ManpowerGroup Inc (MAN) 2016 Q2 法說會逐字稿

Welcome to the ManpowerGroup's second-quarter earnings results conference call.

(Operator Instructions)

I would now like to introduce your host, Jonas Prising.

Thank you.

Please go ahead.

Good morning and welcome to the second-quarter 2016 conference call.

With me today is our Chief Financial Officer, Jack McGinnis, along with our Senior Executive Vice President in charge of Investor Relations and former CFO, Mike Van Handel.

I will start our call by going through some of the highlights for the second quarter.

Then Jack will go through the operational results of the segments for the quarter and will cover our balance sheet, cash flow, and the outlook for the third quarter.

I will then come back for some final thoughts before we start our Q&A session.

But before we go any further into our call, Mike will now read the Safe Harbor language.

Thanks, Jonas.

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.

We had another good performance in the second quarter of 2016, in what continues to be a choppy and slow growth environment.

Earnings per share in the quarter was $1.60, up 22% in constant currency, and in line with the increase we achieved in the first quarter.

For the first half of the year, our earnings per share were $2.57, a constant currency increase of 21%.

Currency fluctuations had little impact on the first half, as earnings per share was up 19% in US dollars.

Revenue in the quarter came in at $5 billion, up 5% over the prior year in constant currency.

This was slightly softer than expected, as we were forecasting a slight acceleration in the revenue trends in the US and France, and instead, we experienced a slight deceleration from the growth rates in the first quarter in those markets.

Given the volatile lower growth environment, we've maintained an intense focus on pricing discipline, cost control, and driving productivity throughout our branch network.

This has resulted in an operating profit expansion in the quarter of 20 basis points to 3.9%.

Operating profit in the quarter was $196 million, an increase of 10% in constant currency and US dollars.

For the first half of the year, operating profits was $328 million, an increase of 11% in constant currency or 9% in US dollars.

As we have discussed now for the last several quarters, the environment continues to be choppy with some markets improving, some stable, and some softening.

We also see choppiness for some markets within the quarter.

France was a good example of this, where we had improving growth in April followed by a weaker May, and then slightly better trends in June.

This sawtoothing in a specific market is not unusual in a low growth environment, where even small changes in underlying growth or perceived changes to the external market can translate into employer behavior and their hiring intentions in the short-term.

Our overall view of the external market conditions has not changed.

We are operating in a global economy that has become somewhat softer over the course of the past year, and while the market is uneven and economists now predict lower economic growth overall, it is still a market that presents us with very good opportunities.

Despite the news of the UK's Brexit decision likely affecting economic and employment growth prospects in that country in the short-term, we believe the impact on the rest of Europe is less certain.

Many of the countries in the EU and Eurozone are early in their economic recovery and still have significant room for labor markets to get back to where they were before the recession.

We believe that once the news of the decision has been fully absorbed, employers will adjust the organizational needs based on today's need, not anticipating the unknown outcome of years of Brexit negotiations.

This should provide us with good growth opportunities in a number of countries in Europe.

The US economy seems to be continuing its slow growth mode.

Parts of the economy are performing well, other parts less so, but overall a stable economic environment and labor market where we can and should explore further opportunities for profitable growth, as we have seen in our Solutions and Perm business.

The situation in American markets is very mixed, as far as economic growth prospects are concerned, although any slowdown in many cases is relative to past growth rates that are still higher than in most developed countries.

With few exceptions, many of those emerging markets have provided us with excellent opportunities for profitable growth, as we saw from our performance in Latin America and Asia-Pacific also in this quarter.

We are very well-positioned in this environment to help our clients with the sophisticated workforce solutions they desire in this time of lower growth and of certain uncertainty.

Workforce agility is top-of-mind for our clients and our Solutions offerings are well-suited to assist with their needs.

This is reflected in our strong growth in ManpowerGroup Solutions, which saw constant currency gross profit growth of 14% in the quarter.

Jack and I will provide further details and thoughts on the current environment through the balance of this call.

With the first half of the year behind us, we are off to a good start to 2016, and I would like to thank all of my Manpower colleagues around the world for their dedication and commitment to delivering our brand promise to our clients every day.

And with that, I will turn it over to Jack for some additional information in our segment operating results in the quarter.

Thanks, Jonas.

As Jonas mentioned, we had a solid second-quarter performance, with earnings per share up 22% in constant currency and 5% constant currency revenue growth.

Revenue growth was at the low end of our guidance range, but operating profit and earnings per share exceeded our expectations.

The operating profit margin was 3.9%, up 20 basis points over the prior year, and up 10 basis points from the midpoint of our guidance.

Compared to the prior year, our gross profit margin was unchanged, while our SG&A costs were 20 basis points lower, resulting in the expansion in operating profit margin.

Breaking our revenue growth down into a bit more detail, on average, we had one more billing day in the quarter this year compared to the prior year when Easter fell into the second quarter, which favorably impacted revenues about 2%.

Currency negatively impacted revenues by 1% and earnings per share by $0.02, as expected.

As was the case last quarter, acquisitions contributed about 3% to our growth rate in the quarter.

Therefore, our organic constant currency revenue growth in the quarter was 2%, and after adjusting for the 2% benefit from additional billing days in the quarter, organic average daily revenue growth was flat, or 2% lower than the first-quarter growth rate.

I mentioned our revenue growth was at the lower end of our guidance range.

