ManpowerGroup Inc (MAN) 2018 Q2 法說會逐字稿

Welcome to ManpowerGroup Second Quarter Earnings Results Conference Call.

(Operator Instructions) This call is being recorded.

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

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

Sir, you may begin.

Good morning.

Welcome to the second quarter conference call for 2018.

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, then Jack will go through the operating results on the segments, our balance sheet and cash flow as well as comment on our outlook for the third quarter, and 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 the 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 have made good progress during the first half of 2018 and delivered solid second quarter results.

Revenue in the second quarter came in at $5.7 billion, an increase of 4% in constant currency.

On a same-day basis, our underlying organic constant currency revenue growth rate was 3%.

This reflects a lower growth rate than we expected at the beginning of the quarter.

The lower revenue growth rate is primarily attributed to some of our Manpower business in Europe and most notably in France.

Partially offsetting the softer revenue growth trend in some countries were better-than-expected revenue trends in the U.K, throughout Asia Pacific and various businesses within the Americas.

Specific to the U.S., this April, we've experienced a steadily improved billing days-adjusted revenue trend.

Operating profit for the second quarter was $208 million, up 2% in constant currency.

As we announced on our last call, we did incur restructuring charges in this quarter, which Jack will discuss in more detail later in the call.

Excluding these restructuring charges from both years, operating profit was $224 million for the quarter, an increase of 4% in constant currency.

Operating profit margin came in at 3.7%, down 10 basis points from the prior year and after excluding the restructuring charges, operating profit margin was 4%, which was flat to the prior year and represented the midpoint of our guidance.

Our performance in the quarter also reflects gross profit margin contraction, which has improved from recent quarters, offset by further SG&A productivity improvements.

Earnings per share for the quarter was $2.17.

Excluding the restructuring charges in the quarter, earnings per share was $2.35, an increase of 24% in constant currency.

During the quarter, we continued to see strong growth in our market-leading Solutions businesses, particularly in RPO, which produced double-digit revenue and gross profit growth year-over-year.

Additionally, our Proservia business continued to strengthen year-over-year in Europe, and most notably in France.

Although we typically discuss our largest operations during our quarterly commentary, today, I would like to acknowledge some of the other businesses in key markets that demonstrated very strong performances during the second quarter.

And these include: Canada, Peru, the Czech Republic, Poland, Greater China and India.

Great operations such as these as well as many others that I haven't mentioned evidence our superior geographic diversification.

Having the largest global footprint in our industry, we can seamlessly provide innovative workflow solutions to our clients in all corners of the world.

We have previously discussed the importance of technology as part of our strategic priorities.

And in addition to our investments in technology to leverage digital capabilities to improve our candidate attraction, client satisfaction and employee productivity, we provide thought leadership on the impact of technology on the workforce.

This was recently demonstrated through our role as the HR partner of the Viva Technology Conference in Paris.

Viva Tech attracts more than 80,000 attendees, and we have partnered with the organizer since its launch 3 years ago to support start-ups and accelerate technology adoption.

This year, we showcased our latest HR technology innovations.

These included augmented reality, virtual reality and digital predictive performance tools.

And as part of the event, I also hosted a CEO discussion on how to upskill and reskill your workforce for the digital age, which we believe is the defining challenge of our time for companies and nations alike.

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

Thanks, Jonas.

As Jonas mentioned, we had a solid second quarter performance with operating profit growth, excluding restructuring costs, of 9%, or 4% growth on a constant-currency basis.

This performance resulted in an operating profit margin of 4%, excluding restructuring cost, which was at the midpoint of our guidance range.

As Jonas discussed, revenue growth of 4% in constant currency came in slightly below our constant currency guidance range.

On a reported basis, our gross profit margin declined 40 basis points, which represented the midpoint of our guidance range.

Currency translation represented 10 basis points of the 40 basis point decline and on a constant-currency basis, the gross profit margin decline was 30 basis points, which represented a 10 basis point improvement from the first quarter trend.

Although our gross profit margin declined compared to the prior year, this impact was offset by our SG&A costs, which once again improved as a percent of revenue, driving the operating profit margin result before restructuring costs.

Breaking our revenue growth down into a bit more detail, our reported growth rate of 9% includes a positive currency impact.

On a constant-currency basis, our revenue growth rate was 4%.

Acquisitions contributed about 30 basis points to our growth rate in the quarter, and our organic constant currency revenue growth in the quarter was also 4%, which, after adjusting for billing days, represented a 3% growth rate.

This slower growth rate was primarily driven by a slower revenue growth than expected in France.

