just give us an update sort of what the footprint looks like now pro forma for all these deals?

And I know the markets are growing fast, but where are you in terms of the buildout of your footprint, what services you're offering, how many markets you cover or any type of data on that would be helpful.

Sure, I'll give you some, but without being overly coil, be straight forward.

We consider it to be a competitive advantage, so I'm not going to give you everything we've got.

The fact is that the press releases that came out in China can actually be summarized in a very succinct way.

One was to really aid in our movement and where we see a lot of business which is in the western part of China.

We did not have a footprint as no one has a footprint other than local people.

We have the ability to have national licensing, we're the only ones that can do that.

So we can move into the western part where there is a lot of government detention and moving businesses into those so-called Tier 2 cities, those small ones, around 5 million people.

So that was one of the ones that we have done.

The other one moved us into the Guangdong-- Guangzhou city of Guangdong Province, which has really put us into a very heavy way in light manufacturing in gray collar.

And in the Chinese economy, gray collar, quality assurance managers, higher level skilled CAD CATIA operators, PLC shop floor control unit operators, they're making more money than 4-year graduated engineers.

And as a result, we saw that as important and added almost 100,000 people daily on assignment through that acquisition.

The third one was a relationship that we established with one of the largest Ministries, which is the Ministry of Industry and Information Technology, MIIT.

And then we set up a separate underneath there called My Tech, which is a talent exchange, where we're bringing in higher level talent from around the world to supplement, to grow primarily in the northern part of China.

When you couple that with our search, which we've been the largest search provider and one of the-- and it goes all the way to high-end CFO, all the way into kind of manager level, it really gives us a complete footprint of over 100 locations spread across China with a good foundation for us to move forward.

India, little different.

We've already had it-- India, as we still have some more work to do in India, but the acquisition we made there with an organization called NDC -- WDC.

WDC is a high-end IT contracting firm located in 5 different cities across India, gives us a good footprint and also helps us as we move into -- in a stronger way into countries like Malaysia, Thailand and even potentially Indonesia by using WDC as a mechanism to move in that area.

We still have a little bit more work to do in all of those, we're very bullish on our emerging market footprint including other countries and believe just on math alone, wage inflation and the number of people we have out, it's a good deal.

I'd also add that all of our relationships that we have, we have 100% management control.

In other words, we're not doing this as a junior partner where somebody else is calling the shots, we own or manage all of these entities that we got involved in.

And then I guess just a follow up to that is obviously I think we all understand the top line growth there, how do you think longer term about the potential profitability of these businesses?

Can they may be the same, can they be higher, or are lower wages going to lead them being lower over time?

Well you have to really look at it in a couple different ways.

From a profitability perspective, we're very bullish on profitability.

Would you have to and do we have to except in some cases a lower EBITDA percent?

The answer is yes, but at the end of the day while we have some goals out there and we're firm on those goals, we're in this to make money and make money over the long run.

And they all make money.

China turned in the month of June, some very serious profit.

If you just look at that region alone, understanding what's happening in Japan, you can see the numbers are being driven by those emerging markets in a profitable way.

So if you consider wage inflation between 12% and 17%, multiply that out plus getting some margin expansion on the pricing side, it's a pretty impressive story.

Great, thank you.

Kelly Flynn.

Thanks.

So my question relates to what you said about your US growth, I think you said it was 4% in June.

What is the Americas constant currency guidance imply for Q3 US growth?

Yes, we'd be looking for a mid-single digit within the US in the third quarter right now.

That's really just taking kind of what we saw in June and part of really July and extrapolating.

And not trying to make any prediction that the economy is coming back, which of course some economists expect we will see it improve through the quarter, but also not of course expecting it to further trend downward as well.

Well right, I guess I wanted you to elaborate on that point because I think you did say in the comments that you're expecting an improvement in the second half.

I think you even mentioned kind of some of the economic projections.

You guys usually don't kind of prognosticate like that, so I guess if you could just elaborate on what you're seeing, maybe what you saw in July, which you just mentioned, or what are you seeing out there that makes you think it's not going to decelerate further?