This was primarily because we forecasted a slight acceleration in revenue trends in the US and France from the first-quarter levels, and in fact, we saw a slight deceleration.

Most of the markets came in as expected.

Earnings per share of $1.60 exceeded the midpoint of our guidance range by $0.09.

This outperformance is mostly attributable to the stronger performance of our operations, with $0.05 coming from operations.

We realized a gain on the sale of an investment, which reduced our other expense, adding $0.01.

Slightly lower effective tax rate added $0.01.

We also picked up $0.02 on a lower weighted average share count due to share repurchases during the quarter.

Looking at our gross profit margin in detail, our gross profit margin came in at 17.1%, flat to the prior year.

Organically, the staffing gross margin had a 30-basis point unfavorable impact on overall gross margin, which was primarily driven by business mix, as well as direct cost increases such as the introduction of complementary healthcare costs for our staffing associates in France discussed last quarter.

I will discuss these later as part of the segment review.

Growth in Permanent recruitment fees remained solid, up 12% in constant currency, adding 10 basis points to the gross profit margin, which helped offset the lower staffing margin impact.

Acquisitions added 10 basis points to gross profit, as well, during the quarter.

Next, let's review our gross profit by business line.

During the quarter, the Manpower brand comprised 62% of gross profit.

Our Experis Professional business comprised 20%, ManpowerGroup Solutions comprised 12%, and Right Management, 6%.

Consistent with the last several quarters, our strongest growth was achieved by our higher value solutions offerings within ManpowerGroup Solutions and our higher skilled professional staff within Experis.

During the quarter, our Manpower brand reported constant currency gross profit growth of 2%.

On an organic basis, gross profit was down 1%, in line with the first quarter.

Within our Manpower brand, approximately 60% of the gross profit is derived from light industrial skills and 40% is derived from office and clerical skills.

Gross profit growth from light industrial skills increased to 5%, up from the 3% increase in the first quarter due to an improvement in gross margin percent.

Gross profit in our Experis brand grew by 8% in constant currency.

On an organic basis gross profit declined 1% in constant currency.

Our Experis business line contribution was strong, up 11% in constant currency as a result of continued productivity enhancements, strong expense management, and acquisitions.

ManpowerGroup solutions includes our global market leading RPO and MSP offerings as well as talent-based outsourcing solutions including Proservia, our IT infrastructure and end-user support business.

Gross profit growth in the quarter was up 14% in constant currency with very good growth in our RPO and MSP solutions offerings.

Right Management also contributed nicely to the quarter with gross profit up 3% in constant currency.

I will discuss this further in my segment reviews.

Our reported SG&A expense in the quarter was $665 million, an increase of 2% over the prior year or 3% in constant currency, which included $26 million from acquisitions which was partially offset by a favorable impact of $6 million from changes in currencies.

On an organic basis in constant currency, SG&A expenses were down $7 million or 1% compared to the prior year.

SG&A expense as a percentage of revenue in the quarter improved 20 basis points to 13.2% as we continue to drive efficiency and productivity improvements across our businesses.

Next I will discuss the operational performance of each of the segments.

The Americas segment comprised 22% of consolidated revenue.

Revenue in the quarter was $1.1 billion, an increase of 1% in constant currency.

Profitability was stable with OUP of $54 million equal to the prior year level in constant currency.

OUP margin was also stable at 5%.

Permanent recruitment, up 8% in constant currency over the prior year, and strong performance in the higher margin solutions offerings helped offset the softness in staffing services.

Additionally SG&A expenses continue to be very well controlled, down against the prior year on an organic basis.

The US is our largest country in the American segment, comprising 67% of segment revenues.

Revenue in the US was $725 million, down 5% compared to the prior year.

As we have mentioned in recent quarters, we have seen weakness in the manufacturing side of the US economy impact demand for our services.

And while our business is still down in the second quarter, on an average daily revenue basis we did see some improvement in the rate of decline in the month of June.

During the second quarter OUP declined 4% in constant currency to $40 million.

Our OUP margin was 5.5%, equal to the prior year.

Contributing to OUP margin stability was a stable gross profit margin combined with good expense control.

Within the US the Manpower brand comprises approximately 40% of gross profit.

Revenue for the Manpower brand in the US was down 8% in the quarter, a slight decline from the 7% decrease we saw in the first quarter.

This decrease was driven by revenue from industrial skills, which has been uneven as the contraction rate of 5% noted in the first quarter, declined to a contractual rate of 7% in the second quarter.

We expect the revenue trend to improve for the Manpower brand in the third quarter, as we anniversary certain client losses in the prior year, which were exited due to pricing discipline.

The Experis brand in the US comprised approximately 40% of gross profit in the quarter.

Within Experis in the US, IT skills comprised approximately 70% of the revenues.

During the second quarter our Experis revenues declined 5% from the prior year.

This was primarily the result of Experis revenues from IT skills, down 4% from the prior year, which reflected a reduction in year-over-year average billable hours during April and May, which approved in the month of June to near the prior-year level.

Our ManpowerGroup Solutions in the US contributed 20% of gross profit and continued to see strong revenue growth of 18% in the quarter.

This strong growth was driven by continued demand from our clients for our higher value RPO and MSP solutions.

Our Mexico operation continued to perform well in revenue growth in the quarter of 7% in constant currency, down slightly from the first quarter.

Revenue in Argentina was up 16% in constant currency, which reflects the impact of inflation.

Revenue growth in the other countries within Americas was up 19% in constant currency or 6% on an organic currency basis.

