ManpowerGroup Inc (MAN) 2017 Q3 法說會逐字稿

Welcome to the Manpower Third Quarter Earnings Results Conference Call.

(Operator Instructions) This call will be recorded.

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

And I will now turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising.

Sir, you may begin.

Good morning.

Welcome to the third 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 third 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 fourth quarter.

Then I will follow 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 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, Jack.

We're pleased with our performance in the third quarter.

Revenue came in at $5.5 billion, an increase of 4% in constant currency.

On a same-day basis, our underlying organic constant currency growth rate was 5%, slightly below the second quarter level due to the tougher comparables in the prior year.

We saw very strong revenue growth in a number of our bigger operations such as France, Italy and Mexico, offset by revenue weakness in the U.K. and the U.S. We saw overall improvement in our revenues through the quarter, with September revenues growing just about 6% adjusted for billing days.

We expect to see revenue growth rates remain at that level as we close out the year despite increasingly tougher comparables in the fourth quarter of last year.

Operating profit in the quarter was $228 million, up 4% in constant currency.

Operating profit margin came in at 4.2%, an increase of 10 basis points over the prior year at the upper end of our guidance range.

You'll recall that the third quarter of last year included approximately $8 million of nonrecurring gains.

Excluding those gains from the prior year, our operating profit growth was over 12% with a 20 basis points expansion in margin.

During the quarter, we continue to see gross profit margin contraction.

However, this is offset by our continued SG&A productivity improvements and good SG&A leverage.

Earnings per share for the quarter was $2.04, an increase of 6% in constant currency or an increase of 14% excluding the nonrecurring gains last year.

Our performance reflects our ability to drive profitable revenue growth and solid returns through our strong and connected brands, leveraging our industry-leading geographic footprint.

Our strategy has not changed, and we're making very good progress overall.

While we have seen further gross profit margin contraction, most of this decline results from changes in business mix and does not reflect a change in our pricing discipline, and we remain very committed to ensuring sustainable and profitable growth over the long term.

We continue to enhance our services and solutions with our investment in technology solutions and digital capabilities.

These investments enhance candidate attraction and client satisfaction while improving our delivery models and employee productivity.

For example, our associate and candidate app is leading the market in France, improving the engagement of all of our associates and candidates while also improving our own productivity in meeting our clients' needs for skilled talent.

We've also enhanced our global cloud-based collaboration tools and upgraded our CRM tool to a fully integrated enterprise-wide cloud-based tool, which is helping to drive sales efficiency.

We're enabling the operations to be increasingly high-touch and candidate-focused while driving productivity and process improvements by being increasingly high-tech.

And with that, I'd 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 strong third quarter performance with constant currency operating growth of 4% -- on 4% constant currency revenue growth.

Excluding the onetime gains in the year-ago period of $8 million related to pensions and properties, the operating profit growth represented 12%.

This performance represented an operating profit margin expansion of 10 basis points over the prior year and represented the upper end of our guidance.

Excluding the onetime gains in the prior year, the operating profit margin expansion represented 20 basis points in the quarter.

Revenue growth came in between the lower end and the midpoint of our constant currency guidance range.

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

Looking at our revenue growth more closely, currency positively impacted revenues by 3% and acquisitions contributed about 30 basis points to our growth rate in the quarter.

Therefore, revenues were up 7% on a reported basis, and our organic constant currency revenue growth in the quarter was 4%.

After adjusting for billing days, this represents a 5% growth rate, reflecting a decrease from the second quarter of billing days adjusted organic constant currency growth rate of 7% due to the tougher prior year comparables.

On a billing days adjusted basis, July and August experienced only moderate seasonal revenue growth, partly due to the non-recurrence of the Rio Olympics revenue from 2016.

September ended the quarter with an accelerated revenue growth rate just above 6% on a billing days adjusted basis.

Earnings per share of $2.04 was $0.10 above the midpoint of our guidance range.

The drivers of this result include $0.03 attributable to better-than-expected operational performance, which included lower corporate expenses due to the timing of project spend; $0.02 from a lower tax rate than expected; $0.01 based on lower weighted average shares, resulting from share repurchases during the quarter; and $0.04 from higher foreign currency rates.

The better operational performance was driven by higher revenues in certain markets, particularly France and Italy and lower expenses resulting from strong cost management in the quarter.

Looking at our gross profit margin in detail, our gross margin came in at 16.5%, a 40 basis point decrease from the prior year.

The staffing gross margin had a 40 basis point unfavorable impact on overall gross margin, which was primarily driven by business mix, particularly in France, Italy, Germany and the Nordics.

We experienced some improvement in our Solutions Proservia business gross margin in the quarter, which helped drive an overall growth in solutions GP margin.

The contribution from our solutions businesses had a favorable impact on consolidated margins, which was offset by the impact of a lower contribution from the Right Management business.

