ManpowerGroup Inc (MAN) 2014 Q3 法說會逐字稿

Thank you all for standing by.

We would like to welcome you to ManpowerGroup third-quarter earnings results announcement.

(Operator Instructions).

This call is being recorded.

If you object, you may disconnect now.

I would now like to turn the call over to ManpowerGroup CEO, Mr. Jonas Prising.

Sir, you may begin.

Good morning and welcome to the third-quarter 2014 conference call.

With me are our Chief Financial Officer, Mike Van Handel, as well as our Executive Chairman, Jeff Joerres.

I will start our call by going through some of the highlights for the quarter and then Mike will go through the details of each segment, the relevant balance sheet items, cash flow as well as forward-looking items for the next quarter.

And I will cover some of the additional thoughts on our progress after that.

But before we go any further into our call, I would like Mike to read the Safe Harbor language.

Good morning, everyone.

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

These statements are based on management's current expectations or beliefs.

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.

Any forward-looking statement in today's call speaks only as of the date of which it is made and we assume no obligation to update or revise any forward-looking statements.

During our call today we will reference certain non-GAAP financial measures which we believe provide useful information for investors.

We include a reconciliation of those measures where appropriate to GAAP on the investor relations section of our website at manpowergroup.com.

Thanks, Mike.

Our third-quarter performance was strong, exceeding our expectations.

Revenue was in line with where we thought it would be while gross margin performance was at the high end of our expectations and this in combination with continued returns from our simplification efforts and efficiency focus resulted in earnings that exceeded our estimates.

Our revenues were $5.4 billion in the third quarter, up 5% from prior year.

We managed this revenue and gross profit growth in a disciplined way and had nice flow-through resulting in good leverage with our operating profit increasing to $212 million, an increase of 24% in constant currency excluding prior-year restructuring charges which is an operating profit margin increase of 60 basis points compared to the same time period last year.

This resulted in our earnings per share coming in at $1.61 which is 28% above the prior year, a strong performance.

We had anticipated that the market conditions in Europe in particular would be somewhat patchy and that is in effect what we saw in our business particularly towards the end of the quarter.

Emerging markets were also mixed while the US market continued its path of good growth.

We continue to expect that the strength of the global recovery will be uneven particularly in parts of Europe and some emerging markets in Asia and Latin America.

I'm not going to pretend that this is my preferred scenario in terms of global market growth and recovery but having said that, we continue to explore very good revenue growth opportunities in discussions with our clients.

As some labor markets experience an uneven and protracted recovery, we may benefit from this market uncertainty by being a preferred form of flexibility as we have seen in a number of countries already over the course of this year.

And I will expand on that thought a little later on in this call.

In this environment, we remain very focused on generating profitable revenue growth with disciplined pricing and strong productivity management so we can drive operational performance improvement even if global market conditions continue to be choppy and markets only improve at a modest pace in the short term.

From what I can see right now I believe we are seeing a cycle within a cycle, a pause in some markets if you will, not the beginning of a broad-based downturn.

We will look at opportunities with that lens and not be shortsighted in terms of adding sales people and recruiters in the markets where we see growth opportunities.

Mike and I will provide some more details and thoughts on our view of the market as we go through the rest of the call.

As always, our results for this quarter are thanks to our great teams in the field serving our clients and candidates and everyone in support functions helping them make this possible.

We are committed to helping our clients win in the changing world of work and also provide meaningful and dignified work for millions of our associates across our brands and geographies.

With that, I would like to turn it over for Mike for some additional information and detail on the segments.

As Jonas mentioned, we had a good financial performance in the quarter.

While constant currency revenue growth of 4.6% was just below the midpoint of our range, our reported dollar revenue growth was 4.4%, slightly below our range as the dollar strengthened during the quarter relative to several currencies and in particular the euro.

In short, we were expecting a favorable impact from currencies of 1% on revenue growth and $0.02 in earnings per share but the actual impact from currency in the quarter on both revenue and earnings per share was negligible.

In comparing our reported earnings per share of $1.61 to the midpoint of our guidance of $1.50, $0.04 of the outperformance is attributable to operations and $0.09 is attributable to a lower tax rate coming in at 35.5% versus the forecasted 39%.

Other expense was slightly higher than expected which cost us a penny but this was offset by a lower share count due to the share repurchases in the quarter.

Lastly as I mentioned earlier, currency was neutral in the quarter compared to a forecasted favorable $0.02.

There were no restructuring charges in the quarter or on a year-to-date basis.

In the prior-year third quarter, we had restructuring costs of $8.1 million or $6.2 million after-tax which was $0.08 per share.

I will exclude these prior-year restructuring amounts when doing my segment review so that you can get the true picture of the underlying performance.

Our gross profit margin came in at the high end of our guidance at 16.7% compared to 16.5% in the prior year.

Driving this expansion in gross profit margin was an improvement in staffing and interim margins at Manpower and Experis adding 20 basis points year over year.

Our permanent recruitment business contributed 20 basis points to the margin expansion as we saw very strong permanent fee growth of 17% in constant currency in the quarter.

This is a meaningful acceleration from the 4% growth we saw last quarter.

The acceleration in permanent recruitment fees occurred in all of our operating segments.

I will discuss this further in my segment review later in the call.

Our gross profit margin was negatively impacted by a shift in business mix as our higher gross margin Right Management business had a revenue decline of 8% in constant currency in the quarter.

Next, I would like to take a look at our business line performance.

Consistent with our strategy, we are seeing the highest growth from our higher-margin professional and solutions businesses while at the same time taking advantage of good growth opportunities in our more traditional services under our Manpower brand.