We saw revenue growth in Peru, Colombia, Central America, and Brazil.

Growth in Canada was also strong due to the VeraTech acquisition completed last September.

Southern Europe revenue comprised 39% of the consolidated revenues in the quarter.

Revenue in Southern Europe came in at $1.9 billion, an increase of 1% in constant currency.

OUP was solid at $102 million, an increase of 6% from the prior year in constant currency, and OUP margin was 5.3%, up 20 basis points from the prior year due to improved margin in Italy and Spain.

Permanent recruitment growth was very strong in the quarter, up 19% in constant currency.

France revenue comprised 65% of the Southern Europe segment in the quarter and was up 2% over the prior year in constant currency, which represents a 2% decline from the growth rate reported in the first quarter after adjusting for billing days.

On a monthly basis average daily revenue growth was 3% in April, declined to 1% in May and then rebounded back to about 3% again in June.

More recently we've seen slightly lower growth over the last few weeks.

These trends continue to illustrate the choppy nature of the environment in France.

OUP was $68 million, a decline of 1% in constant currency, and OUP margin declined 20 basis points to 5.4%.

As discussed last quarter, our gross margin was unfair impacted by the introduction of complementary healthcare costs for our temporary Associates, as well as other direct cost increases, and this was partially offset in the current quarter with the implementation on April 1, of the lower family welfare tax as part of the responsibility pact.

Permanent recruitment contributed strongly to gross profit, up 17% in constant currency.

Revenue in Italy declined 8% in constant currency to $300 million with strong OUP growth of 13% to $23 million.

It's important to note that the Milan Expo impacted the prior year revenues, and excluding Expo the decline is approximately 3%.

We have seen improve staffing gross margin in Italy and continued strong permanent recruitment growth of 26% in constant currency, partially driven by government subsidies resulting in reduced social charges for new hires.

The OUP margin expanded by 140 basis points to 7.6%, which also reflects very good SG&A costs management.

Revenue growth in Spain remained very strong, up 14% over the prior year in constant currency.

This organic growth rate is down from the first quarter after adjusting for billing days; however, we are pleased with their continued strong performance.

Our operation continues to perform well in Spain, expanding their gross profit margin with an improving mix of businesses.

OUP was up 66% in the quarter in constant currency, and OUP margin expanded by 120 basis points.

Our Northern Europe segment comprised 26% of consolidated revenue in the quarter.

Revenue was up 10% in constant currency to $1.3 billion.

The 7S acquisition completed last September in Germany contributed to the revenue growth.

On an organic basis, revenues were up 2% in constant currency or down 2% on an average daily basis, which was stable to the trend experience last quarter.

OUP increased 13% in constant currency to $38 million and OUP margin of 2.9% was up 10 basis points.

We continue to see mixed performances across Northern Europe segment, with some markets like the Netherlands and Belgium improving and other markets like the UK softening slightly.

Our largest market in Northern Europe segment is the UK, which represented 37% of segment revenue in the quarter.

UK revenues were down 1% in constant currency or down 4% on an average daily basis, generally in line with the first quarter trend.

As noted in previous calls this decline is primarily driven by lower demand from one of our very large clients.

Excluding the impact of this client, average daily revenues were up 1% year on year on a constant currency basis.

While we see strong growth in the Experis Professional brand, which is up 50% in constant currency over the prior year, the market for our Manpower staffing business has weakened especially across some of our larger accounts and within the public sector.

Growth in permanent recruitment fees remains healthy, up 9% in constant currency.

Revenue growth in Germany was up 58% in constant currency, excluding the impact of the 7S acquisition that closed in September of 2015, organic revenue growth was good, up 8% in constant currency or 3% on an average daily basis.

Revenue in both the Netherlands and Belgium improved significantly in the quarter, up 16% and 10% respectively in organic constant currency on an average daily basis.

In the Netherlands we have closed the gap compared to market growth after the anniversary of account losses in early 2015 that were exited due to lower pricing.

Other markets in northern Europe had a revenue decline of 4% in constant currency, as very strong growth in Poland was offset by significant declines in Russian and a few other markets.

The Asia Pacific/Middle East segment comprises 12% of total Company revenue.

In the quarter revenue was up 10% in constant currency to $615 million.

On an organic basis, excluding the Greythorn acquisition, revenue was up 6% in constant currency or 3% adjusted for billing days.

OUP was $22 million in the quarter, an increase of 19% in constant currency, and OUP margin increased 30 basis points to 3.6%.The OUP margin increase was driven by strong permanent recruitment growth of 13% in constant currency and improved SG&A leverage.

Revenue growth in Japan was up 1% on a constant currency basis.

Disciplined SG&A cost management improved operating leverage in the quarter, which drove an OUP margin improvement of 11% on a constant currency basis.

Revenues in Australia and New Zealand were up 19% in constant currency, or up 3% on an organic constant currency basis excluding the Greythorn acquisition.

Demand in Australia declined in the quarter and remains at depressed level given the economic challenges in the markets.

Revenue in other markets in Asia Pacific/Middle East was solid, up 11% in constant currency.

This was the result of a good double-digit growth in a number of markets, including India, Korea, Taiwan, and the Philippines.

Our Right Management business had a very good performance in the quarter with revenues up 3% in constant currency to $73 million and OUP up 26% to $14 million.

OUP margin expanded 360 basis points to 19.8%.

Right Management's strongest growth came from outplacement fees of the Americas region.