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 64% of gross profit.

Our Experis professional business comprised 19%.

ManpowerGroup Solutions comprised 13% and Right Management 4%.

Our higher value solutions offerings within ManpowerGroup Solutions once again provided the highest level of growth.

During the quarter, our Manpower brand reported a constant currency gross profit increase of 4%, representing a stable growth trend from the second 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 a stable trend from the second quarter.

Office and clerical skills gross profit was flat during the quarter, representing acceleration from the slight decline in the second quarter.

Gross profit in our Experis brand decreased 4% in constant currency, representing a decline from the 2% growth experienced in the second quarter.

This was driven by declines in the U.S. and the U.K. as well as the anniversary of Experis-related acquisitions in Europe during 2016.

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 9% in constant currency, reflecting an increase from the 6% growth in the second quarter, primarily driven by Australia, Germany, France and the U.K.

Right Management experienced a decline in gross profit of 19% in constant currency during the quarter, a slightly lower rate than experienced in the second quarter.

Right Management has seen declines as career outplacement activity continues to trend down year-over-year.

Gross profit trends of our business lines include permanent recruitment.

Overall, permanent recruitment gross profit was up 5% in the quarter, representing a slight acceleration from the 4% growth in the second quarter.

Our reported SG&A expense in the quarter was $673 million, which represents an increase of 1.3% in constant currency, above the prior year level.

SG&A expenses as a percentage of revenue in the quarter once again improved, down 40 basis points to 12.3%, driven by strong cost management from a continued focus on operational efficiency across our businesses.

The Americas segment comprised 20% of consolidated revenue.

Revenue in the quarter was $1.1 billion, a decrease of 5% in constant currency.

OUP came in at $60 million in the quarter, representing an increase of 8% in constant currency just above the prior year level, driven by improvement in the U.S. And the OUP margin improved 60 basis points year-over-year.

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

The U.S. is the largest country in the Americas segment, comprising 62% of segment revenues.

Revenue in the U.S. was down 9% compared to the prior year, which on a billing days adjusted basis, represents a 7% decline which is stable from the second quarter.

Although the hurricanes impacted our Manpower business revenues in the third quarter, they did not have a significant impact on the overall U.S. revenue trend.

During the quarter, OUP for our U.S. business increased 6% to $44 million.

OUP margin was 6.6%, up 90 basis points from the prior year, primarily due to increased gross profit margin and strong SG&A cost management.

It's important to note that despite challenging revenue trends, the U.S. business continues to focus on strong pricing discipline and overall operational efficiency, resulting in continued OUP dollars and margin expansion.

Within the U.S., the Manpower brand comprised 42% of gross profit during the quarter.

Revenue for the Manpower brand in the U.S. was down 8% in the quarter, including about 1% due to the impact of the hurricanes.

After adjusting for the impact of the hurricanes and adjusting for billing days, Manpower revenues slowed slightly from the trend in the second quarter.

The Manpower business expects to see improvement in the rate of decline in the fourth quarter, driven by recent on-site business additions.

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

Within Experis in the U.S., IT skills comprised 71% of revenues.

During the quarter, our Experis revenues declined 10% from the prior year or 9% on a billing days adjusted basis, a further 1% decline from the second quarter.

Experis revenues from IT skills on a billing days adjusted basis were down 10% from the prior year, which represented a further decline of 2% from the second quarter.

ManpowerGroup Solutions in the U.S. contributed 22% of gross profit and experienced a revenue decline of 11% in the quarter related to the roll-off of certain project work.

This trend represented a slight improvement from the second quarter, and we continue to see strong demand by our clients for our higher-value RPO and MSP solutions and expect the revenue trend to continue to improve in the fourth quarter.

Our Mexico operation had strong revenue growth in the quarter of 15% 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 in the other countries within Americas was down 6% in constant currency.

As I mentioned previously, this trend was driven by the non-recurrence of the Rio Olympics revenues from 2016, and we expect to return to growth in the fourth quarter.

Southern Europe revenue comprised 42% of consolidated revenue in the quarter.

Revenue in Southern Europe came in at $2.3 billion, an increase of 12% in constant currency.

On an average billing days basis, this represented a revenue growth rate of 14%, equal to the growth rate in the second quarter.

OUP was $117 million, an increase of 11% from the prior year in constant currency, and OUP margin was 5.1%, flat to the prior year, as gross profit margin declines offset our efficiency improvements and operating leverage.

Permanent recruitment growth was very strong at 17% in constant currency, an increase from the 14% growth in the second quarter.

France revenue comprised 64% of the Southern Europe segment in the quarter and was up 10% over the prior year in constant currency, and adjusted for billing days, it was up 12% over the prior year.

