ManpowerGroup Inc (MAN) 2017 Q2 法說會逐字稿

Welcome, everyone, to the second quarter earnings call, and thank you for standing by.

(Operator Instructions)

Today's conference is being recorded.

If you have any objections, you may disconnect at this moment.

I would now like to turn the call over to your host, CEO, Jonas Prising.

Sir, you may begin.

Good morning.

Welcome to the second quarter conference call for 2017.

With me today is our Chief Financial Officer, Jack McGinnis.

I will start the call today by going through some of the highlights of the second quarter, and then Jack will go through the operating results in the segments, our balance sheet and cash flow and some comments regarding our outlook for the third quarter.

Then I'll follow up with some final thoughts before our Q&A session.

But before we go any further into our call, Jack will now 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 other Securities and Exchange Commission filings of the company, which information is incorporated herein by reference.

Any forward-looking statements 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, Jack.

We're pleased with our strong performance in the second quarter.

Revenue came in at $5.2 billion, an increase of 6% in constant currency, which is above the high end of our guidance range, due primarily to stronger growth in Southern Europe.

On a same-day basis, our underlying organic constant currency growth rate was 7%, reflecting additional acceleration from what we saw in the first quarter.

Operating profit in the quarter was $195 million, up 1% in constant currency.

As we mentioned on our last call, we did have additional restructuring charges this quarter, which Jack will cover later.

Excluding these charges, operating profit was $205 million, an increase of 7% in constant currency.

Our operating profit margin came in at 3.8%, a decrease of 10 basis points from the prior year.

But excluding the restructuring charges, we saw margin expansion of 10 basis points, in line with the midpoint of our guidance range.

We continued to see some gross profit margin contraction combined with SG&A productivity improvements, partially driven by good SG&A leverage on our higher revenue growth.

Earnings per share for the quarter was $1.72, an increase of 9% in constant currency or 16% after excluding the restructuring charges.

We saw some very strong business performance in a number of our markets during the second quarter, most notably in France, Italy, Mexico and Poland.

I'm very encouraged by our strong performance in the second quarter from a number of perspectives.

The overall global economy seems to be on a trajectory of gradual improvement in many parts of the world, particularly noticeable in Europe.

European economy is improving, with many data points indicating the potential for stronger economic growth.

While we continue to be cautious on the U.K. as they prepare to exit the EU, we're optimistic about the overall outlook for Europe and the favorable impact that it could have on demand for our services and solutions.

We also see some improvement in the labor market outlook, with a great deal of optimism in France as President Macron has a clear mandate for reforms, including labor market reform, which should benefit that economy and stimulate better employment growth.

We recently published our third quarter ManpowerGroup Employment Outlook Survey tracking forward-looking quarterly changes in employer sentiment, and that survey is showing a similar trend of slowly improving employer hiring intent, both in Europe as well as globally.

These signs of improvement are still in the context of a slow-growth environment in many parts of the world, with some continued political uncertainty, but it indicates an overall market improvement from what we saw late last year.

I was recently with our businesses throughout Europe, and I met with many of our clients.

Not surprisingly, their view of the environment is well aligned with ours as their need for our services is starting to increase.

This is in the context of increasing reports of skill shortages and difficulty in finding people with the right work-ready skills.

The future work is unfolding rapidly.

And despite still high unemployment levels in many parts of the world, organizations are unable to find the skills they need to be even more competitive, agile and successful.

The improving demand for our services and our increased involvement in helping create talent, in addition to finding skilled talent, is a sign of the increasing capabilities we can bring our clients and also the increasing and important role we have to help individuals become more employable and successful in their careers.

Companies will need to evolve their business models to take advantage of the continuing digital disruption and to be ready with the skilled workforce to execute their strategies, and our capabilities are aimed at helping them achieve their objectives.

We recently celebrated our first global Learnability Week, promoting the need for continuous skills development to help people stay employed for the long term and ensuring that organizations have access to the skills that they need to thrive.

Much of our progress in innovation, efficiency and new service offerings will be enabled by leveraging technology and strengthening our digital capabilities.

We have been investing in these areas, and we'll continue to do so as we see opportunities to further improve our delivery models and enhance our candidate attraction, client satisfaction and productivity.

And with that, I would like to turn it over to Jack to provide additional financial information and a review of our segment results and our third quarter outlook.

Thanks, Jonas.

As Jonas mentioned, we had a strong second quarter performance with constant currency operating profit growth of 7%, excluding restructuring charges, on 6% constant currency revenue growth.

Excluding restructuring charges, this performance represented operating profit margin expansion of 10 basis points over the prior year and at the midpoint of our guidance.

Revenue growth exceeded our constant currency guidance range.

Although our gross profit margin declined 40 basis points compared to the prior year, our SG&A costs once again improved as a percentage of revenue, driving the increased operating profit margin year-over-year before restructuring charges.

Looking at our revenue growth more closely.

Currency negatively impacted revenues by 3%, and acquisitions contributed about 60 basis points to our growth rate in the quarter.

Therefore, while revenues were up 3% on a reported basis, our organic constant currency revenue growth in the quarter was 5%, which, after adjusting for billing days, represents a 7% growth rate, reflecting a strong acceleration from the first quarter billing days adjusted organic constant currency growth rate of 4%.

I mentioned our revenue growth exceeded our guidance range.

This was largely driven by revenue growth in Southern Europe, which more than offset continued year-over-year declines in the U.S. and the U.K.

On a reported basis, earnings per share of $1.72 was $0.01 above the midpoint of our guidance range.

The restructuring charges had a $0.10 negative impact on earnings per share, and excluding these charges, earnings per share would have been $1.82.