This growth was primarily driven by strong sales execution in the United States.

Additionally GP margin expanded due to a shift in business mix.

That, along with SG&A expense reductions, drove the strong OUP margin performance.

I will now turn to cash flow and balance sheet.

Free cash flow defined as cash from operations less capital expenditures was very strong in the first half of the year at $231 million.

As mentioned last quarter, this includes the sale of the 2015 French CICE tax credit in March for $143 million.

Had the July 2015 CICE sale occurred in the first half of the year last year, the reported free cash flow of $19 million would have represented a more normalized level of $149 million.

At quarter end, days sales outstanding was flat to the prior year level, which represented a slight improvement from the first quarter.

Capital expenditures represented $31 million during the first half, which was up primarily due to our investment in recruiting centers during the first three months of the year.

Cash used for acquisitions year-to-date represented $41 million, which primarily consisted of our acquisition of Ciber Netherlands in the second quarter and follow-on payments related to prior acquisitions.

During the quarter we purchased 2.3 million shares of stock for $173 million, bringing total purchases for the six-month period to 3.8 million shares for $291 million.

As of June 30, we have 1.5 million shares remaining for repurchase under the $6 million share program approved in October of 2015.

Our balance sheet was very strong at quarter-end, with cash of $546 million and total debt of $854 million, bringing our net debt to $308 million.

Our debt ratios are very comfortable at quarter-end, with total debt to trailing 12 months EBITDA of 1.1%, and total debt to total capitalization at 25%.

Our debt and credit facilities did not change in the quarter.

At quarter-end we had a EUR350 million note outstanding with an effective interest rate of 4.5% maturing in June of 2018, and a EUR400 million note with an effective interest rate of 1.9% maturing in September of 2022.

In addition we have a revolving credit agreement for EUR600 million which remained unused.

Next I will review our Outlook for the third quarter of 2016.

We are forecasting earnings per share to be in the range of $1.66 to $1.74, which includes a negative impact from foreign currency of $0.03 per share.

At the midpoint of our guidance we are forecasting $1.70 per share, up 8% on a constant currency basis over the prior year on constant currency revenue growth of 2%.

Our constant currency revenue guidance range is for growth between 1% and 3%.

The impact of acquisitions is about 2% of the growth rate in the third quarter, making our organic constant currency growth flat at the midpoint, which is aligned with our second quarter experience on an average daily revenue basis.

Our revenue growth in the third quarter is not significantly impacted by billing days as they are relatively equal year-over-year.

From a segment standpoint we expect constant currency revenue growth in the Americas and Southern Europe to be in the flat to lower single digit range, with Northern Europe and Asia Pacific/Middle East growing in the middle single-digit range, with Northern Europe benefiting about 6% from acquisitions.

We expect revenue growth at Right Management to be in the low single digits.

Our operating profit margin should be flat to slightly lower than the prior year.

We expect our income tax rate to approximate 36% and we estimate our weighted average shares to be 70.4 million, reflecting share repurchases through the end of the second quarter.

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

Thanks, Jack.

We delivered a second quarter with good earnings growth despite patchy and uneven markets around the world.

Our focus on price discipline along with strong execution and managing our costs and driving productivity produced good results.

No doubt the recent Brexit vote in the UK along with other recent geopolitical events has added an additional level of volatility, real or perceived, to the global economic outlook.

Some of these events that are primarily political in nature or financial market related, but both of these factors can easily affect the underlying economy and how employers think about their workforce needs.

I think it's safe to say that no one knows for certain what the true impact will be in the UK, mainland Europe or the world economy.

With that added uncertainty and a slow growth environment, our clients are looking for a trusted partner such as ManpowerGroup to help them solve many of the vexing issues they are grappling with as they adjust to this new normal of certain uncertainty.

This is precisely the reason we have diversified and strengthen our range of workforce solutions and brands.

Our global scale and client mix provides us with many opportunities to take advantage of profitable growth opportunities, and with different countries and regions moving at different speeds it also provides us with the opportunity to offset weaknesses in some markets with strength in others.

We will continue to invest in markets and offerings where we see opportunities for growth and adjust in any markets that seem to be facing more adverse trading conditions.

As I mentioned at the beginning of our call, this view of market conditions is similar to what we have discussed in our recent calls.

A choppy and slightly softer, low growth global economy can provide us with good growth opportunities, because it is the kind of environment we know our clients need for agility and flexibility will become even more paramount, and that we are very well-placed to provide value to our clients with our global reach and strong brands.

We have an experienced and talented Management team that I'm confident can quickly adapt to changing market environments.

Regardless of the environment, we will continue our focus on generating growth with strong price discipline or continuing to drive productivity through improved processes and enhanced technology.

We will remain agile and adjust as necessary so we can continue to build on the very good progress we have made in the first half of the year.

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

(Operator Instructions)

Anj Singh, Credit Suisse.

Hello, thanks for taking my questions.

Jonas, you indicated that your overall view of the markets hasn't really changed yet you're forecasting another quarter of flattish revenue growth organically.

So I guess could you give us a little bit more insight on what continues to drive your more optimistic outlook?

And perhaps do you think acceleration towards the mid-single digit gross levels is possible and this type of choppy environment?

Well as we've discussed over the last couple of calls, we are in an environment where you step back over the last 12 months you can really see that we have a slightly softer global environment, but it's very choppy.

So some markets are improving, others are stable and others are declining somewhat.

So it really depends on which parts of the world or which countries would accelerate.