So let me answer that in two ways.

One is we've been quite consistent and I think it works well for us, which is when it comes to how we put out our guidance for the next quarter, we try not to be an economist and say halfway through we're going to start to see this.

We basically take a trend line that we've been seeing in the last 3, 4 weeks and say, all right, let's do that instead of some consensus numbers coming out from economists.

So that's how we're looking at our estimates.

The comments we made is when we talk to our clients, look at what got us into where we are right now in this soft patch which is nothing overly systemic.

And then doing a lot of research on our own, it says that there is quite a good opportunity and absolutely a general consensus that this is going to play out a little differently as we move into the latter part of the year.

So that was clearly more of an editorial comment as opposed to a guidance comment, that we absolutely believe that, we're not banking on it because we don't run our business that way and we're not estimating our consensus or our next quarter that way.

But you saw 4% in June, you're looking for mid-single digits, can you tell us what you've seen, or I guess what you've seen so far in July?

it must have accelerated?

Well July, the big problems you have in July and August is that there's so much noise in there.

You've got 4 July, you've got other things.

What we saw so far in July does not make us feel as though what we have delivered from a guidance perspective is incorrect.

Okay, that's fair.

You guys have done a good job with guidance.

So, all right thanks a lot, I appreciate it.

Paul Ginocchio.

Thank you.

Can you just talk about what you're seeing maybe in US auto and maybe other markets where auto came off a boil?

And is that in your guidance, a pick up in auto, or are still expecting somewhat subdued?

And then just can you remind us again what's in the US for the hire act in the back half of the year?

Guidance was on the gross margin was just a little bit below what I thought, maybe I was thinking it was because of the hire act, thanks.

Okay, Paul.

On the auto one, the auto as we've described before, and I think we still feel pretty comfortable with where that is, in the US there clearly is some effect, less effect than what we would have seen in France, Sweden and Southern Germany.

We do believe, and I think there's some pretty good data out there, that the manufacturing ability coming out of Japan is improving.

The immediate effect did not occur, there was kind of a mid effect where it occurred more and now many of the supply chains seems to be getting back online.

We see that as potential upside, but in the US that upside is still on the margin because we don't do a lot of business in that area.

It should have a more of a positive effect in Sweden, Southern Germany where we do have a fair amount of auto and then in France as well where PFA and [Runot] are still clients of ours.

Mike, do you want to hire the-- do you want to handle the hire act?

Sure, in terms of the hire act, if you allow me the liberty to round a little bit, in the second quarter, the US a year ago had $1 million benefit third quarter $2.5 million and fourth quarter $3.5 million, so about a $7 million benefit for the year.

And of course Paul as you know that benefit went away going into this year, so we are up against that from a comparable--

But has a little bit of impact in terms of year-on-year gross margins.

But also I just point out typically we get a seasonal dip in overall gross margins just given the mix of business because some of our lower margin -- lower gross margin business has a bigger third quarter such as France.

Whereas some of the other higher margin businesses, particularly in Europe, have a little bit slower third quarter.

And so the mix overall shifts and that does bring us down a little bit usually from a sequential standpoint.

So I think that's part of what you're seeing as well.

Okay, thanks, Mike.

And, Jeff, I can go back to the auto, have you-- so in your guidance have you forecast a pick up in auto, have you kind of left that as up-side?

I would say we left that as a, as it would too much of a refinement for us to put in so you could call it upside, but I think if you looked at our numbers it might take it from 0.5 to 0.7, so it's more of a rounding up on opportunity than a full movement of anything substantial.

Thank you.

Yes.

Jeff Silber.

Hi, Jeff.

Hello, it's actually Paul Condra for Jeff.

I just wanted to ask about it, the markets you talked about that were plateauing.

I wonder if you could just talk about which was worse specifically and maybe what your strategy is in addressing those markets just in terms of adding head count, looking at acquisitions, things like that?

Thanks.

Well from a plateauing market perspective, you've seen some public data out there, BLF data in the US, The Dutch market is not so much plateauing it's just not still kind of performing at the level it has in the past.