The drivers of this result include $0.03 attributable to better operational performance than expected, $0.02 attributable to lower other expenses, $0.02 from lower tax rate than expected and $0.04 from higher foreign currency rates.

The better operational performance was driven by higher revenue growth, particularly in Europe.

Looking at our gross profit margin in detail.

Our gross margin came in at 16.7%, a 40 basis point decrease from the prior year.

The staffing gross margin had a 30 basis point unfavorable impact on overall gross margin, which was primarily driven by business mix, particularly in France, Italy and the U.K. I will cover this later as part of the segment review.

Consistent with the previous quarter, Right Management contributed less to gross profit in the second quarter, and this mix change reduced margin by 10 basis points.

Similar to the previous quarter, our France Proservia IT infrastructure and end user support business experienced reduced GP margin, and this contributed to an additional 10 basis points of reduced consolidated GP margin.

Currency changes on GP mix provided an offsetting 10 basis points of favorability.

I will discuss gross profit trends further in the segment results.

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

During the quarter, the Manpower brand comprised 63% of gross profit; our Experis Professional business comprised 20%; ManpowerGroup Solutions comprised 13%; and Right Management, 4%.

Our higher-value solutions offerings within ManpowerGroup Solutions provided the highest level of growth during the quarter.

During the quarter, our Manpower brand reported a constant currency gross profit increase of 4%, representing a stable growth trend from 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 5% during the quarter, representing acceleration from the first quarter that was partially offset by a 2% decrease in office and clerical skills.

Gross profit in our Experis brand increased 2% in constant currency, representing a deceleration from the 6% growth experienced in the first quarter.

Although the revenue growth rate slowed within Experis, largely due to the U.K., GP margin expanded year-over-year.

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

Gross profit growth in the quarter was up 6% in constant currency, reflecting a decline from the 12% growth in the first quarter, primarily driven by the U.S.

Right Management experienced a decline in gross profit of 22% in constant currency during the quarter.

Right Management declined more than we expected as career outplacement activity continues to trend down significantly from the prior year.

Our reported SG&A expense in the quarter was $667 million, including the expected $11 million of restructuring costs we announced on the previous earnings call.

Excluding these costs, SG&A expense was $657 million, a decrease of $8 million from the prior year.

Currency changes resulted in a decrease of $16 million, which was partially offset by $6 million of spend from acquisitions and $2 million from operations.

Excluding the restructuring costs, SG&A expenses as a percentage of revenue in the quarter improved 50 basis points to 12.7%, driven by improved operational leverage on higher revenue growth and a continued focus on operational efficiency across our businesses.

As we mentioned last quarter, we expect to recover the restructuring charges of $11 million as well as the $24 million recorded in the first quarter through cost savings over the next 12 months.

The Americas segment comprised 20% of consolidated revenue.

Revenue in the quarter was $1.1 billion, a decrease of 1% in constant currency.

OUP came in at $58 million in the quarter or $64 million before restructuring costs.

Excluding restructuring charges, OUP increased 19% in constant currency above the prior year level, driven by improvement in the U.S., and OUP margin improved by 100 basis points year-over-year.

The OUP increase was driven by continued strong cost management, with SG&A expenses decreasing year-over-year.

The $6 million in restructuring charges in the quarter primarily related to the U.S. back-office optimization, as announced last quarter.

The U.S. is the largest country in the Americas segment, comprising 64% of segment revenues.

Revenues in the U.S. was $671 million, down 7% compared to the prior year, which, on a billing days adjusted basis, represents a stable trend from the first quarter.

As we have mentioned previously, the prolonged weakness in the manufacturing side of the U.S. economy has impacted the demand for our services over the past several quarters.

And in recent quarters, our professional services has also experienced revenue declines.

During the quarter, excluding the restructuring charges, OUP for our U.S. business increased 22% to $49 million.

Excluding the restructuring charges, OUP margin was 7.3%, up 180 basis points from the prior year, primarily due to strong SG&A cost management and, to a lesser extent, lower direct costs in the quarter based on periodic updates of certain costs, including workers' compensation and health care.

It's important to note that despite challenging revenue trends, our gross profit margin improved, and the U.S. business continues to focus on strong pricing discipline and overall operational efficiency.

Within the U.S., the Manpower brand comprised 43% of gross profit during the quarter.

Revenue for the Manpower brand in the U.S. was down 6% in the quarter and, adjusting for billing days, represented a slight improvement from the decline in the first quarter.

The Manpower business has declined for several quarters in the U.S. However, on an average daily basis, we have seen slight improvements in the rate of decline during the last 2 quarters.

The Experis brand in the U.S. comprised 36% of gross profit in the quarter.

Within Experis in the U.S., IT skills comprised 72% of revenues.

During the quarter, our Experis revenues declined 8% from the prior year and on a billing days adjusted basis represented a 2% improvement from the rate of decline experienced in the first quarter.

Experis revenues from IT skills on a billing days adjusted basis were down 8% from the prior year, which represented an improvement from the 9% decline in the first quarter.

The Experis business has seen improvements in the rate of decline during the last 2 quarters.

ManpowerGroup Solutions in the U.S. contributed 21% of gross profit and experienced a revenue decline of 12% in the quarter related to a specific client loss and the roll-off of certain project work.

We continue to see strong demand by our clients for our higher-value RPO and MSP solutions and expect the revenue trend to improve into the third quarter.

Our Mexico operation had revenue growth in the quarter of 14% in constant currency.

The business in Mexico is performing very well and continues to be the leader in the market.

Revenue in Argentina was up 20% in constant currency, which continues to reflect the impact of inflation.

We continue to focus on margin and payment terms improvement given the highly inflationary environment.

Revenue growth of the other countries within Americas was up 6% in constant currency.