Our Manpower brand contributed two-thirds of our gross profit in the quarter and delivered constant currency gross profit growth of 6% which drove a strong business line contribution growth of 14%.

Within Manpower, we are seeing the strongest revenue growth from industrial skills which was up 8% in the quarter.

Our office and clerical business continued to show slight contraction on a consolidated basis.

This is very typical in the early stages of recovery to see greater strength on the industrial side with improving growth on the office and clerical side following thereafter.

Experis comprised 18% of total gross profit of which 70% is IT skills, 10% finance, 10% engineering and 10% other.

Experis had strong gross profit growth in the quarter growing 9% in constant currency, a slight improvement from the 8% growth we saw in the second quarter.

Experis saw 7% growth in interim staffing and project solutions and 15% growth in permanent recruitment fees.

From a skill standpoint, IT gross profit was up 8%, engineering was up 5%, and finance and accounting was up 4%.

Our ManpowerGroup Solutions business contributed 10% of total gross profit in the quarter.

ManpowerGroup Solutions is comprised of our market leading RPO and MSP offerings as well as talent-based outsourcing, borderless talent solutions and language services.

Our offerings continue to be well received by the market with growth accelerating to 17% in constant currency in the quarter.

Growth in our RPO and MSP offerings were particularly attractive, up over 20% over the prior year.

Our Right Management business contributed 5% of gross profit in the quarter and saw a 10% gross profit decline primarily stemming from the countercyclical outplacement business.

I will discuss Right's trends later in my segment operating review.

Our SG&A costs excluding the prior-year restructuring were up $14 million in constant currency or 2% to $693 million.

We continue to maintain a tight control on costs while investing in revenue growth opportunities on a selective basis.

Our focus has been on driving greater efficiency and productivity through our delivery channels while enhancing our client experience.

Our SG&A expense as a percentage of revenue favorably declined to 12.8% from 13.2% in the quarter.

On a full-year basis, our SG&A costs excluding prior-year restructuring and after currency impact increased $15 million or 1%.

This has resulted in a reduction in our SG&A as a percentage of revenue from 13.8% to 13.4%.

We have recognized the majority of the benefits from the simplification plan which was implemented in 2013.

We have now set the Company up on a lower cost base and have positioned ourselves well for greater efficiency and leverage on revenue growth going forward.

Now I would like to turn to a review of our operating segments.

Beginning with the Americas, revenue came in about as expected at $1.2 billion, an increase of 7% in constant currency or 4% in US dollars.

Our OUP in the quarter came in at $57 million, an increase of 22% in constant currency over the prior year.

This reflected a 70 basis point improvement in OUP margin to 4.8%.

This margin expansion was primarily driven by strong SG&A leveraging as expenses were well controlled and productivity initiatives were realized.

The gross profit margin was stable as staffing gross margins were down slightly and permanent recruitment fees were very strong, up 13% over the prior year.

Our US operation, which represents about two-thirds of the Americas segment, had revenue of $800 million up 5% over the prior year which was in line with expectations.

This was a slight acceleration from the 4% growth rate we experienced in the second quarter.

OUP was quite strong in the quarter at $42 million, an increase of 22% and an OUP margin of 5.2%, an increase of 70 basis points.

Our gross profit margin was slightly up in the quarter as a result of a slight improvement in staffing gross profit margin as well as strong growth in permanent recruitment fees.

Permanent fees were up 14% over the prior year and 18% sequentially.

We saw accelerating permanent fee growth at Manpower and in RPO while Experis was down from the prior year.

Now let's take a look at brand performance within the US market.

Our Manpower brand represents 57% of US revenues, Experis 35%, and ManpowerGroup Solutions 8%.

Manpower delivered revenue growth of 6% over the prior year which is slightly stronger than the 5% realized in the second quarter.

We continue to see the strongest growth in the SMB market which was up 8% in the quarter.

From a skills perspective, we saw the strongest growth in industrial skills which was up 11% in the quarter.

We also saw improving trends in office and clerical skills.

Our Experis business continued to show improving revenue trends as revenues flat with the prior year.

Within Experis, IT revenue growth strengthened to 3% while engineering and accounting and finance softened during the quarter and contracted in the mid-single digits.

The gross profit performance at Experis continues to be very good with the interim gross profit margin up 100 basis points over the prior year.

ManpowerGroup Solutions in the US had a very strong quarter with revenues up 23% resulting in strong growth in business line contribution.

Both our RPO and MSP business had an excellent performance in the quarter.

Our Mexico operation represents 12% of the Americas segment and had improving but modest revenue growth of 1% in constant currency.

Despite the modest topline growth, Mexico was able to deliver good OUP gains through strong gross margin management and superb cost control.

We are beginning to see good activity in the Mexico market and expect revenue trends to gradually improve over the next several quarters.

The situation in Argentina continues to be very difficult.

While revenues are up 20% in constant currency due to inflation, billable hours are down by 9%.

Our team is doing a very good job maintaining profitability in a chaotic economic environment.

Other markets within Latin America are somewhat mixed.

However, we are seeing very good growth in Colombia which is up almost 50% in constant currency and Brazil which is up over 10%.

Next let's review our Southern Europe segment which represents 37% of global revenues.

Revenue in Southern Europe was $2 billion, an increase of 5% in constant currency, just a touch above the midpoint of our guidance.

OUP in the quarter came in at $105 million, an increase of 42% in constant currency over the prior year.

The OUP margin showed very good expansion, up 140 basis points over the prior year to 5.2%.