And in particular in our case as you can see we had France is a good example of that choppiness.

A reasonable view of April, and that is what we guided to when we spoke at our last quarter call.

And then a weaker May and then slightly better in June and then slightly weaker again in the first couple weeks of July.

So we really look at this as an environment where you have to be very good operationally, very disciplined in terms of your pricing and very disciplined in terms of your cost management.

Clearly ready to invest in markets where we see opportunities and then in others, if there is a pullback, be ready to act in that way.

So I still think that the overall outlook for Europe is that they are in the early phases of economic recovery on average.

And their labor markets are still not where they were before the recession so as it relates to Europe, certainly there is still upside potential.

But course it's very difficult to determine when and how and where that would occur.

We are prepared to go either way and to take the opportunities where they are.

As I mentioned, slow growth environment means volatility and organizations wanting more agility and flexibility, and even within a slow growth environment that can provide us with some good opportunities.

Okay that's helpful.

And then one for Jack.

Jack, could you talk a little bit about your EBIT margin guidance for Q3?

I think you are forecasting about 10 basis points down year-over-year at the midpoint.

Could you just help us with the puts and takes of what is driving that outlook?

Is a just lower operating leverage?

Just any thoughts there.

Thanks.

Sure.

So as you say when we look at the outlook for that margin compared to the second quarter, so as we talked about in the second quarter, we were able to get good SG&A leveraging, and you saw the 20 basis points of improvement year-over-year fall to the bottom line.

Picking up on what Jonas said about what we saw though during the quarter in terms of the revenue trends, the US and France were both softer than what we expected at the beginning of the second quarter.

So when we look into the third quarter and we look at that continued flat organic growth, it just makes it that much more difficult to sustain that operating leverage.

So what we are seeing in the guidance for the third quarter is basically we will continue to as we do every quarter -- continue to drive operational efficiencies.

But in that flat organic growth environment just makes it that much more difficult to sustain that, and so that is where what you are seeing in the operating margin guidance for the third quarter.

Okay that's helpful.

Thanks a lot.

Next question please.

Tobey Sommer, SunTrust.

Thank you.

I'm wondering if you could readdress the monthly trends that you talked about in France?

You said slower trends within the quarter but more recently slightly slower growth.

I was curious does that represent slower growth year-over-year versus 2Q or just versus April and May?

Thanks.

Sure.

Toby, this is Jack.

I will take that one.

During the quarter, what we saw was 3% growth year-over-year in the month of April.

That slowed to 1% growth in May and then back to 3% growth in June.

Those are all year-over-year numbers.

When we talk about July and the trends we have been seeing more recently, we have seen a slowing down to near what we saw in the middle of the quarter, and again, that would be on a year-over-year basis.

So that is really what we're talking about in those monthly trends and what we are seeing more recently.

It's that lower-level that we are anticipating some level of stability.

We are not anticipating that, that is going to continue to decline, but on the flip side, we are not anticipating that, that is going to be a significant lift going forward.

We are going to continue to monitor that to see if a trend emerges from a strengthening or a deceleration point from this point forward.

Tobey, the operative word here is choppy, right?

Because as we said on last quarter, we had some acceleration going into April, so we somewhat projected that by going across the second quarter.

Now we're seeing maybe just a slight deceleration as we get into July and we are projecting that against -- for the third quarter.

Hopefully we are favorably surprised this quarter as we were unfavorably surprised in the second quarter.

We will see how things turn out, but it's a choppy environment, so it's hard to say exactly what the trend is and where it is going overall.

Would you mind just giving us the growth rates in your RPO and MSP businesses and comment about the drivers and the durability of the trends there?

ManpowerGroup Solutions grew by 14% and we generally don't talk about the individual growth rates within each of the offerings.

We have three global offerings primarily within ManpowerGroup Solutions, and that is RPO, which had very strong growth and MSP, which also had very good growth.

Proservia, which is our technology infrastructure offering across Europe.

And then we have local TBOs, or talent-based outcome solutions, that we offer in various markets.

So overall, we continued on our strong double-digit growth in ManpowerGroup Solutions and we had some very good performance in RPO and MSP, in particular.

Next question please.

Manav Patnaik, Barclays.

Good morning, gentlemen.

First question is you mentioned several times that, Jonas, in terms of you see several opportunities, you are making investments there.

You guys have been maybe a little bit more active on the M&A side over the last year.

Just curious on how you categorize those opportunities in terms of organic investment, just given the low leverage and the top line versus the acquisition opportunity?

Our view of acquisitions is that it is really something that we do under specific circumstances, in specific geographies, and particularly in areas of IT under the Experis brand and would consider under the solutions, under our Solutions activities.

Those are really the two areas where we would do them.

We don't do them for growth per se.

We don't buy share.

We make these acquisitions as platforms for growth.

In this quarter, you saw us make an acquisition in Holland and it will effectively double our IT capabilities in that market.

Overall, our teams in Holland are doing a good job, but we think that there are more opportunities in the IT space there and that is why we made the acquisition in that market.

As it relates to the investment in markets, we look at where they are and where we see the opportunities and then we feather in resources so that we strengthen it.

And we do that in those markets where we believe we are on an upswing.

Sometimes, as you can imagine, it's a little bit difficult in this choppy environment.

What is going up and what is going down?

But we are absolutely and actively looking at those opportunities because we still think that even in any choppy and volatile environment, things can really move very well in a number of countries.

That is what we're looking at.