This again included strong growth in Canada, with constant currency revenue growth of 7%.

We also saw strong revenue growth in Central America and Peru.

Southern Europe revenue comprised 41% of consolidated revenue in the quarter.

Revenue in Southern Europe came in at $2.1 billion, an increase of 13% in constant currency.

On an average billing days basis, this represented a revenue growth rate of 14%, up from the 9% average billing days basis growth in the first quarter.

OUP was $110 million, an increase of 10% from the prior year in constant currency, and OUP margin was 5.2%, down 10 basis points from the prior year, as gross profit margin declines exceeded our efficiency improvements and operating leverage.

Permanent recruitment growth was very strong at 14% in constant currency, an increase from the 12% growth in the first quarter.

France revenue comprised 64% of the Southern Europe segment in the quarter and was up 11% over the prior year in constant currency.

This represented a 2% increase from the 9% growth rate in the first quarter and represents 4 consecutive quarters of increased growth.

France's gross margin has declined year-over-year in both staffing and the Solutions Proservia business.

The reduction in staffing margins was driven by business mix as we have seen strong growth in large accounts as well as a competitive pricing environment, which was partially offset by the CICE increase for 2017 that we discussed last quarter.

Proservia represents our IT infrastructure and end user support business, which is experiencing reduced gross profit margins from the year-ago period.

Permanent recruitment growth was 4% in constant currency during the quarter, which was an increase from the 2% growth rate in the first quarter.

OUP was $70 million, an increase of 6% in constant currency, and OUP margin was down 20 basis points year-over-year at 5.2%.

The OUP margin trend reflects the gross margin declines, which have been partially offset by improved operating leverage on strong revenue growth and disciplined SG&A cost management.

As we exited the quarter, gross margin trends began to improve in France, which could provide for an improved GP margin trend into the third quarter.

Revenue in Italy increased 25% in constant currency to $367 million.

This represents very strong revenue acceleration from the 16% constant currency growth rate in the first quarter.

Business mix changes associated with the growth have resulted in reduced staffing margins, which have been partially offset by continued strong permanent recruitment growth.

Specifically, permanent recruitment fees increased 25% on a constant currency basis over the prior year.

OUP growth was up 24% in constant currency to $28 million.

During the quarter, the OUP margin declined by 10 basis points to 7.5% as gross profit margin declines were largely offset by improved operating leverage and strong SG&A cost management.

We are very pleased with the strong performance of our Italy business and expect it to continue to perform very well in the third quarter.

Revenue growth in Spain was up 9% over the prior year in constant currency and reflects the first quarter acquisition which expands our Experis capabilities in that market.

On an organic constant currency basis, the revenue growth rate was 1%.

And adjusting for average billing days, this growth rate was 5% in the quarter.

This reflects an improvement from the first quarter billing days adjusted organic constant currency decline of 1%, and we expect further growth in the second half of the year.

Our Northern Europe segment comprised 25% of consolidated revenue in the quarter.

Revenue was up 2% in constant currency to $1.3 billion.

On a billing days adjusted organic constant currency basis, Northern Europe had a 5% constant currency growth rate, which represented an improvement from the 3% organic constant currency growth in the first quarter.

The increased rate of revenue growth was primarily driven by Germany and the Nordics.

OUP came in at $33 million in the quarter or $34 million before restructuring costs.

OUP was down 6% in constant currency, and OUP margin was down 20 basis points before the restructuring charges.

The $1 million of restructuring charges in the quarter relate to the balance of the Netherlands charges announced last quarter.

Our largest market in Northern Europe segment is the U.K., which represented 30% of segment revenue in the quarter.

U.K. revenues were down 10% in constant currency and down 8% on a billing days adjusted basis, representing a slight decline from the 7% decrease in the first quarter.

Permanent recruitment fees also decreased during the quarter, down 4% year-over-year in constant currency.

In recent quarters, we have seen year-over-year declines in both the Manpower and Experis businesses in the U.K. as we are experiencing some reduced demand within our largest accounts as our clients are focused on optimizing operational cost expenditures.

We saw slightly improving trends in our Manpower brand in the second quarter but saw further declines in Experis.

We expect the overall level of average daily revenue decline to improve slightly into the third quarter.

Staffing gross profit margin decreased in the U.K. due to business mix in the Manpower business.

This was more than offset by gross profit margin expansion in both the Experis and Solutions businesses, resulting in 20 basis points of gross profit margin expansion year-over-year in the U.K.

Revenue growth in Germany was up 10% on a constant currency basis in the second quarter or up 16% on an average billing days basis, which represents an increase from the 11% growth in the first quarter.

The increased growth in Germany is being driven by revenues from our Proservia business line following significant new business in the third quarter of 2016.

In the Nordics, revenue trends continued to improve.

The constant currency revenue growth rate of 7% in the quarter represented 16% growth on an average daily basis.

Organically, the constant currency average daily revenue growth was 14%, which was an improvement from the 2% growth rate in the first quarter.

Norway and Sweden are currently performing well, and we expect to see continued solid revenue growth in the third quarter.

Revenue in both the Netherlands and Belgium continue to be strong at 20% and 7% growth, respectively, in constant currency adjusted for billing days.

The Netherlands revenue growth on an organic basis was 12%, adjusting for billing days.

Other markets in Northern Europe had a revenue increase of 7% in constant currency as growth in Poland and Ireland more than offset declines in Russia and a few other markets.

The Asia Pacific Middle East segment comprises 13% of total company revenue.

In the quarter, revenue was up 5% in constant currency to $643 million or 7% after adjusting for billing days, in line with the average daily growth in the first quarter.

Permanent recruitment growth was 5% in constant currency.