This expansion was driven by strong improvement in the gross profit margin as well as a reduction in SG&A from the prior year resulting from numerous efficiency initiatives.

France is the largest market within Southern Europe representing just over 70% of segment revenues.

Revenues in our French business were right on forecast growing 2% to $1.5 billion.

While this growth rate is very similar to what we saw in the first and second quarters, it is important to note that revenue trends softened in September and in the first few weeks of October.

OUP in the quarter was $84 million increasing 43% in constant currency.

OUP margin also improved nicely up 170 basis points to 5.8%.

OUP margin expansion was due to strong improvement in the gross profit margin as well as a reduction in SG&A costs.

Our SG&A cost reductions reflect branch consolidations and efficiency enhancements.

Improvements in the gross margin are primarily driven by the impact of the higher CIC payroll tax credits as well as strong growth in permanent recruitment.

This is the first quarter in the last 10 that we have witnessed growth in permanent recruitment fees in France.

Revenue growth in Italy continued to be, continued at a nice level, up 9% over the prior year in constant currency to $294 million.

OUP growth was strong, up 32% in the quarter to $15 million, an improvement of 90 basis points in OUP margin to 5%.

The gross profit margin was down slightly in the quarter as we continue to see some price pressure in the market.

Permanent recruitment fees continue to be strong, up 26% in constant currency.

Our SG&A costs were tightly controlled and below the prior year resulting in good operating leverage and flow-through to the bottom line.

Revenue growth in Spain continued to be very good in the quarter, up 25% in constant currency.

This growth combined with good SG&A productivity improvements resulted in very strong OUP growth.

Revenue in Northern Europe was up 6% in constant currency which was at the lower end of our guidance range.

Revenue performance across Northern Europe was mixed with some countries above expectations and others below.

OUP in the quarter was $60 million, an increase of 12% over the prior year in constant currency.

OUP margin was up 20 basis points to 3.8%.

Our gross profit margin was fairly stable with the prior year as some pressure on the staffing gross margin was offset by strong growth of 31% in permanent recruitment fees.

Organically, permanent recruitment fees are up 13% in the quarter, the strongest growth coming from the UK which was up 38% and Germany which was up 18%.

Within Northern Europe, our Manpower brand represents 74% of revenue, Experis 22%, and ManpowerGroup Solutions 4%.

During the quarter we saw good revenue and profit growth across all brands.

Our Experis brand saw good growth in the UK, Netherlands and Belgium with contraction in other Northern Europe markets that are still trying to gain traction.

Within Northern Europe, we are seeing the greatest demand for our services in the UK which is consistent with the macro data you are reading.

UK revenues were up 17% in constant currency with strong OUP gains.

Revenue in the Nordics was down 1% in constant currency.

This reflects stable revenues in Sweden with continued contraction in Norway.

While we are encouraged by the improving opportunities in the Swedish market, demand for our services in Norway is softening against a weaker macro environment tied to the oil economy.

Revenue trends in Germany were stable with the prior quarter, up 2% in constant currency over the prior year.

Revenue trends remained solid in the Netherlands, up 9% over the prior year and improved in Belgium where revenues were flat with the prior year.

Revenues in Asia-Pacific Middle East were $592 million, a decline of 1% in constant currency, slightly short of our expectations.

Despite the modest topline contraction, OUP grew 7% in constant currency to $22 million reflecting 30 basis points improvement in OUP margin to 3.7%.

This margin expansion was primarily due to an improved gross profit margin as a result of 8% growth in permanent recruitment fees.

Our Japan operation is the largest single country in the Asia-Pacific Middle East segment representing 36% of revenues.

Revenue growth in Japan was down 1% in constant currency from the prior year.

This is an improvement from the 4% decline we experienced in the second quarter.

While there are some growth in the Japan market, the labor market is very tight.

We continue to work on recruiting initiatives to drive order fulfillment.

Revenue growth in Australia was up 1% in constant currency in what continues to be a challenging macro environment.

Despite the weak revenue line, we were able to deliver strong OUP growth as a result of good growth in permanent recruitment fees.

Other markets in Asia-Pacific, Middle East were off 1% in constant currency.

We had very good growth coming out of India, Korea, Taiwan, Singapore and the Philippines.

This was off by revenue contraction in China and Hong Kong partly due to legislative changes that were introduced in China a year ago but also due to a softer demand environment.

Right Management revenue came in at $72 million, a decline of 8% in constant currency.

Within Right Management, our outplacement business represents 65% of revenues and contracted 11% in constant currency.

The other 35% is comprised of talent management which saw a slight contraction of 2% in constant currency.

OUP in the quarter was $6 million, a decline of 16% from the prior year.

While SG&A expenses were down during the quarter, the reduction in cost was not enough to offset the decline in gross profit.

Now I would like to take a look at our cash flow and balance sheet at quarter end.

Free cash flow defined as cash from operations less capital expenditures was favorable in the quarter bringing our year-to-date free cash flow to $72 million.

This was slightly below last year despite stronger earnings this year as we utilized more working capital compared to the prior year.

This was primarily due to an increase in accounts receivable at quarter end and cash payments related to prior-year restructuring charges.

The increase in receivables was due to a combination of greater revenues and an increase in average days sales outstanding of 1.5 days.

This was primarily driven by timing of month end collections.

Our capital expenditures for the nine-month period were $33 million, slightly down from last year's level.

During the quarter, we purchased 720,000 shares of stock bringing our year-to-date purchases to 940,000 shares or $73 million.