Okay and then one other question from me, which is can you give us a little more color on what you're seeing and hearing in Italy?

Obviously, it seems like that the next economy in trouble and growth [slow] for you guys, so any color there could be helpful?

Clearly, the market growth has come down in Italy since it has been growing very rapidly the last couple of years, in particular, in 2015.

The Italian government introduced some labor reforms, some of them you can see playing out in our own business.

They are positive in terms of some additional flexibility, but also some overall flexibility for hiring as far as employers are concerned.

And that is why you can see, from our perspective, a very, very strong performance on permanent placement.

So I would say, overall Italy is still a very good market.

Long-term, of course the penetration rate for the use of our kinds of services in Italy is much lower than the European average.

So we think that Italy is going to be a very, very strong market for us and it is a very strong market for us even today.

We've been a little bit weak on the SMB side and we are working to make sure that we cover that gap to the market.

But as you will have seen from our results, our GP growth is strong and our profitability growth is also very strong despite the weaker top line.

So working against hard comps in Italy and making sure we make up the gap, in particular on the SMB side so that we get back to market there.

But overall the outlook for now is very positive for Italy overall and we'll see if bank issues and other things like that translate or affect the market overall.

All right.

Great.

Thanks a lot guys.

Andrew Steinerman, JPMorgan.

Hi.

I want to ask about the share buyback philosophy.

I know you have a remaining program in place.

I thought I heard in the third-quarter guide of 70.4 million shares for the third-quarter guide.

Does that include what share buyback has already been done or does that anticipate further share buyback during the quarter?

And if you could talk about your share buyback propensity here, that would be great?

Andrew, this is Jack.

I will take that one.

The 70.4 million is where we ended the quarter effectively, so we are not giving any guidance on potential future share repurchases, so that answers that question.

As you have seen, there was good activity during the second quarter and we saw that in the first quarter, as well.

So in terms of our strategy on share repurchases, the short story is the strategy remains the same.

We continue to purchase shares very opportunistically, we look at our balance sheet on an overall basis, we continue to monitor a very strong balance sheet trend.

With that being said, we continue to think that share repurchases are a good avenue to return cash to our shareholders with that as the backdrop.

So we will continue to do it opportunistically going forward.

There isn't a set schedule or amount in mind, and we will update you on a quarterly basis on our activity.

Right.

You say it remains the same but it is a notable change from a year ago?

If you look at the trends, 2015 was an increase on an overall basis.

Particularly in the second half of the year, there was a lot of activity.

So with that as the backdrop, it's not that inconsistent with what we saw in the trends as we exit the second half of 2015.

Agreed.

Thank you.

Tim McHugh, William Blair & Company.

Thank you.

Just on France, I apologize if I missed this, but can you elaborate on what you think the choppiness was attributable to?

Is it just the market or competitive trends impacting the performance there?

Can you make anything -- any story lines out of the choppiness that you have seen?

First of all, it's really consistent with a slow growth market where small changes in any area could create volatility that looks a little bit dramatic, but in itself, it's really just from a very slow growth base.

France had strikes in May, France had floodings in May, so there's the uncertainty maybe across Europe that would then affect it.

So as maybe some employers anticipated that difficulties for their services and products in Europe.

It's hard to say exactly what causes the choppiness, but overall I would say it is not inconsistent with what you would see in a slow growth environment.

Overall, you've also see the PRISM data come in a little bit weaker in June, so that would be the situation.

But overall, we think the market is still far away from its peak when 2007, so there's still good opportunity.

And if there is some growth notwithstanding this volatility, companies are going to be looking for flexibility.

Although today is the day when the latest addition of the French labor law changes comes into effect, which is what caused the strikes, we think that this is still a market where our kinds of services are extremely effective and attractive for employers.

As you may know, these latest changes don't really impact us directly or our industry directly, but it is a sign of France trying to become more flexible and more competitive as a country.

So overall our outlook on France is good, notwithstanding the volatility that we've seen in the second quarter.

Okay.

Great.

In the US, you mentioned that relative to your expectations wasn't quite as strong.

What was it your traditional Manpower division or was it IT?

What part of it was softer than you thought?

And the IT part that you said improved in June, any color on what that was or what made that trend change?

The ManpowerGroup business in the US is very well diversified so if we deconstruct the various elements, Solutions growth was very strong.

Perm growth was good, and as we talked about in prior calls, Perm growth is good within the context of an extremely strong prior-year comp.

So Perm is still solid as you would expect getting -- at this level of unemployment, getting talent is hard, so we see some good evolution there.

The Manpower business, what we talked about in April, looked to be a little bit stronger compared to the fourth quarter, so we saw Q1 improve a little bit and then it slipped back again somewhat.

So I really don't think there's much of a change there.

The slight improvement we saw didn't happen and actually there was a slight softening, but overall, we think the US economy is doing well in some areas and not so well in others.

Our Manpower brand is exposed to big global manufacturing companies that are not doing as well, as you can see from the overall jobs reports on goods producing companies in the US.

In particular, they would be also exposed to a stronger dollar.

On the Experis side, we did see some softening, and overall, that is still the area where we have more work to do because we have a gap to market that we are working on.

Overall, the market for IT is probably slightly softer, but there are segments within that, SMB for instance, or healthcare, that are still strong, and financial markets probably not as strong.

So we've probably moved down a bit with the market to some extent, but that doesn't change the fact that we are still behind market and that is exactly what we are working on.