OUP was $23 million in the quarter, representing an increase of 6% in constant currency, and OUP margin was stable at 3.6%.

Revenue growth in Japan, adjusted for billing days, was up 3% on a constant currency basis, in line with the first quarter growth rate.

Permanent recruitment growth was 3% in constant currency.

OUP was up 5% on a constant currency basis, and OUP margin was flat year-over-year.

Revenues in Australia and New Zealand were down 2% in constant currency, adjusting for billing days, and this represented a decrease from the 2% average daily revenue growth rate experienced in the first quarter as our Manpower and Solutions businesses experienced a slowing of new business.

Revenue in other markets in Asia Pacific Middle East continue to be strong, up 12% in constant currency.

This was a result of strong double-digit growth in a number of markets, including India, Hong Kong, Taiwan, Thailand and Singapore.

Our Right Management business continued to slow significantly in the second quarter based on the slowdown of outplacement activity.

During the quarter, revenues were down 20% in constant currency to $57 million, following an 11% decline in the first quarter.

OUP decreased 41% on a constant currency basis to $8 million, and OUP margin was 14.8%.

As we announced last quarter, the restructuring charges of $2 million within Right Management are primarily comprised of delivery model optimization activities.

Excluding restructuring charges, OUP was $11 million and decreased 27% on a constant currency basis, and OUP margin decreased 140 basis points to 18.4% as SG&A reductions helped to offset the impact of revenue reductions.

We do not expect outplacement trends to change significantly in the third quarter, and revenues will continue to decline year-over-year.

I'll now turn to cash flow and balance sheet.

Free cash flow, defined as cash from operations less capital expenditures, was $122 million for the first 6 months of the year.

As mentioned last quarter, this includes the sale of the 2016 France CICE tax credit in March for $144 million.

Excluding CICE sales in both years, free cash flow represented an outflow of $22 million in 2017 compared to an inflow of $88 million in the prior year.

The year-over-year change reflects the strong growth of our business in 2017 as during strong growth periods, receivables typically grow at a faster pace than cash collections.

At quarter-end, day sales outstanding increased over the prior year level by 1 day.

Capital expenditures represented $26 million during the first half, which was down $5 million from the prior year, primarily due to our investment in recruiting centers in the year-ago period.

Cash used for acquisitions year-to-date represented $34 million.

During the quarter, we purchased 566,000 shares of stock for $59 million, bringing total purchases for the 6-month period to 1.1 million shares for $116 million.

As of June 30, we have 3.6 million shares remaining for repurchase under the 6 million share program approved in July of 2016.

Our balance sheet was very strong at quarter-end with cash of $573 million and total debt of $891 million, bringing our net debt to $318 million.

Our debt ratios are very comfortable at quarter-end, with total debt-to-trailing 12-month EBITDA of 1.1 and total debt-to-total capitalization at 26%.

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

At quarter-end, we had a EUR 350 million note outstanding with an effective interest rate of 4.5% maturing in June of 2018 and a EUR 400 million note with an effective interest rate of 1.9% maturing in September of 2022.

In addition, we have a revolving credit arrangement for $600 million, which remain unused.

Next, I'll review our outlook for the third quarter of 2017.

We are forecasting earnings per share to be in the range of $1.90 to $1.98, which includes a positive impact from foreign currency of $0.02 per share.

Our constant currency revenue guidance range is for growth between 4% and 6%.

The impact of acquisitions represents only 30 basis points of the growth rate in the third quarter.

As there is about 1 less day in the third quarter, year-over-year, our guidance for the third quarter represents a billing days adjusted organic constant currency growth rate of 6% at the midpoint.

This represents a continuation of the second quarter underlying growth rate when you consider the third quarter includes a tougher comparable 2016 period that included increased revenues from the Rio Olympics in other Americas, new Proservia business in Germany and significant revenue growth in various other countries such as The Netherlands.

As always in the third quarter, in Europe, and particularly in France and Italy, it'll be very important to see how quickly companies ramp back up following the summer vacation period.

From a segment standpoint, we expect a constant currency revenue decline in the Americas in the low single digits, which includes the non-recurrence of the Rio Olympics business, with constant currency revenue in Southern Europe growing in the low double-digit range, benefiting about 60 basis points from acquisitions; Northern Europe growing in the low single-digit range; and Asia Pacific Middle East growing in the mid-single-digit range.

We expect a revenue decline at Right Management in the 16% to 18% range.

On a regional basis, the difference in billing days will have an unfavorable impact on revenue growth of about 1% in the Americas, 2% in Southern Europe and 1% in Northern Europe.

Conversely, we have a favorable billing days impact in APME of about 1%.

After adjusting for the non-recurrence onetime items in the third quarter of 2016, which represented $8 million of SG&A reductions on pension and property gains, our operating profit margin should be up slightly compared to the prior year, reflecting improved revenue growth and operating leverage, which will offset lower gross margin.

Our corporate expenses continue to be -- continue to include spend in technology and workforce solutions initiatives, and we expect a corporate expense trend in the third quarter in line to slightly higher than the amount in the second quarter.

We expect our income tax rate to approximate 37%.

As usual, our guidance does not incorporate additional share repurchases or restructuring charges, and we estimate our weighted average shares to be 67.8 million, reflecting share repurchases through June 30.

With that, I'd like to turn the call back to Jonas.

Thanks, Jack.

As Jack explained, the restructuring charges were recorded this quarter.

Consistent with last quarter, these charges relate to integration activity from acquisitions as well as back-office and the delivery model optimizations as we leverage technology enhancements.

These actions, along with our constant focus on productivity improvements, will further support our global objective of profitable growth and overall efficiency while allowing us to invest in the digital applications needed to meet the needs of our clients, candidates and employees.