Although we experienced a softer revenue environment in France during the second quarter, we believe it is a market in which there continue to be very good opportunities for growth, particularly post the summer holiday season.

On a reported basis, earnings per share was $2.17, which included restructuring costs, which had an $0.18 negative impact on earnings per share.

As I stated last quarter, our EPS guidance excluded restructuring costs.

Excluding these costs, earnings per share was $2.35, which exceeded the midpoint of our guidance after considering the lower impact of foreign currency.

More specifically, starting with our guidance EPS midpoint of $2.37, lower operational performance on lower revenues contributed to a $0.02 reduction and lower foreign currency translation represented an $0.08 reduction.

These were partially offset by positive adjustments, including $0.04 attributable to a lower effective tax rate, $0.02 from lower weighted average shares from our purchases during the quarter and $0.02 from favorable other expenses driven by our earnings pickup related to our partial ownership interest in our Switzerland franchise.

Looking at our gross profit margin in detail.

Our gross margin came in at 16.3% on a reported basis, primarily driven by a staffing/interim decline of 30 basis points.

A gross profit margin increase of 10 basis points from higher permanent recruitment was offset by lower contribution from Right Management in the quarter.

As I mentioned earlier, currency negatively impacted the gross profit margin by 10 basis points.

Half of the staffing/interim margin decline is attributable to the reduced rate in 2018 of the CICE payroll tax credits in France.

We have seen improvement in the trend of the staffing/interim margin decrease as the client mix of larger accounts has begun to stabilize, notably in Italy, and we were not impacted by sickness to the same degree as in the first quarter.

Next, let's review our 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 strongest growth was once again achieved by our higher-value solutions offerings within ManpowerGroup Solutions.

During the quarter, our Manpower brand reported a constant currency gross profit increase of 3%.

This represents a slight decrease from the 4% growth rate in 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 from staffing within both light industrial skills and office and clerical skills experienced a similar rate of growth in the quarter.

Gross profit in our Experis brand experienced a 2% constant currency growth rate in the quarter, reflecting an increase from the flat growth experienced in the first quarter.

This was driven by strong performance throughout the Nordics, Asia Pacific, Middle East, Canada and improvement in the U.S. and the U.K.

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, with double-digit growth in our RPO and Proservia businesses during the quarter.

Right Management experienced a decline in gross profit of 10% in constant currency during the quarter, as outplacement activity continued to decline.

I will comment further on Right Management in my segment review.

Our reported SG&A expense in the quarter was $714 million, including $15 million of restructuring costs.

We expanded the restructuring actions within our U.K. business during the quarter, which drove the additional $5 million of restructuring costs above our previous estimate for the quarter.

I will discuss restructuring costs further as part of the segment review.

SG&A expense was $699 million, an increase of $43 million from the prior year after excluding restructuring costs from both years.

The increase was driven by $27 million from currency changes, $3 million from acquisitions and $13 million from operations.

On an organic basis in constant currency, excluding restructuring costs, SG&A expenses were up 2% compared to the prior year.

Excluding the restructuring costs, SG&A expenses as a percentage of revenue in the quarter improved 30 basis points to 12.4%, driven by the benefits of previous restructuring actions and a continued focus on operational efficiency across our businesses.

We expect to recover the restructuring costs of $15 million through cost savings over the next 12 months.

I will discuss the operating performance of the segments next and will provide the breakout of the restructuring costs by segment.

The Americas segment comprised 18% of consolidated revenue.

Revenue in the quarter was $1.1 billion, an increase of 2% in constant currency.

OUP of $57 million represented a decrease of 9% in constant currency, excluding restructuring costs in the prior year driven by the U.S., which I will discuss next.

Similarly, OUP margin decreased by 60 basis points year-over-year excluding restructuring costs in the prior year.

The U.S. is the largest country in the Americas segment comprising 61% of segment revenues.

Revenue in the U.S. was $640 million, down 5% compared to the prior year.

Although on an overall quarter basis this represented a slight improvement from the 6% average daily revenue decline in the first quarter, we experienced steady improvement in the average daily trend in the U.S. since April.

In the month of June, we exited the quarter on an average daily revenue decline of 2%.

During the quarter, OUP for our U.S. business decreased 22% to $38 million, excluding restructuring costs in the prior year.

OUP margin was 6%, a reduction of 130 basis points from the prior year, excluding restructuring costs in the prior year period.

A decrease in OUP dollars and margin were expected and were the result of 2 main items: additional spend on front office technology in the U.S.; and the nonrecurrence of prior year direct cost reductions, including workers' compensation and health care adjustments as discussed last year.