This represented a 1% increase from the 11% growth rate in the second quarter and represents 5 consecutive quarters of increased growth.

Although France's staffing gross margin has declined year-over-year, primarily as a result of business mix, the rate of decline stabilized in the third quarter, and we experienced an improving staffing margin trend from the second quarter.

In addition, France saw an improved trend in the gross profit margin of its Solutions Proservia business during the third quarter, as a result of previous actions taken in the business.

We expect the Proservia business to have a positive impact on France's gross profit margin in the fourth quarter.

Permanent recruitment growth was 8% in constant currency during the quarter, which was an increase from the 4% growth in the second quarter.

OUP was $77 million, an increase of 6% in constant currency, and OUP margin was down 20 basis points year-over-year at 5.2%.

During the third quarter, the French government released the preliminary budget for 2018.

The budget detail that the rate of CICE, which represents an employer subsidy in the form of a tax credit, will be reduced in 2018 from the current 7% level to a 6% level.

Similar to December 2016, which benefited from the 2017 rate increase based on wage payments in January 2017, the decreased rate in January 2018 will unfavorably impact December 2017 results.

We expect this to approximate $2 million of reduced gross profit in December 2017, which compares to the year-ago period that experienced a similar benefit.

As a result, we expect this item to impact France's gross profit margin in the fourth quarter.

Revenue in Italy increased 23% in constant currency during the quarter.

This represents a continuation of the very strong 20%-plus constant currency growth rate experienced in the second quarter.

Business mix changes associated with the growth have resulted in reduced staffing margins.

The trend of year-over-year staffing margin decline was stable to the level experienced in the second quarter.

Staffing margin declines have been partially offset by continued strong permanent recruitment growth.

Specifically, permanent recruitment fees increased 20% on a constant currency basis over the prior year.

OUP growth was up 25% in constant currency to $24 million.

During the quarter, the OUP margin increased 10 basis points to 6.3% as gross profit margin declines were offset by improving operating leverage and strong SG&A cost management.

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

Revenue growth in Spain was up 12% 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 4% or 6% after adjusting for average billing days in the quarter.

This reflects an improvement from the second quarter, and we expect further acceleration in the fourth quarter.

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

Revenue was up 1% in constant currency to $1.4 billion.

On a billing days adjusted organic constant currency basis, Northern Europe had a 3% constant currency growth rate, which represents a deceleration from the 5% organic constant currency growth in the second quarter.

The slowing revenue growth was primarily driven by the anniversary of very high growth in the year-ago period by the Netherlands and Germany and, in particular, of one large client win in Germany in August of 2016.

OUP came in at $49 million in the quarter.

The prior year included $8 million of pension and property gains, and as a result, OUP in the quarter was down 12% in constant currency and OUP margin was down 50 basis points.

Excluding the onetime gains in the year-ago period, OUP would've increased 3% in constant currency and OUP margin would've increased 10 basis points.

Our largest market in Northern Europe segment is the U.K., which represented 29% of segment revenue in the quarter.

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

Permanent recruitment fees also decreased during the quarter, down 6% 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.

However, we saw slightly improving trends in both our Manpower and Experis brands in the third quarter.

We expect the overall level of average daily revenue decline to improve slightly again in the fourth quarter.

Staffing gross profit margin decreased year-over-year in the U.K. consistent with the second quarter due to business mix changes in the Manpower business.

This decline was partially offset by gross profit margin expansion in the Solutions businesses, resulting in 20 basis points of overall gross profit margin decline year-over-year in the U.K.

Revenue growth in Germany was up 9% on a constant currency basis in the third quarter or up 11% on an average billing days basis.

This is down from the 16% growth in the second quarter, primarily driven by the anniversary of a large client addition in August of 2016.

The fourth quarter will see a full quarter impact of the anniversary of this client.

Revenue growth in the Nordics was up 7% in constant currency in the quarter and represented 9% growth on an average billing days adjusted basis.

Organically, the constant currency average daily revenue growth on an average billing days adjusted basis was 8%, which was a deceleration from the 14% growth rate in the second quarter, primarily due to tougher comparables last year.

Norway and Sweden are currently experiencing solid revenue trends, and we expect to see continued solid mid-single-digit revenue growth on an average billing days adjusted basis in the fourth quarter.

Revenue in both the Netherlands and Belgium increased 2% and 3%, respectively, in constant currency on a billing days adjusted basis.

This result was in line with expectations as very high growth rates in the prior year anniversaried in the third quarter.

Other markets in Northern Europe had a revenue increase of 12% in constant currency, driven by growth in Poland, Russia and Luxembourg.

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

In the quarter, revenue was up 4% in constant currency to $665 million, representing a slight decrease from the second quarter growth rate due to slowing in Australia within our Manpower brand.

Permanent recruitment growth was 9% in constant currency.