The French numbers are kind of evening out.

We look at all of those, and I think we look more closely at what is our sales strategy, how are we managing our efficiency and productivity.

I would say acquisitions do not enter in as a way to solve or look at any of the plateauing issues.

Those plateaus are ones that as we've talked about, we believe our kind of plateaus on a step.

They're not a rollover opportunity.

And again, we're not economists, but hearing from our clients, most of them are kind of hitting the pause button a bit and just waiting to see what will happen with so many of the forces that's on their businesses right now.

So some of our larger markets are in that kind of plateau mode, if you will, and the data that you're reading would be generally transferable to us with the exception of the dramatic differences between us and the BLF at this point, I mean those numbers are a bit confusing to us.

Great, thanks.

And just in terms of headcount?

Headcount, we adjust the best we can as things move up and down.

We, like other companies, are expert users in temporary help.

So we know how to do that and we can flex up and down.

But for the most part, those costs that the plateauing is 1 or 2 months, you can be very unproductive by pulling people out and in.

But we'll continue to monitor it, we'll look at making sure that if we had hiring in the new future in some of those plateauing areas, we would probably delay that, again, like other companies.

That's great.

If I can just ask one more, I just wondered about your perm trend in the US.

How do those look intra quarter and then can you give us any more detail about the current quarter?

Yes, just take a look.

In terms of overall US, perm business was quite good, up 50-- well firm GP was up 59%, so I'll call it almost 60% in the quarter.

So quite strong all the way through.

First quarter more than doubled on the perm side, part of that we had a little bit of that coming through on some of the comps business that we had as well.

But overall, it was strong.

I would say strong throughout the quarter.

It tends to be choppy, a little bit choppy month to month, so I'll refrain from giving individual months but overall--

And there is seasonality to perm, too.

And there's a little bit of seasonality as well.

But as we look to-- and as we look to third quarter, our outlook for perm business is good in the US as well.

so the comparable starts to get a little bit higher so that growth rate might dip a little bit, but not substantially.

I still am looking for quite good performance from a perm perspective in the US in Q3.

And our-- and rolled into how we present to the street is that we include RPO within our perm numbers and that as I had said is going quite well, it's in our solutions business.

But we are securing a large number on a quarterly basis and those don't have, when you secure them they don't have immediate effects, you set the business up and rolls into the future.

So Mike, you may want to just comment a bit, I know you've talked about it before, but kind of where we were in last peak on perm and it's percent in GP and where we are now and where we see that going.

Sure, sure.

Yes, so last peak in 2008 our overall perm as a percentage of GP was just under 13% and we're close to that level already today.

And as Jeff had mentioned, part of that has to do with the RPO line of business that we've brought on which has been quite successful.

And so as we look through this cycle, we do think there's more opportunity to grow that perm business and part of that is the opportunity of the market but also part of it is the capability that we've built up over the last recovery cycle.

If you go back to 2002, 2001, the last recession, other than a few markets we were doing very few perm recruitment business.

So during the last recovery phase, we really built that capability up globally.

It was legalized in France in 2005, so really are much better positioned now coming out of this recession to capitalize on that opportunity.

So our view is, in this cycle we would likely see perm as a percentage of the overall mix.

Probably move up into the upper teens area as a percentage of the overall mix would be our estimate at this point in time.

Great, thanks very much.

Tim McHugh.

Yes, thanks.

First I want to ask about Germany, if you could give a little bit more color there?

The growth seems to have slowed quite a bit there, is that market driven, are you seeing anything specific there?

Yes, I would say in general terms it's not market driven.

We're performing right now below market from a top line perspective in Germany.

We've looked at that, we're taking a hard look at our pricing, because if you look underneath the covers our gross margin is actually going up or very steady.

So we have to make sure that while we're creating a beautiful percent of -- increase percent on EBITDA line, we have to make sure that we are also approaching the market in the appropriate way.

So we've been looking at that for some time.

Our German team is very capable, well aware of this.