Okay, thank you.

Sara Gubins, Bank of America Merrill Lynch.

Hi, thanks, good morning.

Couple quick questions on France.

First, could you give us an update on the pricing environment there?

And second, could you help us think about France margins in the back half of the year?

Should the year-over-year declines that you saw in the first half get a little bit better, and I know that is a bit of a loaded question because it will depend on what the revenue looks like?

I will take the first question and then have Jack take the margin question.

The pricing -- France, as we know, is a very price-sensitive market and we have clearly -- it's always competitive.

We know that some of our competitors have been a little bit more willing to move away and let some of the subsidies of various forms go into their pricing.

We have been very pricing-disciplined.

We intend to continue to be very pricing-disciplined.

But at the same time, of course, we are going to make sure that we understand where the market is because we intend to stay with the market.

So we keep monitoring it, very disciplined pricing, and also keep a keen eye on where the market is and where we need to be, as well.

And Sara, on the margin question, as you look out to third quarter for France, you should expect to see what we saw, consistent with where we are ending the second quarter on an overall basis.

We talked about some of the items impacting the margin overall with the healthcare costs, as well as the subsidies.

Looking forward to Q3, you should, in this continued revenue environment, you should continue to expect more of the same going into the third quarter.

Okay, great.

Thank you.

And then when I look at the third-quarter guidance for Northern Europe, it looks like it's about down 2% to flat on an organic constant currency basis.

Could you help us think about what your expectations are for key markets like the UK, Germany, and the Nordics?

Breaking that down, looking at Germany, as we covered earlier, Germany has had good underlying organic growth in the quarter, and we did have the acquisition of 7S and that will anniversary in September.

We expect that to continue into third quarter.

We also talked about the Netherlands and Belgium also having very good underlying growth.

We do expect that to continue and to be stable into the third quarter, as well.

Then the other big market, obviously, is the UK for Northern Europe.

And when we look at the UK, and we talked about earlier about the underlying 4% decline year-over-year an average daily revenue.

As we look into the third quarter, we do anticipate a bit of a stable operating environment for the UK.

Towards the end of the quarter, we saw just a little softness on the Perm side.

We anticipate that softness continuing into the third quarter based on the uncertainty in the environment, but on an overall basis, we see the UK relatively stable into the third quarter.

Sara, maybe also just to add a little bit more, if you look at Northern Europe overall, there is a lot -- with the acquisitions and number of days, there's a bit of noise in the second quarter.

But if you take it on an ADR organic basis, it was down about 2% in Q2.

And Q3, we are looking on an ADR organic basis to be down about 1%.

So in fact, at the midpoint of our guidance in Q3, it is slightly better, slightly less negative than Q2.

Great.

That's very helpful.

Thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much.

Wanted to focus more about the current environment.

It's been about four weeks since the Brexit vote happened.

Have you seen any meaningful change in the UK and/or Europe in terms of the level of uncertainty there?

There is a great deal of uncertainty, but the question is how much have we seen percolate into the real economy.

I would say that if you look at the UK market first, you could see that job openings fell ahead of the Brexit.

But other than that we've not seen any real tangible examples of any change, with possibly the only difference being some softness on the Perm side.

But in actual fact, if you take away the business that we had -- the big large that we had, the UK improved a bit.

It was flat or a little bit better than flat in the second quarter.

So no impact as yet in the UK, and a lot of perceived uncertainty across Europe.

But as I mentioned in my prepared remarks, once this perceived uncertainty gets overcome and people settle down to the fact that this is going to be years of negotiations and nobody really knows what it's going to be like.

Employers are going to get back to the business of understanding their current employment needs and just drive their businesses and their organizations in the directions that their business dictates.

So we don't know what the impact is going to be on great Europe and on the world at large in the long-term.

But once the noise it settles down a bit, things will move on and wait to hear what the actual changes are going to be, but of course those changes are many years away.

So we think that will blow over a bit and then we'll back to whatever the situation is in each country and in each organization.

Okay.

And if we can go back to the second quarter, you talked a little bit about the pricing environment in France.

I'm wondering, generally, are you able to get price increases in this kind of environment?

We've actually been very good at making sure that we hold on to as much as any increases, be they through taxes or otherwise, and you've seen that in our overall results.

But all within the context of an extremely price-sensitive market.

As we talked about on the last call, we've applied some pricing disciplines.

Yes, it's possible that some of our gap to market over the last quarter is -- of course, you'll remember that the prior 2.5 years, we were ahead of market -- that some of that could come from the pricing discipline that we've had.

But we also know, of course, that some of the segments of the markets are growing faster.

So it's really something where you have to pay great attention, be very purposeful and extremely disciplined, and that's exactly what the team has been and done an excellent job at.

Okay, great.

Thanks so much.

Thanks, Jeff.

Gary Bisbee, RBC Capital Markets.

Hi, guys.

Good morning.

I wanted to ask about Perm, more broadly.

You acknowledge some maybe softening in the UK, but this has really been a great story for you and profit driver in the last couple of years.

Is that uncertainty around Brexit?

I would argue there's a lot of things, political uncertainty, in the US, et cetera.

Are you seeing that having any impact on Perm and your discussions around demand for Perm?

Or is this good growth broadly, overall seem sustainable in the choppy environment you've described?

As you have seen -- thanks, Gary -- as you've seen, we actually improved the growth rates of Perm between the first quarter and the second quarter, going from 9% to 12% growth.