At the end of the quarter we had 7.1 million shares available for repurchase under our authorization.

Our balance sheet was in good shape at quarter end with $661 million of cash and total debt of $484 million bringing our net cash position to $177 million.

Our $484 million of debt is primarily comprised of a EUR350 million note due in June of 2018.

In addition, we have a $600 million revolving credit agreement which had no balances outstanding during the quarter.

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

As you are aware, the macro environment particularly in Europe has softened over the last several weeks.

This has resulted in slightly weaker demand for our services in some markets while growth in other markets has remained stable.

The other factor to consider is the impact of the weaker euro relative to the US dollar.

For purposes of the forecast, I am using $1.26 as the euro exchange rate which is off about 7% from the average in the fourth quarter of last year.

While the weaker euro has a near-term impact on our reported financial results, it may be a positive longer-term for the European economies and the underlying demand for our services as it could generate export led growth in the Eurozone.

With these factors in mind, we are looking for constant currency revenue growth between 2% and 4% in the fourth quarter, slightly softer than the 4.6% growth we had in the third quarter.

We expect the exchange rates to negatively impact revenue growth about 5% resulting in reported US dollar revenue down from 1% to 3%.

With the exception of the countercyclical Right Management, we expect all of our operating segments to have positive growth in the fourth quarter in constant currency with the Americas being the strongest between 5% and 7%.

We expect our gross profit margin to fall in the range of 16.8% to 17% reflecting a typical seasonal uptick from the third quarter.

Our operating profit margin is expected to range between 3.5% and 3.7% and we are projecting a tax rate of 35%.

This will result in earnings per share in the range of $1.39 to $1.47 which includes an unfavorable impact from currency of $0.08.

As you think about our earnings growth compared to the prior year, it is important to keep in mind that we recognized an additional month of the CIC tax credit in the fourth quarter of last year.

If you adjust for this item and exclude the prior year restructuring charges, our forecasted operating profit growth for the quarter is 10% and earnings per share is up 9% on 3% revenue growth, all in constant currency and assuming the midpoint of our guidance ranges.

As many of you know I typically give some initial thoughts on our first quarter on this third-quarter call as a seasonally weaker first quarter can sometimes be a bit trickier to model.

Given the current uncertain macro environment looking ahead one quarter is challenging much less say two quarters.

My hope is that by the time we reach the first quarter the pause we are seeing in some markets would return to better growth.

As you can see from our third-quarter results and our fourth-quarter guidance, we are able to get good operating leverage on mid single-digit constant currency revenue growth but little leverage on low single-digit revenue growth.

I would expect this principle to hold in the first quarter of next year as well as constant currency revenue growth will be the key driver of performance for the first quarter and all of 2015 for that matter.

Of course, if the euro remains where it is today, we will have an unfavorable impact from currency.

The average euro rate in the first quarter of 2014 was $1.37 so it is currently about 7% less than that at the moment.

With that, I would like to turn things back to Jonas.

Thanks, Mike.

The third quarter was a strong quarter for us with good execution and focus on our strategic priorities, we delivered 24% earnings growth in constant currency over prior year.

As you can tell from our near-term outlook, this is not a straight and linear recovery from the global economic troubles we have been living with for some time but I believe there is reasons for optimism in terms of our opportunity.

And this belief is largely based on conversations I have with increasingly sophisticated client companies all over the world.

In our conversations, they look at the geopolitical volatility, the limited visibility into their future demand and as a consequence, the much more strategic analytical approach they have to their existing workforce strategies.

They intend to build their companies so that they are much more agile and able to deliver value in shorter timeframes as they adjust economic cycles and in some cases, cycles within an industry or a specific geography.

The sophistication extends beyond the global companies to midsize clients that know they are likely to be affected by what happens around them whether they have business abroad or not.

And I believe this is a structural evolution and as such a secular growth opportunity for us on top of the cyclical growth we should expect to see when economies struggling right now see some growth return.

Our clients are increasingly looking for workforce solutions that can help them across multiple operations, have seamless delivery across brands and countries and combined offerings in a way that helps them adjust to whatever the market conditions may be like and this is something we have been hearing for some time and these conversations are also occurring right now.

Our unrivaled global footprint with market-leading coverage of emerging markets, our strong global brands that can be combined to form unique and innovative workforce solutions and in particular, our strength in the solutions business with world-leading RPO, MSP and other talent based solutions make me very optimistic that notwithstanding any shorter-term market turbulence, we are well positioned for continued success as the leading global workforce solutions company.

I also believe that our long history of stellar reputation in terms of ethical behavior and high levels of integrity will stand us in good stead as jobseekers, companies and governments will want serious, stable and reputable companies that can help them through these turbulent times, being an integral part of the solutions that solve the vexing labor market issues in many countries.

So in summarizing the third-quarter results, we are pleased to see that our efforts in driving disciplined revenue growth are continuing to show progress and we will remain committed to seizing growth opportunities aligned with our strategies also in the future achieving good leverage on that growth and continuing to build a diversified business.

The balance of pursuing good revenue growth opportunities with disciplined pricing and strong execution will be very important as the overall global situation is still in the early innings of a choppy on/off recovery.

I anticipate that we could be buffeted by some volatility and that some markets may pause for some time before picking up steam again.

Our aim is to improve our performance even under these uncertain conditions and with our strong management team committed to driving profitable growth, we are focused on building on the progress we have made so far in the year.

With that, we come to the end of our prepared remarks and I would like the operator to start our Q&A session.

(Operator Instructions).

Andrew Steinerman.

Good morning.