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 4% in the quarter, and we experienced steady improvement in the average daily revenue trend from April through June.

The Manpower business has a strong pipeline of new activity, and we expect positive growth during the third quarter.

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

Within Experis in the U.S., IT skills comprise approximately 70% of revenues.

During the quarter, our Experis revenues declined 6% from the prior year compared to the 11% decline experienced in the first quarter.

Experis has been very focused on profitable business, and this again led to another quarter of very strong gross profit margin in the U.S. during the quarter.

ManpowerGroup Solutions in the U.S. contributed 22% of gross profit and experienced a 3% revenue decline in the quarter compared to a 9% decline in the first quarter.

As we've previously mentioned, the revenue trend includes the nonrecurrence of certain low-margin MSP-related business.

In addition, the U.S. RPO business has been experiencing reduction in hiring from one large client, which is in the process of being offset with incremental new business.

We see good opportunities for growth in both our higher-value MSP and RPO solutions.

Our Mexico operation had revenue growth in the quarter of 9% in constant currency.

The business in Mexico performed very well in the quarter, and we expect good growth also into the third quarter.

Revenue in Argentina was up 19% in constant currency, which continues to reflect the impact of inflation.

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

Beginning July 1, we will be accounting for our investment in Argentina as a highly inflationary economy and as a result, we'll experience earnings volatility within other expense, as certain foreign currency-related changes will be recorded within earnings instead of the currency translation adjustments within shareholders' equity.

Based on the size of our Argentina business, we expect such volatility to be modest and we'll specifically discuss any significant impacts on earnings going forward.

Revenue growth in the other countries within Americas was up 15% in constant currency or 10% on an organic basis.

This growth was driven primarily by strong revenue growth in Columbia and Brazil.

Southern Europe revenue comprised 43% of consolidated revenue in the quarter.

Revenue in Southern Europe came in at $2.4 billion, an increase of 6% in constant currency or 5% adjusted for billing days.

This represented a deceleration from the 12% average daily revenue growth rate in the first quarter driven by France.

Excluding restructuring costs, OUP increased 4% from the prior year in constant currency, and OUP margin was down 10 basis points from the prior year as CICE reductions negatively impacting gross profit margin in France were partially offset by improved performance in Spain and the countries comprising other Southern Europe.

Permanent recruitment growth was strong at 13% in constant currency.

Restructuring costs of $2.3 million primarily relate to front-office centralization and back-office optimization activities in Italy and Spain.

France revenue comprised 62% of Southern Europe segment in the quarter and was up 3% over the prior year in constant currency.

This represented a slowing from the 9% growth rate in the first quarter.

We observed a more significant slowing than expected during the quarter, which is in line with external market indicators in France.

As we previously discussed, the CICE rate decrease impacted our second quarter results, reducing gross profit.

OUP was $73 million, a decrease of 4% in constant currency, and OUP margin was down 40 basis points in constant currency at 4.08%.

Excluding the impact of CICE, we once again experienced improvement in the underlying staffing margin trend through the second quarter in France, reflecting ongoing pricing discipline.

Permanent recruitment was strong at 9% growth in constant currency during the quarter.

The underlying improvement in the staffing margin trend and permanent recruitment fees have helped offset the impact of the CICE rate reduction in 2018.

Early results in July have indicated a continuation of the slowing revenue trend.

As a result, our third quarter guidance incorporates a lower rate of revenue growth from the second quarter.

Revenue in Italy increased 12% in constant currency to $443 million and represented a growth rate of 11% in constant currency on an average daily basis.

We previously discussed the impact business mix changes have had on our staffing gross profit margins in Italy from the very strong growth in recent quarters.

We have seen stabilization of the impact of this large client mix, which resulted in improvement in the gross profit margin trend from the first quarter to the second quarter.

Permanent recruitment growth has also helped gross profit margin.

Specifically, permanent recruitment fees increased 9% on a constant currency basis over the prior year.

Excluding restructuring costs, OUP growth was up 11% in constant currency to $33 million and OUP margin of 7.5% matched the very strong prior year result as SG&A cost management and operating leverage again offset gross profit margin declines.

Our Italy business continues to perform very well.

We expect growth to continue in the high single digits in the third quarter.

Revenue growth in Spain was strong, up 9% over the prior year on constant currency.

On an organic constant currency basis, the revenue growth rate was 8%.

Adjusting for billing days, the organic constant currency growth rate was 6% in the quarter.

We expect Spain will continue to have strong performance into the third quarter.

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

Revenue was up 2% in constant currency to $1.4 billion.