OUP was $27 million in the quarter, representing an increase of 9% in constant currency, and OUP margin increased 20 basis points at 4.1%.

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

Permanent recruitment growth was very strong at 24% in constant currency.

OUP was up 6% on a constant currency basis, and OUP margin was up 10 basis points.

Revenues in Australia and New Zealand were down 3% in constant currency on a billing days adjusted basis, representing a 1% decline from the average daily revenue rate experienced in the second quarter as the Manpower brand continue to experience a slowing of new business.

Revenue in other markets in Asia Pacific Middle East continue to be strong, up 8% in constant currency.

This was the result of strong double-digit growth in a number of markets, including India, Taiwan, Singapore and the Middle East.

Our Right Management business continued to slow significantly in the third quarter based on a reduced outplacement activity.

During the quarter, revenues were down 20% in constant currency to $52 million, which represented a stable decline from the second quarter.

OUP decreased 8% on a constant currency basis to $8 million, and OUP margin was 15.7%, representing an increase of 180 basis points.

We expect revenues to continue to decline in the fourth quarter with a less significant rate of decline.

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

Free cash flow, defined as cash from operations less capital expenditures, was $247 million for the first 9 months of the year compared to $360 million in the prior year period.

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.

The third quarter experienced positive free cash flow of $125 million, which compared to $129 million in the year-ago period.

At quarter-end, day sales outstanding increased over the prior year level by 2 days, which was impacted by the timing of month-end cash collections in certain markets.

Capital expenditures represented $40 million during the first 9 months, which was down $3 million from the prior year.

Cash used for acquisitions year-to-date represented $40 million.

During the quarter, we purchased 570,000 shares of stock for $62 million, bringing total purchases for the 9-month period to 1.7 million shares for $178 million.

As of September 30, we have 3 million shares remaining for repurchase under the 6 million share program approved in July 2016.

Our balance sheet was very strong at quarter-end with cash of $667 million and total debt of $923 million, bringing our net debt to $256 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 EUR 350 million note outstanding with an effective interest rate of $4.5 million 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 agreement for $600 million, which remain unused.

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

We are forecasting earnings per share to be in the range of $2.01 to $2.09, which includes a positive impact from foreign currency of $0.12 per share.

Our constant currency revenue guidance is for growth between 5% and 7%.

The impact of acquisitions represents 40 basis points of the growth rate in the fourth quarter.

As there is a very slight decrease in average days in the fourth quarter, year-over-year, our guidance for the fourth quarter represents a billing days adjusted organic constant currency growth rate also at 6% at the midpoint.

This represents a slight acceleration from the revenue growth rates experienced in the third quarter but in line with September's growth despite tougher comparables in the fourth quarter of last year.

From a segment standpoint, we expect the constant currency revenue trend in the Americas to be slightly down to flat with constant currency revenue in Southern Europe growing in the low double-digit range.

Northern Europe revenue trend at flat to the prior year, and Asia Pacific Middle East growing in the mid-single-digit range.

We expect the revenue to decline at Right Management in the high-single digits.

The difference in billing days will have an unfavorable impact on revenue growth of about 1% in Northern Europe, with the remaining regions being about the same year-over-year.

After adjusting for the nonrecurring onetime $7.5 million insurance settlement recorded within corporate expenses in the fourth quarter of 2016, 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 profit margin.

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 67.3 million in the quarter, reflecting share repurchases through September 30.

I would also like to comment on consideration for full year 2018.

I previously mentioned the French government's preliminary budget reduction of the CICE subsidy from 7% to 6%.

If this provision is enacted as proposed, in isolation, this change would result in a reduction of the France business' gross profit for the full year of approximately $27 million as compared to 2017 levels.

We are focused on offsetting the effects of this change to the greatest extent possible through various initiatives, which include, among others, continued pricing discipline and productivity improvements.

Lastly, we commented after we achieved the 4% EBITDA margin goal that we would provide an update on our financial targets during a subsequent quarterly call.

We plan to provide the financial targets update on our next conference call as part of our discussion of year-end earnings.

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

Thanks, Jack.

We continue to focus on our global objective of profitable growth and overall efficiency, while also investing in digital applications and process enhancements to meet the needs of our clients, candidates and employees.

In this time of digital disruption impacting business models and consumer behavior, we provide our clients with our insight into skill shortages and the ability to find or develop the talent to meet their needs using our own proprietary research and data.

Through our strong and connected brands, we can address our clients' complex talent challenges and provide them with successful workforce solutions, and in doing so, we also play an important role for individuals looking for employment opportunities as we can assess their learnability and help them up-skill their talents, so that they can bridge the gap between the supply and demand for skills.

Our extensive offerings create value for both clients and candidates, and we benefit from the increase in demand for more flexibility and better workforce solutions across the globe, creating very good opportunities for future growth.