Mike, you were kind to really highlight the France trend in September- October.

Are there any other countries that you want to highlight when talking about September and October trends?

Yes, good morning, Andrew.

I think in terms of seeing a change in direction or a little bit of softening, I think France was really the one that I would call out.

I think when you look across Europe generally I think what we are seeing is an uneven recovery or an uneven progress.

Certainly we saw a little bit of softening in France.

Some of the other markets just feel a little bit more cautious.

If you go to the likes of Italy or the Netherlands, I think a little bit more caution in some of those markets.

Other markets are still going just as they had been.

Certainly the US continues on a fairly stable path.

The UK is doing quite well.

So you certainly see a fair -- some unevenness across as we look but France is the one that probably -- it just didn't quite pick up from the summer holiday period like we would normally expect in September and therefore seeing revenue a little bit down from where we were in July and August.

The good news I guess in the quarter is July and August were actually a little bit stronger than expected in France but then September just didn't come back quite as good as it would have expected.

Andrew, this is Jonas.

I would say that the description uneven is a really good word to describe what we saw because if you look at Europe and you see what is happening there, we have some markets that are actually really strong.

If you look at the UK like you mentioned, Mike, Sweden is getting better on the Manpower side.

You've got Spain that is continuing to do really well and also Italy but then clearly some of the markets that are a little bit softer and actually softened quite late in the game in the quarter.

So uneven I think is a great description of what we are seeing across in particular in Europe.

Right.

Jonas, could you just make a quick comment about the responsibility and solidarity act or pact in France?

How is that progressing?

And of course my question is around how all of this impacts the CIC?

I know back in the spring when there were still conversations going on, Manpower's position was that this should turn to be a net positive for the industry.

In terms of the CIC, I actually don't see any news around that.

It is what it is before which is the French government's structure labor market reform in helping France become more competitive as it relates to the cost of labor so there is no news there.

It is the same as it has been and it is now fully implemented and accepted as part of that structure reform package.

There were some family subsidies that are going to be implemented in 2015.

They are not finalized yet although they have had some stages of the approval process in the French Parliament and that is going to come a little bit later on.

That takes the form of more traditional subsidies and we will see how those play out as they get approved in the final stages and then as they get implemented into 2015.

Like we said last time, hard to gauge exactly the magnitude of that but on the whole, we think they should be net positive.

Perfect.

Thank you.

Thanks, Andrew.

Tim McHugh.

Thanks.

Can you just give a sense I guess in terms of the guidance here relative to what you have seen kind of fall off here the last couple of weeks in terms of the growth rate.

Are you assuming that the growth trend continues to soften throughout the quarter?

Have you kind of extrapolated some of the more recent trends?

I guess given things have changed fairly recently, I am just trying to get a sense of relative to that change how you have approached the guidance?

Absolutely, Tim.

As we look at again the fourth quarter, our view is for revenue constant currency growth to be in the 2% to 4% range so slightly softer than the 4.6% range that we saw in the third quarter.

I think as we looked at it we took a good look at September, a good look at what was where we were in the first few weeks of October.

And to the previous comments, there clearly was some unevenness and some stability in some countries and other countries moving a little bit better, others a little bit worse.

But our guidance really is predicated on what we had seen for those -- let's call it September and early October with not a lot of anticipation of further weakening or further strengthening for that matter.

So it was more of an extrapolation of what we saw.

Then on the euro, we did use $1.26 on the euro rate which at the moment is a little bit stronger than that, probably closer to $1.27 and change, $1.28 almost.

But that is changing by the day so that is how we approached it.

Tim, maybe to add to that, this is Jonas.

This is just like Mike says, it is our extrapolation on a situation or rather a trend that we saw in September.

But as I mentioned in my prepared remarks as I look at this, I truly see this as a cycle within a cycle or a pause in some markets, not the beginning of a broad-based downturn because it is uneven.

We see some markets that are still doing really well.

So this is our view that it will get a little bit bumpier and some markets a little bit softer but this is not a significant shift in trend that we are talking about.

It is just a little bit softer in some markets.

Maybe, Tim, just to add.

I made a comment on my prepared remarks but maybe just to underscore as you do look at it compared to prior year, we did have an extra month or four months of CIC benefit included in last year and that added about 25 basis points overall to the operating margin in the quarter last year.

So when you compare it on a year-on-year basis, the guidance looks like operating profit margin is flattish at the midpoint but after you adjust for that item in the prior year, you actually do get a little bit of operating profit margin expansion.

As I said at the midpoint on 3% revenue growth, you get about 10% constant currency earnings operating profit growth on that.

And on that last comment, Mike, relative -- you also made a comment that basically as you go into the low single digits, margin leverage becomes tougher I guess.

I think you had said SG&A was up 2% constant currency.

Is that kind of a fair ballpark as we think about 2015, that north of that you should get some leverage but as growth starts to drift down towards that kind of 2% range it will be tougher to see much margin lift?

I think it does become more challenging because you are dealing with averages of course with different markets and different economies moving in different directions.

So within that average you may have one market contract and be delevering while other markets may be seeing some growth with some leverage but maybe not as much as the deleveraging.

So it gets a little bit difficult and of course there is just an inflation in wage rates that comes through as well.

So as that growth rate topline growth rate does drop, it does become more difficult to get that operating leverage.

So that is what you are seeing and as you saw in the third quarter with 4.6% growth, we were able to get some good leverage with 2% expense growth.

It gets a little bit tougher when that topline drops down into that 3% range and so just going to be mindful of that.

It doesn't mean that we are not still driving efficiencies and productivity across the business.