But I would say that that is not a market trend, that's us and we may have to be a little less selective to actually grow the business and make more on the bottom because as those margins in Germany, gross margins and net margins are pretty large, so we have some wiggle room in there.

Okay, and then your color about the plateauing or soft patch, are you seeing clients pull back or pull in temporary staffing at all or is it simply that they're somewhat pausing activity or growth relative to what you might have otherwise seen?

Yes, it's more of a pause.

It's instead of sequentially adding, it's staying the same, maybe letting them in some cases a little let run out, they'll try to delay an extra week or so or 2 weeks before they add someone on.

So this isn't a we had 1000 people out at a location and that went down to 500.

But what we were seeing was month on month or sequential where they had 500, they added another 50 then they added another 60.

They're more into a plateau mode and part of it, in fact more than part of it, a large part of it is they're seeing their demand plateau a bit.

They're reading the same newspapers and they just don't want to get out ahead of their skis.

And is it any different by service line, the plateauing you saw late in the quarter?

Is it more in industrial versus gray collar or white collar?

Yes, absolutely.

You would see light industrial has the ability to dial up, dial down a little bit faster.

On the professional resourcing side, IT engineering and the others, they're in a project typically, so that has a longer lag time, if you will, to adjust from an organization perspective.

So we didn't really see that in the professional resourcing business anywhere near the amount that we saw in light industrial or in segments of our office.

Other segments of our office have good growth, but where you're doing back office operations call centers, those are some form, if you will, of light industrial in a way and that it's based on demand and they ebb and flow with the demand.

Okay great.

Thank you.

Mark Marcon.

Good morning, I'd like to ask a few questions.

First on Italy, what are you seeing there, Mike and Jeff, in terms of the feedback from the field given the recentcy of the sovereign debt crisis and now the austerity measures that are coming through and how are you thinking about that?

Yes, I'll start and I'm sure Jeff will add.

I mean overall revenue growth continues to be quite good, 18% in the quarter.

And so I think to what we're seeing at street level, we're really not seeing an impact at this point at all.

So I think the economy certainly is still trying to churn its way out and move out of its funk a little bit in Italy, so they certainly have a ways to go.

But over the last several quarters, we continue to see some good growth on the staffing side and that continues to evolve and develop.

And we've been able to drive that with some good operating leverage onto the bottom line with some good margins as well.

So I think despite all of the headline news, I think at least at street level today, it hasn't worked its way into what we're seeing in the business.

Great, and that's been ongoing so it seems like there's not much of a relationship between GDP growth and what you're posting over there just due to the strong secular trends.

Yes, the only relationship ends being if they crash into the wall, then it'll trickle down pretty fast.

But business is occurring and then there's stuff happening up there with debt and social programs that's causing angst, but some of that angst is actually driving-- that uncertainty is driving business to our industry.

Right.

And then can you talk a little bit about the IT business in the US and the impact that you're seeing in terms of the change in the brand name and how that's going to evolve in terms of the positioning and how you're thinking about the growth there?

Well it's gone very well, and the US was the first one to go through the rebranding.

Clients, as I stated in my prepared remarks, really appreciate it and as a result we're getting much more conversation and the global footprint makes a big difference where they want to do business in 3, 4 countries as well as here in the US, and to be able to talk about the consistency that we can deliver is critical.

Everything has to do with the book of business and in some ways and our Experis IT business has some banking in it.

So the banking has been a little bit wobbly, still using us quite a bit, but I'd say that took a little bit of normal -- more normal growth that we would see which would be exceeding our Manpower or commercial staffing side of it.

We are starting to see, Mike talked about growth in Experis Finance, which is the old, if you will, Jefferson Wells and the ability for us to leverage that from an infrastructure perspective, but more importantly leverage it from a sales perspective as we go in as a team and can cover the waterfront much more.

So, I would say that the business feels quite healthy right now.

We have been running almost 18 months now well over market, so we're anniversarying some harder numbers, which makes it a little bit of a difference to us, but we still feel confident that we would be at or above market.

Great.