The global economy continues to show favorable trends in many parts of the world, particularly across Europe.

While the European economy has seen slow growth and we're cautious about the U.K. as they prepare to exit the EU, many data points indicate the potential for stronger economic growth, and so we are optimistic about the overall near-term outlook.

We also see some improvement in the labor market outlook, with a great deal of optimism surrounding the recent reforms in France, which should benefit that economy and stimulate better employment growth.

We recently published our Q4 ManpowerGroup Employment Outlook Survey, tracking forward-looking quarterly changes in employer sentiment, and that survey showed a similar trend of slowly improving employer hiring intent in all surveyed markets globally.

Given the future of work trends, the economic backdrop and the secular trends of companies looking for increased strategic and operational flexibility, we believe our strategy will continue to work very well for us.

We're pleased with our progress so far, with more opportunities for profitable growth in the future.

And as Jack mentioned in his prepared remarks, we look forward to sharing our views on those future opportunities, our strategy and the resulting new financial targets during our year-end earnings call.

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

Operator?

And our first question is from Andrew Steinerman.

Jonas, those were thoughtful comments of why you're optimistic about the near term.

And I was quite pleased and encouraged about the recent acceleration of revenue growth despite the tougher comps.

When you look past the recent growth trend of 6%, what do you sense it would take to get the company into higher single-digit organic growth?

Or is that kind of too far to think about?

Well, I think that an improving -- first of all, good morning, Andrew, and thank you.

The improving outlook for Europe clearly is something that is a positive for us.

And as I mentioned and as Jack mentioned as well in his prepared remarks, we're seeing the overall outlook from an employer intention also to be quite positive and broad-based.

Now when you look at our growth rates and we're pleased to see that September really came in stronger and our outlook is looking for more of the same into the fourth quarter, it's also important when you think about our growth is also including, of course, revenue growth that's tepid in the U.K. and the U.S. And if you remove that, you're looking at 8% to 9% growth rates for the company, which is a very strong growth rate already.

So I would say that we have an opportunity both with improving European conditions and then as we continue to work on improving our performance in the U.S. and the U.K., we believe that we have some good revenue opportunity improvements there as well.

And the next question is from Hamzah Mazari.

I just had a question on how you guys think about larger M&A.

The last time you did a major deal was 7 years ago.

There's not that much debt on the balance sheet.

Maybe just help us think about -- do you find too much risk in larger staffing deals?

Well, as you know, Hamzah, we've been -- we prefer organic growth because we think it's a better use of all of our capital, a better return to our shareholders.

Because essentially in our industry, when you're buying a company in our industry, you're buying client contracts and people.

And both of those may -- are subject to change.

So we prefer organic growth.

But if we are looking for M&A, then it's within the Experis business or in the Solutions business.

Those are the higher growth areas in the market as well as in terms of profitability.

So I would say our stance has not changed.

We are -- we would opportunistically look at acquisitions under the right conditions and, of course, supplying a very strong pricing discipline there in terms of valuation as well as very strong cultural fit and fit with our strategies.

And we would see any acquisitions that we would make as platforms on which to accelerate organic growth as opposed to buying market share or anything like that.

So our stance has not changed, and we're continuing down our path of preferring organic growth but looking at M&A as and when we think there's a good opportunity.

Great.

And just a follow-up question on the U.K. business.

Do you have any sense of how much of that decline is cyclical versus maybe you're feeling an impact from Brexit?

Just curious.

And any sense you get from your customers in that business?

Well, we think that the decision from -- to exit the EU is not going to be beneficial for the U.K. in the long term.

Having said that, I would not tie our weakness in the U.K. to any immediate Brexit impact as far as we can tell.

I'd say that life outside the greater London area appears to be doing quite well.

For smaller businesses, they're carrying on and doing their business, and that's still a good area for us to see growth.

I was very pleased to see that Manpower actually improved in the third quarter and is almost flat, frankly, compared to last year, so that's good.

And Experis is working its way to getting better, and you saw that improvement as well.

But that's primarily related to some major corporations that are making some changes.

So if anything, I would say that you could anticipate larger companies may be pulling back or not making the investments that they otherwise would and/or preparing themselves.

But in the case of our performance in the U.K., I would say, it's a -- a lot of it's to do with how we're positioned, and I'm pleased to see that we're making progress, but we still got some work to do.

And the next question is from Kevin McVeigh.

Hey, real nice job.

And really nice job kind of offsetting the CICE in kind of Q4.

And Jack, you talked about $27 million in kind of a worst-case.

If you think about potential levers in terms of offsets to that, is that primarily SG&A leverage?

Or would you expect incremental leverage as that comes back from a revenue perspective in terms of -- just any thoughts on where the puts and takes would be on that $27 million offset in '18?

Yes.