We still see opportunities to continue to drive on our delivery channels and how we are delivering to our clients and customers and we will be continuing to look at that and drive that next year and see some opportunities there.

But no doubt as that topline comes down, leverage becomes a bit more difficult and of course you can see how the leverage comes back quite nicely when you get a little bit of growth, the leverage clearly is in the model and shows up quite quickly.

But there is not enough room to take cost out now at this point as we think about towards next year that really we would expect to see a lot less than kind of a low single-digit growth in expenses?

I think you can always take cost out.

I think whether it is prudent to take cost out is maybe the question.

And given what we are seeing today, we don't see reason to take dramatic costs out at this point.

We feel good about our cost base with the simplification plan that we went through last year, we reset the cost base.

We have got clearer visibility we think in terms of where those costs are, where the opportunities are.

So I don't see a massive cost restructuring or cost-cutting exercise.

That doesn't mean that we won't be trimming and certainly in those markets that are seeing contraction, there will be more opportunities than other markets but I wouldn't want to characterize it as an overall cost reduction effort per se.

Okay.

Thank you.

Kevin McVeigh.

Great.

Thanks.

Mike, it seems pretty interesting that the perm fees are really starting to firm and accelerate in what seems to be a bit of a pause or a cycle in a cycle if you would.

Any sense of why that has been occurring?

So on the perm side, I think that was really good to see and I think it does indicate that there is still some strength out there and some opportunity.

When you look at overall perm growth in the quarter, it was up 17% in constant currency, was up 4% constant currency last quarter so you are seeing it and you are seeing it across a number of markets.

The Americas had growth of 13% overall with the US up 14% so that was fairly -- and the US was fairly flat a quarter ago.

The UK organically was up 38% and Italy was up 26%.

So I think what you are seeing here is the markets still have some hiring happening and I think what you are also seeing is the industry, our clients are looking at us and our industry in a different way in terms of how they are using us to bring in their permanent workers and what we can do to help them find the right talent.

So I think that is really why you are still seeing some growth despite what are in some markets some softer conditions.

Jonas, do you have anything you want to add to that?

I think your comment there in terms of how our clients see us is an important one because we have been working on deploying capabilities within the perm area for quite some time and I think many of our clients now see us as a Company to go to not only for staff augmentation but also for permanent recruitment.

And what is interesting in the perm numbers is that you are actually also seeing it not only in markets where you are seeing good growth within the market but also in markets that are having a little bit of a tougher time.

And I think we are now starting to take a position also in those markets where we are seen as a Company that has a diversified portfolio of services and solutions including perm.

And I think you are starting to see some of that secular growth in terms of how they see us come through as well.

Understood.

Mike, as we are thinking about this cycle within a cycle, does that kind of feel like relative to the past, is that kind of like 2011 to 2012 when things slowed down a bit and then came back?

I know it is early but just anything we should look at in terms of indicators other than prism data?

Ultimately how are we thinking about it relative to past slowdowns just from a modeling perspective?

I know it is hard to model but anything in terms of past history that we could potentially use as a guide?

That is a good question, Kevin.

I am not sure I have got a good answer to it because I think trying to look back at history is somewhat difficult because I think we are in such a unique cycle in terms of where we are and where the economies are going that I am not sure looking at the past will do us a whole lot of good.

Our own sense is that at this point does not feel like a rollover in Europe.

It certainly does feel like there is some pausing there which is why we refer to it as a cycle within a cycle.

How long that it may go I think we would be speculating to put something on that.

But I think overall we feel we are well-positioned and we will take advantage of what opportunities are in the marketplace.

And I think the important thing is we are still seeing some good opportunities in the marketplace today and where it makes sense, we are going to invest in those opportunities selectively and in those markets where we don't have opportunities, we are of course going to drive efficiency and productivity as best as we can.

This is really the kind of environment that we have been preparing for.

We recognize that this recovery wasn't going to be typical, a typical cyclical recovery but a very uneven and it could stop and start at various times.

So the fact that we have reset our cost base, that we have very disciplined pricing approaches and that we are selectively investing in the areas when we see growth come back, I think is going to be pretty typical of how we are going to be looking at this also in the future.

So this could take a little bit longer, it could be just a brief pause but we are ready to manage well in both of those scenarios or whatever scenario comes in our way.

Okay.

Thank you.

(inaudible)

Thanks for taking my questions.

I guess first off just on what has already been asked but a little bit more clarity on what gives you confidence that this is going to be more of a pause?

What is the nature of your client discussions that gives you that sort of visibility that things won't get materially worse?

If you can just give us some color on that.

I think as you look at the overall picture is that the slowdown and the patchiness is fairly concentrated in Europe to some markets at this point.

When you look at this and you say Europe is softening, that is not really the case.

You have a number of markets that are actually doing extremely well.

You have many markets that are stable and where we consider it at this point that least to continue being stable and some markets that soften.

So this is not a broad-based trend.

It is some softening in some markets and some of those markets are reasonably big but within that, let's remember that the softening even in France is reasonably modest.

So that would be the first observation.

I would also say just as I mentioned in my prepared remarks that our client conversations are still positive so this is not clients coming to us telling us that they don't need our people anymore, that they would like to reduce their workforce in any drastic or dramatic way.

Quite to the contrary in some markets and in others it is a lack of acceleration and a lack of increase and maybe a little bit less in some markets but it is not a dramatic shift from where they have been before.

Some increased cautiousness in some of the markets.

So the way we look at this now and those are the conversations we are having now, that could change but right now that is what we are hearing.