We believe it is important to understand the rapidly evolving technological landscape and new business models.

So last month, we were one of the main summit partners at the Viva Technology conference in Paris.

Many established companies and digital disruptors had the opportunity to learn and collaborate together during the conference, and we saw this as an excellent forum to join other game changers, helping companies in some of the world's fastest-moving industries to grow their business by finding highly skilled, diverse talent and explore new, digitally enabled business models in many different industries.

We are very well placed to help both clients and candidates prepare for the future work on a global basis, leveraging our leading global footprint and strong brands.

Our scope of services and workforce solutions help companies remain agile and flexible by finding the necessary skilled talent where and when they need them.

And we provide candidates with valuable employment opportunities, either as contingent staff or as a permanent hire, as well as the ability to assess their learnability and upscale their talents to help them bridge the gap between the supply and demand for skills.

We are creating value to both sides of this equation, benefiting from the increase in demand for more and better flexibility in many countries around the world, which should provide us with good opportunities for future growth.

In summary, we are pleased with the results the team delivered in the second quarter, and we are well positioned to continue our strong financial performance as we head into the second half the year.

And with that, I would now like to open the call for Q&A.

Operator?

(Operator Instructions) Our first questions come from Mr. Andrew Steinerman.

I was intrigued by the comment of exiting the second quarter, gross margins started to improve in France.

My question is that in an environment where Continental Europe demand volume is on the rise, why is there still lingering pressure on gross margins?

Or do you think that's a timing difference?

Well, Jack can talk more specifically about the GP evolution in France, Andrew.

But as you could hear from our prepared remarks, a lot of that pressure comes from the shift in business mix.

So as you would expect, when some of these markets are coming back and are really increasing employment, some of the big companies are increasing them, and that's where we see the shift in business mix, and that's part of -- a large part of what is causing the shift in margin when we think about France.

Yes, and I would say, Andrew, the improvement at the end of the quarter was in the month of June as we exited the quarter, and we're watching that.

Probably too early to tell whether that's going to be a new trend, but we're going to watch that closely and see if that holds up throughout the majority of the third quarter.

Right.

But just give it to me philosophically.

You feel like things are normal and that gross margins should improve on a delayed basis after volume, right?

Yes, we think the environment is normal, that pricing is competitive but rational.

Our next question is coming from Mr. Kevin McVeigh.

Just to follow up on that, as you think about kind of the margin trajectory, is it primarily kind of client mix?

Or is it also service mix that's kind of causing some of the lower margin as we think about Q3?

And should you see some seasonal step-up as we get into Q4 as you typically anniversary pseudo costs and things like that?

Kevin, this is Jack.

I'd say it's a mix of both, actually.

So when we look at the staffing margin, what you saw from Q1 to Q2 was an additional 10 basis points of pressure.

So we saw that 30 basis points down in the GP margin walk, and that's being fueled by the strong growth in -- the stronger growth in France during the second quarter but also Italy, which grew very strong, and they saw business mix shift on that as well.

So I'd say that's the business mix side of that.

I think we did see some offsets to that in the U.S., where GP margins actually expanded.

But generally speaking, that's the business mix side.

And then I'd say in terms of the businesses, I think to our earlier points with Right Management and Proservia in France, they have been a bit of a drag in the second quarter, and we saw that in the first quarter as well.

So I'd say that held fairly constant.

But to your point, we do see that starting to shift in the second half of the year.

The France Proservia business will start to anniversary some of that GP decline, and they've been working on rebalancing that portfolio, and we should see some of the benefits of that come through in the fourth quarter.

So we do see some of that easing into the fourth quarter.

That's helpful.

And then just real quick, can you remind us the mix of Right Management today in terms of outplacement versus other?

The significant majority, Kevin, is outplacement, more than 2/3.

Our next question is coming from Mr. Jeff Silber.

Just wanted to go back to France.

You mentioned some of the positive aspects or potential positive aspects of some of the labor reform policy initiatives with the new president.

Is there any talk about any changes to the CICE?

Yes, Jeff.

On the CICE, so the Prime Minister came out on July 4 and said that they plan -- they do not plan on changing the CICE for 2018, but they are looking to change it for 2019.

So at this stage, we know that it's not going to be changed in the next year.

Addition to that was the economy -- the Minister of the Economy came out just prior to those comments and said they're going to study the CICE very closely, and they're going to be in discussions with corporates regarding the CICE.

So what that means is in terms of the 2019 changes, I think they're going to be very careful about that.

I think they're going to study it closely.

And it's likely we really won't see the impacts until the budget setting process for 2019, which will really start next summer -- in the summer of 2018, if things hold as they've guided.

So at this stage, it's too early to tell whether those changes are going to be neutral, positive or negative.

All right, that's really helpful, Jack.

I appreciate it.

And Jonas, in your prepared remarks, you mentioned -- I think you used the word cautious about the U.K. What are you hearing from your clients?

I know the revenues have been a bit under pressure.

Are things going to be getting worse?

Or is there still a lot of uncertainty?

I'm just curious what the tone is there.

Well, Jeff, as you had expect, in an environment where businesses are operating under a large degree of uncertainty because they don't know what the impact of the Brexit and what the trade rules are going to be and the immigration rules are going to be, we have all along said that we would expect this not to be -- the Brexit not to be beneficial to the U.K. economy.

We -- just as we said last quarter, we think it's too early to call whether our weakness in the U.K. is related to Brexit.

We actually saw a bit of an improvement in the Manpower business in -- during the second quarter.

But we saw a number of large clients in the U.K. on the Experis side pull back.

So too early to call whether these are early signs.