Kevin, I think it's going to be a combination of things.

I think, first and foremost, we emphasized pricing discipline.

And you've seen with been very disciplined in terms of pricing in France, and that certainly will continue.

And then I would say, we are very focused on productivity enhancements, and that will certainly be part of the equation.

I know in terms of France, we've talked about it, and I addressed it in my prepared remarks, what we're seeing on staffing margin side.

And at the end of the second quarter, I emphasized that we are starting to see, in the month of June, some stabilization in what we're seeing in staffing margin.

And we actually have seen that hold into the third quarter, which is a very positive sign.

So as we've said, the business mix will have its impacts on margin overall, and we're certainly seeing that with some of the growth in Europe that we've been posting.

But we do expect that after periods of growth, we will start to see some stabilization.

And we talked about France, we -- as I mentioned, we've been growing for 5 quarters now.

And in this third quarter, we did see that stabilization in that improvement in the staffing margin, and we would continue to look for that going forward as well.

And the next question is from Manav Patnaik.

This is Ryan on for Manav.

Just a question -- or I mean, you've talked a lot the operational leverage that you're getting and some of the technology and CRM investments that you've had to make.

Is that something that's ongoing?

Is that something that you've kind of ran through and feel good about?

Or is that going to be part of the ongoing operations in most of your countries?

Ryan, the short answer is yes.

We will continue to make investments in digital and in technology to improve our current business, and you can really think about it in 2 areas.

And you could hear in my prepared remarks, I've talked about high-touch.

So we continue to and we will continue to invest in tools and technologies that help us really create strong relationships and digital relationships with our candidates.

And we think of our candidates really as consumers, of course.

And as consumers, they have evolving preferences and evolving ways to engage with companies, and we expect that to be absolutely true for our business as well.

So continue to do things that enhance our high-touch and our last-mile delivery capabilities, both from a client and, especially, from a candidate perspective on the one hand.

And on the other hand, leveraging all opportunities for business enhancements and productivity and efficiency where we can really see opportunities in terms of improving the efficiency of the transactions that we have and, of course, also leveraging opportunities for machine-learning and things like that.

So this is going to be an ongoing theme as we think that there are very, very significant opportunities for us on both of these sites, with the high-tech side -- high-touch side, as well as the high-tech side.

So that's something that you can anticipate that we've -- we've been doing this now for a number of years and part of the results that you've seen us deliver have been thanks to that.

And that's something that you can think of us continuing to do in the future as well.

And then, obviously, you mentioned the margin targets and we're looking for an update there.

I mean is there further clarity that you need it all, whether it be regulatory items in France?

Or are there any other things that you're waiting for?

Is it simply just waiting for the end of the year to provide an update?

So we think that end of the year, closing, as well as looking out over the new year, I think, is a perfect time to talk about our strategy, how we feel about the future.

And I think as you've heard in our prepared remarks, we think of our strategy as solid.

We want to go through a few of the levers and then, as a result of that, talk about our financial targets.

And year-end, I think, is a great time to do that.

And the next question is from Tim McHugh.

I guess, first, you made a comment -- I guess that -- about you saw the 6% percent growth in September and you're assuming that continues into the fourth quarter.

I think, Jonas, you even said even though comparisons get tougher month-by-month, I guess what -- given you made that comment, I guess, what gives you confidence relative to the tougher comparisons?

Are there kind of leading indicators you can point us to that's kind of, I guess, improving the underlying growth rate and against a tough comp?

Tim, this is Jack.

I'll take that one.

When we look into the fourth quarter, I think despite the comps, what we're really seeing is strong -- continued very strong growth in France and Italy.

And I think that is despite -- and that's in France despite the comps.

So I think that probably helps frame up why you're seeing that improvement from the trend we saw from the quarter overall in the third quarter.

So I'd say those are the main -- those are going to be the main drivers.

I think as we've talked about -- another couple of items to consider was we did say that we expect the U.S. to get slightly better in the fourth quarter as well.

So that will have an impact.

And as Jonas just referred to in terms of the U.K., we've -- what we're seeing in the U.K. as relatively stable to slightly improving into the fourth quarter as well.

So 2 of the countries that have been kind of bigger declines we see moving in a different direction into the fourth quarter.

And I think when you combine that to what we're seeing in Southern Europe particularly, that's what's really driving that higher growth into the fourth quarter.

Okay, that's helpful.

And can I just ask, the CICE -- you made the comments about 2018.

Any updated comments or thoughts on how we think about that in 2019 given the most recent kind of budget proposals?

Yes.

I'd say on 2019, what was introduced as part of the draft budget was the framework to move from the tax credit to a reduction of social costs.

However, at this point, there just really isn't enough detail around that for us to be able to model that out and give a precise estimate.