And then last question, saw the news with Ronstadt on SFN, wondering how you're thinking about that in terms of any sort of potential implications strategically both on a global basis and then in particular in the US, the potential to take advantage of may be some disruptions there?

Well I mean our kind of statement on that is we-- Spherion is a good company and Ronstadt is a good company and we had to compete against two and now we have to compete against one that's going through disruption.

So we will be approaching the market very hard in that area.

From a global footprint perspective, mathematically, no doubt Ronstadt improves their footprint.

But having flags planted in countries is far different than having an account team who can approach a business in a cohesive way through technology as well as virtual teams and therefore we will continue to look at expanding our area in that which we have all of that implemented and installed.

So our view is, is we're competing with one less company right now.

Great, thank you.

Kevin McVeigh.

Great, thanks.

Jeff, you did a real nice job of kind of framing the GDP and baseball analogy.

As you think about where we are in the recovery right now, do you still think we're earlier transitioning into kind of a mid-cycle right now just, and obviously it's been muted, but just kind of where do you think we are at this point in the cycle?

Well I'm hesitating a bit because you're asking a question that's above my pay grade.

Because there is a whole bunch of very serious economists that are looking at this.

And when you have a financial-- when you have a crisis that is caused by a financial meltdown as we had in here, and you go back in history and look at all the ones that have been caused on that, their recovery to get back to any sense of a normal recovery is at least 2 to 2.5 years.

So we are in a recovery now, we have been in one.

But we haven't gotten to sea level yet to get the other parts of the recovery, mergers, acquisitions happening in a different way, new product inventions.

So, this slow out, while frustrating and whip sawing us back and forth, I think we're going to look back and say hey, it's just what the doctor ordered.

And two, it's makes this recovery longer.

I mean we-- if you look at some of the housing data we probably have still 18 or 24 months of inventory.

So we move that out, we move some of our banking and finance issues out, you may find actually the recovery feels more normal 18 months to 2 years from now when consumers have increased, which they're doing it, they're increasing their savings on a monthly basis.

So I'm optimistic that this one is painful because it gives us so many head fakes in so many different directions.

But we as an economy, a US economy, is still in the early parts of recovery particularly when you compare us to the recovery of job market recovery, and there's some very good data on this, we are well behind the job market recovery of Germany, and they did that through some different kind of incentives, well behind the UK.

So our job recovery is lagging other countries, and I believe it has to do with these additional weights that we have on our economy that once we shake, we'll get into more of a second part of the recovery that looks more normal.

Great.

That's very helpful.

Thank you.

All right, 1 more question, please.

James Sanford.

Great, thanks.

Just sticking on that topic really quickly, I was curious with your comment about peak perm as a percentage of total getting to the upper teens.

Is there-- is your take that there's sort of a pent-up demand right now for people interested in potentially moving jobs?

Is this really sort of a voluntary turnover build up that could drive that, is that how we should be thinking about that?

I think it's two things.

One, there is a massive secular change.

If you look at companies wanting to be agile, part of agility is not having recruiters.

B cause you could turn off your spigot for hiring, but you still have 30 or 40 or 100 or 200 recruiters in your company, they want us to have that.

So part of it is secular trend where more of the recruiting, different forms from contingent to regular to RPO, is shifting to us.

So that's one.

The other is, is that is there a pent-up demand?

You bet there's a pent-up demand.

There's just not enough demand for companies to be more robust in their hiring other than very selective industries like healthcare which require a longer training cycle and has less of an opportunity pool of people.

My sense is that there is, and Right Management did a survey that said 84% of all people working for companies right now don't like their current employer and will move at the first opportunity.

The problem is that everybody said that, so you're not necessary moving to a better environment and there's more to less.

We are seeing mobility start to be a little bit more accepted, and we're doing a fair amount of that within perm.

But my sense is the perm, while we're up nearly 60% in the US, perm has not hit its stride yet as companies are still being pretty hesitant on hiring.

That's great, thanks.

Okay, thanks all.

As usual, if there's any more questions, Mike is available for any one who wants.

Thank you.

Thank you.

And that concludes today's conference call and you may all disconnect at this time.