But as you know well, when employers are operating under uncertainty and they have to make decisions, they're going to be cautious on making investments in the U.K. based on the uncertainty.

And that's something that we expect to see happen, and we just don't know when.

Our next question is coming from Hamzah Mazari.

Just the first question for Jack.

Maybe just update us on how you are thinking about free cash flow for this year, whether you think it's going to be down year-over-year given the strong receivable growth versus cash collection.

Or you think maybe there's a catch-up as you get into Q3, Q4?

Hamzah, as we pointed out, what we saw in the second quarter was the impact of the additional strong growth.

And so during those periods of strong growth, what you'll see is the AR will grow at a faster rate than cash collections.

I think based on that, on a full year basis, based on the continued strong growth that we're projecting into the third quarter, it would be reasonable to expect that it would be down a bit as that trend stabilizes.

But I'd say going into the third quarter, the third quarter and the fourth quarter are 2 of our strongest quarters from a cash flow perspective, and we would expect that those will be positive.

Great.

And then just on the U.S. business, you mentioned prolonged manufacturing weakness impacting staffing revenues.

But if you look more recently, U.S. manufacturing is starting to ramp up, whether you look at public companies, revenue guidance or you look at U.S. IP growth.

Is there a lag from when you see sort of end markets getting better to when staffing revenues get better?

Or is there some sort of a constraint around labor supply in the U.S. that we should be thinking about?

Well, Hamzah, we think that when we had the ramp-down, the ramp on the curve with some of the larger clients on the manufacturing side and onto the Manpower brand, and as we try to make those volumes back up, as you can see, we are making progress, both on Manpower and on Experis, but it's just very slow.

And part of the reason why it's slow is that it's difficult for us to find ample supply of candidates to fill that.

So I think the outlook is actually stable and -- if not slightly improving, in the areas where we've seen weakness on the Manpower side for us in the U.K. -- I mean, in the U.S. And the progress is directionally good, but the speed is not what we would like, of course.

So we're going to keep on working on it, but I do think that we have opportunities to continue to see improvement going forward for both Manpower and for Experis in the U.S.

And I would just point out, in line with the prepared remarks, we did see very slight improvement in the rate of decline in both Manpower and Experis in the U.S., and we expect that trend to continue into Q3.

Great.

Just last question and I'll turn it over.

Jonas, you made some recent management changes in ManpowerGroup North America and maybe some other shuffling in Europe.

Maybe if you want to just comment there for investors.

Well, we make management changes and changes of resources and capabilities wherever we think they are needed to improve our performance.

And these are -- this is something that we're doing on an ongoing basis across all of our global operations, and we're very pleased with the talent that we now have in place, both in the U.S. and the further agility and the capabilities we have added in Europe as well.

So these are the kinds of things that you would expect us to do to address the areas where we believe we could do better as a business.

And as part of that, management changes sometimes are necessary, and that's what you've seen us do.

Our next question is coming from Anj Singh.

I was wondering if you can touch on Experis growth in America.

I know you just spoke that in the earlier question and you're seeing a slight improvement there in the trends quarter-over-quarter.

But it still continues to be under pressure.

It's been a weaker business for you folks for some time.

So if you could just give us a sense of what's working, where you're seeing more difficulties in penetrating or capturing market share.

A little bit back to Hamzah's question.

So we saw some of the declines in both Manpower and at Experis specifically occur with some of our larger clients.

And while demand for our services and solutions is good in the U.S., backfilling large volume declines is just going to take some time.

So we're pleased that we've managed to make the progress that we have.

And although our revenue performance has clearly been weak in the U.S. for a number of quarters, as I'm sure you've seen, our GP performance has been very strong and our operating profit performance has also been very strong.

So add to that in a market where talent is scarce, a very -- a large degree of pricing discipline, where we really want to make sure that we place the talent that we have with clients who are really valuing the quality and the skills and the capabilities of that talent.

So we've been exercising a degree of price control, which has been very beneficial to us from a U.S. perspective.

So it's clear that we're not where we want to be with Experis in the U.S. as far as the top line growth is concerned, but we're pleased that we're making progress.

And as you've seen, our GP dollars performance and our operating profit performance has been very strong.

So we'll keep working on this and make sure that we get to where we want to be also on the revenue side.

Okay, got it.

That's helpful.

I guess with regards to your commentary on GP performance and OUP margin performance in the U.S. and Americas, could you speak to how much more room there may be for improvement?

Clearly, very strong, especially with the revenue trajectory.

But how much of the contribution is coming from perm and solutions mix this quarter?

Just trying to get a sense of how much the restructuring is helping here versus mix versus cost control.

And if you could just elaborate on what you're seeing for trend spreads for your temp business in the U.S.

So Anj, on that, I'd say in terms of the spreads on the temp business, I'd say things are -- generally speaking, in terms of getting at wage inflation, that's sort of holding in line with what we reported on in previous quarters.

So I'm not seeing dramatic change.

So that's still running at about 2.5% year-over-year.

In terms of the businesses overall, I think as we've mentioned in the past, so the solutions -- a big part of the Solutions business is in the U.S. So it's a largest part of the Solutions business overall, and that does have an impact when you're looking at margins for the U.S. business and explains why they tend to run a bit higher based on that higher-margin business there.

So in terms of the Q2 performance, I'd say, to Jonas' earlier point, we were able to do well with expanding gross profit margin on the Experis side, and that was a driver for that as part of the business.

And we also did that on the Manpower side.

We're able to expand margins during the quarter as well.

And as we mentioned, although revenues have been down, the business has been doing a very good job of cost management.

And we mentioned the restructuring charges we recorded in the second quarter.

We see that reducing expenses going forward, and we saw a little bit of that start to take place as we exited the second quarter.