I think probably the more important issue is the details will need to be introduced as part of the budget for 2019, and we expect that in September of 2018.

And although there may be some more discussion of the some of the framework and the plan to go there, really, there's going to be a lot of ongoing discussion between corporate France and the government on that topic.

And we think that there is potential that, that may be considered, and there is a chance that the draft could be adjusted from what's been discussed.

And that will add the detail that we'll need to be able to do a more -- to be able to give a little bit more guidance on that.

But as of right now, we'd say it's a bit too early to be able to do that.

And you really wouldn't -- kind of regardless of what we hear, almost it sounds like it's probably not finalized for a year or so here now before when we'll really know what's going to happen.

They did say that they -- as part of the Social Security-related guidance, they may comment on it towards year-end.

But we don't expect that, at this point, that's going to provide the detail we would need.

And we think it's going to be similar to some of the high-level comments I've made.

We'll see if that changes.

And if it does, we'll certainly give an update at year-end.

But right now, we're not expecting, in the very short term, a lot of detail to -- before the budget process for 2019 is prepared.

And the next question is from Gary Bisbee.

I guess a couple of questions.

On the U.S., just any update you can provide on the trends there?

And I guess on 2 fronts, right, the revenue continues to disappoint, but yet, the profitability continues to improve in the face of falling revenue.

It would seem to me at some point that gets difficult to continue to deliver, and yet, you've been doing it for years.

I guess, so how much of it is the mix to more of solutions-type stuff with better margins?

And is there a point at which, if revenue doesn't get better, you're going to start to see the margin really suffer?

Thanks, Gary.

Yes, no.

As you point out, we've -- despite a tougher revenue environment, especially on Manpower and Experis, we continue to perform well from a gross profit percentage perspective as well as operating margin and in absolute dollars.

So the team is doing a good job.

And I think you can think about it in this way.

We want to make sure we get back to market.

So we are not satisfied with where we are, but we want to make sure we get there in the right way.

The labor market in the U.S. is extremely tight, hard to find people.

So we want to make sure as we take on more business and replace business that has moved out that we do it in a way that is profitable, and Jack talked earlier about our pricing discipline, so that's really what we're applying.

So you can see the margins improve quite significantly.

So the teams are really applying good pricing discipline, replacing some lower margin business and higher revenue with higher-margin business that doesn't compensate on the top line but helps compensate on the GP dollar line.

So I would say that we're clear that we want to make progress to getting back to where market is.

That's what the team is focused on.

And although we're disappointed that we didn't see as much of an improvement we'd hoped for, we are confident.

We have new leadership that is driving this.

The team is very focused.

They know what they're doing.

And we're just going to keep working at it and making sure that we make the progress while maintaining the pricing discipline that we're looking for.

And I would just add to that.

In terms of the U.S. overall, to your point, Gary, Solutions, we did expand margin in Solutions in the quarter, and that certainly helped.

But we also expanded margin in Manpower.

And I think that's key.

And I think that demonstrates what we're doing in the U.S. in terms of the focus on our existing business.

So it's not just the Solutions mix.

It's also what we're doing as part of the core staffing businesses as well.

And then just to follow up on Europe, you continue to have excellent growth in Southern Europe and, clearly, a lot of the economic indicators and GDP growth have improved.

But if we just look at the long-term historical performance in a market like France, while GDP's gotten better, it's still relatively low in absolute terms, and it -- historically, the industry has not been able to sustain this kind of growth at this level of economic growth.

Is there anything going on that's really different today?

And what's the risk that, that moderates quite a bit at some point unless growth gets a lot better?

Well -- and as you point out, Gary, the growth rate in France is one of the lowest growth rates.

And whilst we feel good about the growth rate now improving in France in absolute terms, it's still well behind the average in Europe.

So that's actually part of the optimism that we have is that French economy improves -- and Italy's growth rate isn't very good either.

So we think that can actually be good for us there as well.

But I think you have to combine the cyclical elements with the secular elements as well, which is that in an environment that is increasingly global, volatile in terms of outlook and being able to predict what's going to be happening, our belief is as companies want more operational and strategic flexibility so that they can adjust to a business environment that sometimes gets disrupted by external events or by technological evolution or global competitive pressures.

And we think that's a driver there as well.

And if you look then from that perspective, even at the penetration rates that we're having in France and the penetration rates in Italy, you can see that we still have a gap to go just to get back to prior peak in France.

And of course from an Italian perspective, we have surpassed the prior peak, but the peak of the current penetration rate of 1.3% in Italy is half of what corresponding countries would be.

So I think that, that can be part of an explanation why although the economy growth environment hasn't been very good, the use and need for our services is increasing from our client portfolio, and that's why we've really seen this trend.

And then remember, just as we went through a slow but steady growth environment here in the States, that's really been the case in Europe except I would characterize Europe as being in the middle innings of that evolution.