And based on that, our view is that this is a pause and a cycle within a cycle as opposed to a broad-based downturn and an acceleration or as you mentioned a rollover in Europe.

We don't see that in our conversations.

This is Jeff.

I would add, there is a big difference in the field too.

There is no surprise conversations whereas in previous ones you would get that wow, our backlog has suddenly gone bad and we are not going to need certain people.

There is no conversations like that at all.

This is all kind of anticipated.

If you talk to our French people, they would say of course, we haven't done some structural things within the country, we haven't done certain things this way.

So in a cycle that turns down, you get a cross industry, somewhat of a little bit of a surprise feel from clients.

The clients are relatively calm.

It doesn't mean their businesses are easy and they are not working really hard, far from it.

But I think that is the biggest difference which gives us the confidence, to Jonas's point, the cycle within a cycle because these things will happen as the world has become much more global.

So I think that is one of the big differences that we are seeing is that there is no surprise, there is no panic, there is no restructuring conversations that we are having with companies.

Maybe just to add a little bit further detail, in the French market in particular while things have softened a little bit on a year-on-year basis in September and into early October, it is not spiraling down.

What we have seen the last several weeks has been fairly consistent from an overall revenue trend standpoint which has been what our outlook is for the fourth quarter which is for us flat to slightly down.

And that is about what we have seen in France over the last several weeks.

So it is not like it is heading in a direction right now that would have us overly concerned.

Got it.

That is super helpful.

Thanks for the color there.

Shifting gears a little bit to Experis, I know you have mentioned in the past that you are going to be feathering in recruiters and that is an ongoing process.

I am wondering if you have any insight into when you can start to achieve above market growth there or is your expectation right now to sort of grow in line with the market?

We still have some work to do and I am pleased to see that the plans that we have put in place are starting to show some traction on the IT side but I still think that while I am pleased with the progress, we know this takes some time as we feather in recruiters and salespeople to meet the supply and demand.

We still have some way to go to get to market so I think that will be our first focus is to get to market and then move beyond there.

But I am pleased to see that we have continued to make progress just as we did in the last quarter.

We continue to move in the right direction and I look forward to seeing that continue.

Okay, great.

Thank you.

Tobey Sommer.

Thanks.

I am curious within perm, are you seeing any wage inflation or rising compensation?

Any visibility into occupations or industries in which that may be occurring?

The wage inflation is not broad-based.

Of course, it now depends on which countries you are talking about so I'm going to take a very broad-based answer which is skills in high demand as you would expect within engineering and IT, maybe in some sales and marketing positions are seeing some wage inflation but lots of other skill sets are still under pressure and I'm not seeing much wage inflation.

So on average do I see a massive wage inflation?

No, I don't but I know that underneath that average there are some skill sets where some candidates will see some better ability to get better wages, but those are pretty specific skill sets.

If we were to narrow the discussion to the US market, would that answer still hold?

Yes, I think that would still hold, but it is becoming a little bit more noticeable in some skills in the manufacturing sector, so it is becoming a little bit more broad-based actually here in the US.

Not enough so that you can see it as you look at the labor department numbers yet, but I think we are at a point where we could expect to see a little bit more broad-based wage inflation in the US.

And that, of course, would then translate into some of that as we look at the perm fees as well.

Thank you.

I was wondering if you could give a little bit of additional color regarding the trends you are seeing in recruitment process outsourcing.

Well, recruitment process outsourcing for us continues to be a great, great story, as does all of our solutions business under ManpowerGroup Solutions.

But it is the case of our clients wanting to build more agile organizations and really seeing us as a partner that they can work with that gives them a great deal of flexibility and agility.

So they can ramp up with our recruiters if they have big projects for 2000 people or they want to do a hiring process, an implement hiring process across the world, they come to us.

And we provide the common process, the common approach, and then we deliver the talent that they need to them when they need it and at the price levels and the wage levels that they have determined is what they are looking for.

So it is really nice to see that has and continues on a good growth trajectory.

What is also very interesting to see is that some of these solutions are leapfrogging from more mature markets into emerging markets.

Of course, we have a tremendous footprint and we are able to leverage that footprint to deploy those solutions to clients that are looking for them, which means that we can take very early and strong positions in those emerging markets with our solutions business as a whole; which is exciting to see in terms of the growth opportunity for those kinds of solutions there as well.

Thank you.

Thanks, Tobey.

Gary Bisbee.

Good morning.

I guess a question, what is allowing markets like Spain and Italy where there is obviously reasonably weak GDP growth to show among the best growth rates in your portfolio?

Is it competitive dynamics in the country or are you doing something different there that's allowed that?

I know you had for a while some M&A in Spain, but it seems like it is more than that.

Well, I think that both in Spain and Italy the teams are doing a great job and we have really seen some good improvement in our own performance.

But I do think that part of this growth also comes from what I refer to in my prepared remarks that in markets that are very difficult, there will be hiring even in markets that may be in recession such as Italy, there will be hiring.

People retire and in particular in Europe, when they say they retire maybe at 55 and maybe it is 57, they actually do leave the workforce, they don't stay on which means there is a demand for new people getting hired.

And in those markets and under those circumstances we are a preferred choice or one of the choices I should say and clearly in the case of Italy and Spain, a preferred choice of flexibility for many companies.

And that is why you are seeing in the early stages of a recovery or even when there is no recovery that we can take a good share of whatever jobs growth is there.

And then on top of that, our teams are performing well so we get a good share of that always applying our pricing discipline so that we make sure we stay true to that.