So that will have an impact going forward.

Okay, got it.

One quick one, if I may.

I'm not sure if I missed this in your commentary, but what are you seeing for perm growth in the U.S.?

So perm growth in the U.S. was just down low single digits, and that's coming off of a very strong growth in the year-ago period.

So that's been holding.

I think that's in line with what we saw in Q1.

But overall, good contribution in terms of perm gross profit dollars from the U.S.

Our next question is coming from Mr. Tim McHugh.

Just wanted to follow up on some of the earlier questions about France and the comments on gross margin towards the end of the quarter.

I guess can you elaborate on what -- or I guess why it improved in June?

Was it mix, pricing?

Kind of what was the underlying factors that you saw towards the end of the quarter?

Tim, yes, I'd say it's a combination.

The mix, we're starting to see the mix stabilize a bit.

It's been running at that -- if we look at the 11% for the quarter overall, it was running at that level largely during the majority of the quarter.

So I think we're starting to see some of that stabilization.

It's always hard on the larger customers to carve out the exact amount of mix and pricing.

The larger customers tend to be very competitive when it comes to the pricing.

So I'd say largely mix, but some of that may have been the continued stabilization based on extremely strong demand in the country as we start to see that start to stabilize.

Okay, that's helpful.

And then maybe just one other one on France.

I guess I understand the devil's in the details and there's a lot we don't know yet.

But I thought some of the headlines in France kind of suggested if the CICE is changed, they would just go towards a general kind of payroll tax deduction.

To the extent maybe, I guess, you can elaborate what has been said, you probably understand far better than me.

But if that were the case, if that turns out how -- what it's going to be, what would the impact be in that scenario?

Yes, Tim, to your point, what they have said was in 2019, they expect it to be transformed into a reduction of social costs.

So to your point, it would be a reduction of costs paid in the period.

I'd say they haven't given any additional details beyond that.

So they haven't given a quantum of what that would be like.

Would it be apples for apples, the same amount of the CICE, which is a tax credit, transformed into the social cost reduction, which would be a pretax change?

So really, without the guidance, it's hard to tell how they plan on transforming that.

To my earlier point, the earlier comments by the Minister of the Economy that they're going to study this indicates that they're probably going to look at this pretty carefully in determining how they want to make the exact change.

I think if only -- if the only change were to change it from the tax credit into a reduction in social charges, and all things being equal, that would reduce the benefit to us.

But it's too early to tell whether that's going to be the proposal.

And our next question is coming from Mr. Mark Marcon.

I've got a question for Jonas.

I know you were in Europe recently.

I was wondering if you could further elaborate on a few things that you may have observed.

One would basically be just the more immediate impact of some of Macron's proposals, to the extent that it goes through.

When -- what are you hearing?

When do you think something might actually be enacted and actually would start having a real positive impact if things are already picking up in France?

And then secondly, when we take a look at Northern Europe, Germany, Nordics, Netherlands were all quite strong.

Wondering if you think that those are going to continue to accelerate.

And if so, what sort of margin leverage can we get?

So Mark, on the -- on France, I think one of the notable changes that you may have seen as well is the improvement in business confidence overall and in consumer confidence.

So Macron's election really gave the green light for France to return to action and just make some of the necessary changes, structural reforms that France has been needing for a long time.

And we see that translating into some of the things you've now observed us doing in France certainly over this quarter, where demand for our services and solutions is improving.

The consultation around the labor market reforms, specifically in France, is going to finish.

As far as the discussions are concerned, it finished on Friday of last week.

Now comes the time for the government to prepare a proposal which they'll put forward, and then they are intending to pass these measures in whatever form they decide to promote over -- during the month of September.

So these reforms could come in quite quickly.

But we would say that some of this optimism is already feeding into the confidence that employers are feeling.

Now let's make sure we understand it's within the context of a slow growth environment still.

So it'll make it a little bit better.

But -- so we would expect the impact of some of these reforms and some of the improved economic environment in terms of an improving growth rate to start to ease into this and continue to be visible as 2018 comes in.

As it relates to the other countries in Europe, we feel good about the overall improvement.

Not being able to call out exactly what's going to happen in each and every one of them, but we note that Germany has been strong for quite some time for us.

Netherlands as well.

So both of them are doing well.

And maybe, Jack, maybe you could give some additional color on that Northern Europe [indiscernible].

Sure.

Now specifically on Northern Europe, as you can see from our guidance, we're looking at continued growth, low single digits.

And when thinking about that, keep in mind that that's largely due to the comps, right?

So to Jonas' point, Germany saw very large growth in the third quarter a year ago in our Proservia business.

Some of that will start to anniversary.

So just keep that in mind.

Germany is still going to continue to do very strong but more so in high single digits to very low double digits, based on that anniversary.

Belgium, we continue to see stable growth into the third quarter.

I think on the Netherlands, again, keep in mind the comps.

They were running at 20%-plus a year ago.

So considering that, you'll see that come down a bit, but that's really just on the comps.

Continued very strong revenue growth in the country.

And the Nordics continues to see good underlying growth, high single digits to low double digits.

And lastly, the U.K., which we've talked about being a decline, we see that rate of decline starting to improve slightly into the third quarter.

So I'd say those are the main components for Northern Europe, Mark.

Our next question is coming from Mr. Gary Bisbee.

I guess I just wanted to ask about Southern Europe in particular.

You've had incredibly good growth in France and accelerating and good growth in Italy for a long time.

How do you think about the sustainability of that kind of growth in sub-2% GDP growth markets?

I understand clearly there's optimism that economic growth will improve in France with the new government there.