And so that's why we think that we can still think of Europe as providing good opportunities both from where they are in the cycle on average, which, of course, not all countries are there, and also where they are from a secular perspective in terms of our services.

And that's -- they're still ways away from their peak, and we think that can be good.

And we actually believe then we will surpass the peak just as we've done here in the U.S. And we're at record high penetration rates here in the U.S., and that's what we expect to happen in Europe as well.

And the next question is from Mark Marcon.

I'm wondering if you can talk just a little bit more about what you're seeing in the U.S. with regards to IT just in terms of when we would fully expect things to kind of normalize from an operational perspective in terms of the improvement initiatives that you have.

And then if you could just talk about the U.K. a little bit longer term as it relates to the Brexit impact in terms of how you see that unfolding over the next year or so.

Sure.

Thanks, Mark.

From an Experis IT perspective, I would say, the market is still solid.

There are orders there.

Finding qualified candidates is -- it continues to be very difficult.

Many of our candidates and our consultants have 2 to 3 job offers.

And so, of course, the scarcity of talent means we have some degree of pricing power in the areas where we are looking for those candidates, which I think is reflected in our business, but at the same time, replacing and finding a lot of the consultants that we need is taking longer than we'd like.

And that's why it's hard to put a time line on it, but we would hope to see some improvement coming into the fourth quarter and then continue to chip away at this.

I don't think it's going to be a very quick resolution, but I think we're looking for good and solid and steady progress.

And we'd seen some progress earlier in the year.

This quarter was a little bit of a step-back looking forward to see that trend carry on, on a year basis, really and then moving into the next year.

And as Jack talked about, our pricing discipline as well as what we're doing with process enhancement and technology is really helping us deliver good bottom line results, nevertheless.

But we're clear that we need to continue to work on it.

I'm confident in the leadership.

So I think we'll continue to see progress there, although the pace of that is a little bit harder to predict.

And then in terms of the U.K., frankly, it's kind of difficult to know what the overall outlook is.

When we say that we don't think Brexit is a good idea, in this world of -- in this future of work, having access to skilled talent is what's going to define the competitive advantage for nations and organizations alike, and any country that appears to give the impression that they're not really interested in people coming to their country and contributing to the growth of their economy and prosperity, that's not a great sign.

And I think if you look at the immigration numbers from the U.K. and you look at from where it's coming from, you can already see that there are some difficulties in finding people within hospitality, within health care and within construction.

So I think a lot of it will depend on how the Brexit negotiations end up and what the actual impact is going to be.

But I think, in the meantime, this time of waiting and uncertainty certainly isn't encouraging larger corporations to make massive investments in the U.K. So I think that will be something that we'll see how it plays out.

Having said all of that, the U.K. is still a big market.

We've got a great operation, a great team and a very experienced team in the U.K. So I think between our different brands and our portfolio of solutions, we'll make sure that we're relevant and we provide the value also in that market.

And the next question is from Anj Singh.

A little bit of a follow-up on some of the earlier ones.

Could you expand on the opportunities you're seeing for greater efficiencies in France?

Is the productivity there going to be driven by restructuring, lower headcount?

Or is it predicated on some of the technological advancements that you folks referenced?

Just trying to understand the drivers there a bit better.

Well, I think, on the one hand, I think we talked about in our prepared remarks about some of the technology tools that we have and that we see the outlook positively for France, which means we could grow, leveraging technology and process enhancements and see some good leverage on that side.

And as we've noted many times before, we are constantly striving for better productivity and better processes to serve our clients and our candidates and our associates better and our employees as well, of course, and that's something that will continue.

So I think we have opportunities to continue to do that in France as we have in, really, all of our operations.

Okay.

Got it.

And one last one, could you provide some more color on the on-site business additions you referenced earlier?

I believe those are with regards to the U.S. What is this being driven by?

How broad-based is it?

Just trying to get a sense on how material it may be towards moderating the decline in the region.

Anj, the on-site work is primarily Manpower business related in the U.S. And what I was referring to is some recent wins that we expect will drive some improvement in that revenue trend that we referred to from the third quarter into the fourth quarter.

So we'll give a little more color on that in the fourth quarter in terms of the significance to the quarter overall, but really the reference was there's some good momentum in the business overall.

The on-site is an important part of our strategy for the Manpower brand.

And referencing those wins gives us the direction of that revenue trend into the fourth quarter, getting slightly better from what we had seen into the third quarter.

So that's really was the context that we were trying to bring across.

Thanks, everyone, and thanks for dialing in for our earnings call.

We look forward to speaking with all of you again when we release our fourth quarter earnings results sometime in January.

Thanks, everyone.

Thank you, everyone, and that concludes today's conference.

Thank you all for joining.

You may now all disconnect.