And our strong execution, that would be one of the reasons why you can see that which as you look ahead to many of the markets that have slower growth and that might be coming out of a recessionary period or just coming into a more steady state of growth, that is where we see this opportunity, the secular opportunity of our services being used in a more consistent fashion to build strategic flexibility and agility for more companies going into the future.

Okay, great.

And then the follow-up.

Obviously you are incredibly well-capitalized right now.

I know you did some buybacks this quarter but how are you thinking about the balance sheet?

Are there opportunities with the weakness that's happening to see attractive M&A opportunities?

Are you likely to do more buybacks?

Just any thoughts on capital allocation?

Taking the first one, I think our view on the M&A front has not changed.

We continue to consider M&A to really accelerate our strategy around higher value solutions and professional businesses.

So that remains intact so we are always looking for the right opportunities that we think would fit with our business, with our culture and of course at the right price.

That has been consistent and hasn't changed.

From a share repurchase standpoint, we have repurchased shares this last quarter and over time we have looked at that as a way to get cash back to shareholders to the extent we feel we are building up excess cash over and above our needs.

So we still would look at that as something we would do going forward and certainly we see the intrinsic value of the organization as being higher than where the share price may reflect today and that may create some opportunities for us.

Certainly has the economies go and move that of course has some impact on our share price and it could create some opportunities for us.

But that is always something that we look at as a way to get cash back to shareholders and we will continue to do so.

And then just one last quick one.

I realize it is early but do you have any sense what would be a good assumption for tax rate in 2015?

Is it more like the high 30s from the first half of this fiscal year or the mid-30s you reported this quarter and guided to for next?

Thanks.

If you look at overall tax rate last year for the full year, it was about 37.5%.

I think this year we will come in a little bit over 37% so I think I probably would look at that 37% to 38% range on a full-year basis.

It tends to be a little bit higher in the first part of the year just given some of the permanent items that impact the overall effective rate and how it comes through.

So you may see a little bit higher rate in the first quarter in particular, particularly we have got the French CVAE tax that comes through and that has a disproportionate impact when your earnings are lower so that will have more of an impact in the first quarter.

It is a little bit higher rate in the first-quarter, first half of the year and then the rate I expect will come down a little bit as we make our way through the year but I think all in for the year at this stage I would expect somewhere in that 37% to 38% range.

A lot of moving pieces so it is always a difficult one but I think that is a good start for right now.

Thank you.

Sara Gubins.

Thank you for sticking me in.

On pricing trends, you have talked about remaining disciplined.

Is anybody getting more aggressive in any of your key markets?

And then just a quick follow-up question, are you seeing any market share shifts in any key markets?

Thanks.

Good morning, Sara.

No, I think in terms of pricing, you can always see some markets acting a little bit differently but on the whole I would say that the pricing environment remains very competitive but not dysfunctional in that you would see some actions that would make no sense.

And I think it remains competitive and our position is that we will be very disciplined in our pricing and carefully weigh the opportunities because we know what happens when you lower pricing and margins go down, they tend not to come back up so we want to maintain that position.

I think if you look at some of the markets where we have done very well such as Spain and the UK, we are seeing some shifts in those positions and of course also France has continued to be a place where we have taken some market share and the team is executing very well there.

So those would be the markets that come to mind that would stick out as markets where we are seeing some shifts.

Thank you.

George Tong.

Good morning.

Thanks for sticking me in.

Quickly going back to the stimulus measures being considered in France, can you comment around potential timing or how that factors into your longer-term operating outlook for revenues and margins?

The stimulus that we refer to that exists today does not really moderate next year.

It is projected to continue for 2015.

As I mentioned earlier, there are some subsidies that are being proposed and that will probably be enacted next year as of first of January or whenever they decide to enact them that could give us some opportunities on the upside.

But this is also a country that introduces taxes and removes taxes so for now, we are cautious in terms of looking at the impact it would have because we know as much as there are reductions and some further subsidies on the one hand, we also know that there are some additional ones that are coming in.

Our view right now would be that they are still a net positive but we will have to see when they actually get passed and when they get formalized and how they then get implemented if actually comes to pass but if it comes to pass, it should come to pass at the beginning of next year.

This is always subject to change so therefore until it is passed and we know the implementation date, we want to be somewhat cautious.

That is helpful.

Just a quick follow-up.

In terms of other countries, are there other austerity measures that give you hope in terms of influencing your operating outlook?

I think the new labor legislation in Italy is a positive evolution for that labor market so the (inaudible) government is trying to make the labor market more competitive, the so-called Jobs Act has been passed in a couple of instances.

There is still a lot of discussion that has to occur there and the main drivers of that labor market flexibility are first of all making it easier or feathering in new employees into organizations who gradually earn seniority as in labor protection over the first three years.

So it is easier to hire people and then letting them go within the first three years which I think overall is a positive effect for the Italian labor market.

And more specifically to our industry if it is implemented the way it is proposed right now which is still subject to change, there are some forms of flexibility, so-called [coco pros] which are specific consultant contractor agreements, they would be abolished and that could give us a good opportunity to come in with our flexibility and take some of that market.

But as I mentioned, the way it is presented now this could be a positive evolution for us.

The degree of which very much depends on the implementation and actually and frankly how it gets through the next discussions with unions and the votes that still need to be passing.

But I think of it goes through the way it is looking now that could be a good upside in terms of our business in Italy.

Very helpful.

Thank you.

Okay, thank you very much.

That concludes our third-quarter conference call.

Have a good day.

Thank you and that concludes today's conference call.

Thank you all for participating.

You may now disconnect.