But it seems like relative to the long-term historical relationship between GDP and temp industry, and even your revenue, that we're seeing just an outsized benefit relative to the economic activity in a number of those key markets.

Well, Gary, if you look at the French market penetration, so where they are compared to where they've been in terms of prior peak and penetration, France still has room to grow just to get back to the prior cyclical peak.

And so we think we still have some good opportunities for growth in France.

And Italy, although they are now just at their cyclical peak, their overall market share, their overall market penetration is significantly below the European average and what you would expect Italy to eventually end up having as a market penetration.

So we believe that the growth opportunity in Italy is still going to be very significant for that reason.

So you're right, the teams have done a great job.

We've had the ability to grow for a number of years.

And we feel good about our opportunity to continue to see some growth from those 2 countries and, frankly, also from Europe as a whole because the outlook for Europe, if you compare our thoughts around Europe maybe 3 quarters ago, that's been -- it's been -- that market environment has improved markedly.

So we feel very good about our position in Europe and how we're situated in the various countries and the ability for Europe as a whole, maybe with the U.K. as an exception, to continue to be a good driver of growth for us going forward as well.

And I'd just add on Southern Europe, Jonas, Spain actually very strong growth, mid-single-digit growth in the second quarter days adjusted.

And we see that actually improving into the third quarter.

And IT services have been particularly hot in Spain lately.

So we see that as another good potential for continued growth for Southern Europe.

And just for Europe broadly, can you give us a sense, whether it's over the last 5 years or so, how has the mix changed and how is mix impacting it?

And specifically, I'm wondering about Experis, Proservia solutions relative to just the core Manpower brand.

Is that stuff contributing a lot more than it was 5 years ago?

And is that a part of the reason that you've had such strong growth in a pretty lackluster overall environment?

Well, we -- as you've seen, we've done -- we've -- or as we've talked about over the -- over a number of years now, our Solutions business has performed extremely well across Europe.

So that clearly has helped, whether it's our world-leading RPO or MSP solutions or the very strong growth that we've had across Europe with Proservia, in Germany notably, and also in France.

So we've seen very good growth from that perspective and a shift there.

And outside of the U.K., our Experis business has also performed very well.

And up until recently, I should say, also the U.K. business performed.

So we've seen a shift in our mix to the higher-value solutions.

But having said all of that, Manpower-branded business has been a very strong driver of performance as well, coupled with the increasing use of our enhanced delivery models, leveraging technology and things like that.

So it's really been a tale of many of the brands coming together and doing some good -- having some excellent performance.

But the shift has occurred in favor of Experis and in favor of Solutions over that kind of time frame.

And then just last one from me.

The gross profit growth in Solutions was, I think, the slowest since you began reporting that many years ago.

You talked about what's going on in the U.S., and that's probably the reason why.

But just a big picture question, how do we think about penetration of that portfolio of solutions today?

And do you still think that, that being a leading grower in the portfolio for years to come is a reasonable expectation?

Yes, Gary, it's absolutely correct.

We've had 13 quarters of double-digit revenue growth and very strong double-digit growth for most of that time also on GP.

And the maturity of those offerings, and particularly across Asia Pacific and Europe and Latin America, is much lower than what it is in the more mature North American market.

So we think that we can continue to expect good growth in our Solutions business going forward as well.

Maybe not as high as we've had.

We've seen very, very high growth over the last -- but certainly, we believe we can continue to expect some good -- some very good growth, and probably the fastest growth across our offering also going forward for the Solutions business.

Our next question is coming from Mr. Manav Patnaik.

This is Ryan filling in for Manav.

I guess just quickly on the French market.

I mean, if you look at last year versus some of the temp data, it seems like that business underperformed the market, and now you're getting back up to at-market or even above-market growth.

Is that -- if I'm looking at that, does that imply that maybe pricing was a little bit more irrational last year and now it's kind of settled out?

Or can you maybe just elaborate on the relationship there and why we're seeing such a pickup towards the market in the first half of this year?

Well, Ryan, if you were to go back a couple of years further, you would have seen that we outperformed the market 2 -- at least 2 years prior to slowing down a bit in '16 and now what we believe coming back to market.

So I think with our size and our presence in the French market, that's what we would expect.

And you could expect it to go move up and down a little bit, but I think we're very pleased with being -- with seeing the acceleration that we've seen in the first quarter, and we feel good about carrying on and staying with market at this level.

As you know well, we are always applying strong pricing discipline, and we're very interested in profitable growth.

So not growth at any cost.

So volume for the sake of volume is not what we're looking for, and the team has done a very good job managing that to market growth rate and coming back to that market growth rate in a very good way.

Great.

And then I guess just quickly, I mean, you talked about digital disruption and investing in delivery methods.

I mean, is there any M&A potential out there for -- you've seen some of the market of maybe more acquiring of digital assets.

I mean, is there anything out there that you think would make sense, of maybe a nontraditional staffing M&A that you guys are keeping an eye on as you look towards the future?

We really look at where we can create value, and we're very clear that we are a business services company.

And in a world of cloud, software as a service, rapid changes in technology, we don't really see ourselves as being able to invest in the rapidly -- in technology at the pace that you'd be required to do to stay competitive and win in the market.

We'd much rather spend our time leveraging the data that we have, both from a client as well as from a candidate perspective, and then engaging with technology partners to drive the best performance at the fastest market speed.

So I think it would be unlikely for us to look at anything in the technology space that we would be interested in, but we're always tracking the market and looking at what business models could be suitable for our business and for the innovation that we're trying to drive.

And with that, thanks to everyone.

And we look forward to speaking with all of you again in our conference call for the third quarter.

Thanks, everyone.

Have a good week.

And that concludes today's conference.

Thank you all for your participation.

You may disconnect at this moment.