And our percentage of GP is now at 15.2% for also the second quarter just as it was for the first quarter.

So it is a record high.

I think two things, a lot of our customers are really seeing us as a source of talent from a flexible perspective, and now increasingly from a permanent perspective, because we are a one-stop destination for them in terms of acquiring talent full stock.

That is really the case, and as you know, over the years, we've invested in those resources and made sure that our clients know that we have this capability.

So a lot of this is really us becoming a much more prominent player in permanent placement.

Having said all of that, we are very pleased with the progress that we have and we think there is still significant room to continue that growth now within the limits that we discussed on the last earnings call.

So we are pleased to see the progress of 15.2%.

We think we can do more in many markets, continue to take market share from other players in that space.

You saw our growth in Italy, you saw very strong growth in France, so traditional markets where we haven't been a strong in Perm, we've seen some good opportunity there.

But if a market becomes more difficult, Perm could be affected, but we're really deploying a new service as far as many customers are concerned.

And we can still see some good development there going forward, as well.

That is what is interesting about this cycle, Gary, is we've seen very strong Perm growth early in the cycle in several markets, a number of markets.

So even as we are looking at Perm growth today in markets that are still -- I would consider certainly early cycle, like France, we saw growth in the second quarter of 17%.

Italy was up 26%.

So really good Perm growth across the cycle.

I know many of you think about, gee, Perm growth comes later in the cycle and only later in the cycle.

We've been able to see it across the cycle.

So that secular trend that Jonas is talking about in how clients are seeing us, seeing value in our solutions, is coming through, as well.

Great.

If I could ask one quick follow-up, how much of your cash balance and of your cash flow on an ongoing basis is overseas?

I realize your leverage is very low, but does there get to a point where it becomes harder to sustain the buyback activity that you've been doing based on having to pay taxes to repatriate that cash or is that not really an issue?

Thank you.

From a cash standpoint, Gary, as you would imagine, a lot of our cash flow generation is from Europe, just given the diversification of our business.

But from a tax perspective, we don't have a lot of cash tied up where it is incrementally a lot more expensive to bring it over.

So we can get it back to the US for the most part.

There are a few exceptions to that but we are able -- it is accessible to us for the most part, and to the extent we are generating free cash flow and we can use that certainly for share repurchases, of course dividends, and then acquisitions, whatever the needs might be.

Great.

Thank you.

Last question please.

Mark Marcon, R. W. Baird.

Just a follow-up to that and then a question about the US.

With regards to leverage ratios that you think you are still comfortable with, given this choppy environment, can you speak a little bit to that?

And capacity for further buybacks once the current authorization expires?

Mark, this is Jack.

When we look at the leverage ratios, when we look at the balance sheet overall, one of the key ones is when we look at debt to trailing 12- months EBITDA.

As we talk about, with that 1.1, and we look at that on a historical basis, clearly we still have a lot of headroom going back to historical levels of 1.5.

So when we look at the balance sheet overall, we think we have very good capacity.

It's strong overall.

We also look at to debt to total capitalization, and as we disclosed, that ratio also is very strong compared to historical measures.

So based on that, we feel quite comfortable that, looking back at the second quarter and the level of activity that we had, and monitoring our balance sheet ratios, that those continue to be quite strong, and that is the backdrop.

That's great.

And then with regards to the US, in terms of taking a look at Manpower industrial and looking at Experis.

Experis you mentioned you've got some work to do there.

Can you give a little more color in terms of some of the steps that are being taken to get up to market levels?

Then on the industrial side, if I recall correctly, they were annualizing some larger clients that may have been exited from a price perspective?

What do we think, ex those clients, the ongoing rate looks like?

Starting with the Manpower side, that part of our business here in the US is really being buffeted by what is happening in the market with goods-producing customers, which is 70% of our Manpower business in the US.

And clerical services that are related to many of the same companies and the style of company.

So there it is a reflection of where we are.

I do believe that there is still work that we can do and that there other segments in the market for Manpower that could be better growth opportunities, but that takes some time to shift over to those.

As far as the Experis side is concerned, it is really continuing to make sure that we address certain clients with certain delivery models.

As you have seen and we've talked about before, we are investing in recruitment centers.

And we're really segmenting certain clients sectors and making sure that we have the appropriate delivery mechanism for them, so primarily larger clients.

And then we are able to leverage our branch network -- our national branch network, for Experis to make sure that we are able to go into the higher margin and still good growth areas that exist there for IT talent from a medium-size organization business.

So that's really some of the shifts that we are driving.

As you've seen, we've been very price disciplined, of course, and our margins have improved.

We have good margins and very good operating margins, so we want to maintain that, move the bill rates up on the Experis side.

So there's a number of things that we're doing to make sure that we get a good and solid business there.

As I mentioned early on, we still have a gap to market and that is what we're working very hard on addressing.

Great.

And the profitability has been maintained not only with all of these initiatives, but also all the internal expenses that go with setting this up.

So it sounds like, as things improve, the profitability should also get better?

That is, of course -- getting better revenue growth, as well as, of course, making sure we do so with high levels of productivity and efficiency and quality is exactly what we're trying to do.

Great, thank you.

Thank you very much, Mark.

With that, we come to the end of our second-quarter 2016 earnings call.

Thank you for your all your questions this morning and we look forward to speaking with you again on our third-quarter earnings call in three months.

Thanks, everyone.

Have a good summer.

That concludes today's conference.

Thank you all for participating.

You may now disconnect.