On a billing days-adjusted constant currency basis, Northern Europe grew 1%, which represents a decrease from the 3% rate in the first quarter, primarily driven by Germany and the Netherlands, which were partially offset by improvement in the U.K., which reached positive growth during the quarter.

Excluding restructuring costs, OUP increased 5% in constant currency, and OUP margin was flat year-over-year.

We are very focused on improving the profitability of our Northern Europe operations.

As I mentioned earlier, we expanded our restructuring activities beyond our previous estimate during the quarter.

Total restructuring cost for Northern Europe during the second quarter equaled $13.2 million, and approximately half of this related to the U.K. The restructuring actions in the U.K. include the optimization of branch locations, office consolidations as well as other front- and back-office efficiency activities that continued from the first quarter.

The remaining restructuring costs in the quarter primarily relate to Germany and the Netherlands and include the continuation of delivery model and other front-office centralization initiatives as well as back-office optimization activities.

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

U.K. revenues were up 3% in constant currency and were up 2% on a billing days-adjusted basis, improving from the flat result in the first quarter.

This represents the fourth consecutive quarter of improvement in the revenue trend and a return to growth for the U.K.

Permanent recruitment fees increased during the quarter at a 7% constant currency growth rate.

Our Manpower business in the U.K. experienced flat constant currency growth in the quarter, which represented a continuation from the flat growth in the first quarter.

Our Experis business experienced another quarter for improvement and reached double-digit constant currency revenue growth in the second quarter.

We expect the revenue trend for the U.K. overall to remain relatively stable into the third quarter.

Revenue growth in Germany was flat on a constant-currency basis in the second quarter or down 2% on an average-billing-days basis, which represents a deceleration from the 4% growth in the first quarter, driven by a slowing of the industrial Manpower business and the anniversary of high growth rates in the year-ago period.

We expect to see a continuation in this overall flat to slightly down revenue trend in Germany in the third quarter.

In the Nordics, we also experienced flat revenues during the second quarter on an average daily basis, year-over-year, as mid-single-digit revenue growth in Norway offset a revenue decline in Sweden.

This represents a deceleration from the average daily growth rate experienced in the first quarter.

We expect to see steady growth from Norway and a return to growth for Sweden in the third quarter.

Revenue in the Netherlands and Belgium decreased 1% and increased 4%, respectively, in constant currency on a billing days-adjusted basis.

This represented a slowing of revenues in the Netherlands in both the Manpower and Experis businesses and stable performance in Belgium from the first quarter.

The Netherlands also continues to anniversary very high comparable growth from the prior year period.

We expect slightly improving revenue growth for these businesses in the third quarter.

Other markets in Northern Europe had a revenue increase of 9% in constant currency, driven by strong growth in Poland and Russia.

The Asia Pacific Middle East segment comprises 13% of consolidated revenue in the quarter.

Revenue was up 10% in constant currency to $725 million, representing a decrease from the 12% average daily growth in the first quarter.

This represented a higher-than-expected growth, which was driven by Australia and China.

Permanent recruitment growth was very strong at 16% in constant currency.

OUP was $29 million in the quarter, representing a 23% increase in constant currency, and OUP margin increased 50 basis points, driven by gross profit margin improvements.

Revenue growth in Japan was up 3% on a constant currency basis and adjusting for billing days, this represented a slight decrease from the 5% growth in the first quarter.

Permanent recruitment growth was once again very strong at 27% in constant currency.

Both OUP and OUP margin again improved on the stronger revenues in the quarter.

Revenues in Australia and New Zealand were up 8% in constant currency and adjusting for billing days, this represented a 5% revenue growth rate, representing a decrease from the 7% growth in the first quarter.

Our Australia business has seen an increase in new business, and we expect continued improvement in revenue growth in the third quarter.

Revenue in other markets in Asia Pacific Middle East continued to be very strong, up 17% in constant currency.

This was a result of strong double-digit growth in a number of markets, including operations in India, Greater China, Thailand, Malaysia, Singapore and Vietnam.

Our Right Management business was slower during the second quarter based on reduced outplacement activity.

During the quarter, revenues were down 10% in constant currency to $52 million, following a 15% decline in the first quarter.

Excluding restructuring costs impacts in both years, OUP decreased 5% on a constant-currency basis as SG&A reductions helped to partially offset the impact of revenue reductions.

Excluding restructuring costs, OUP margin increased 100 basis points, reflecting improved efficiency within this business.

Now, I'll turn to cash flow and balance sheet.

Free cash flow, defined as cash from operations less capital expenditures, was $149 million for the first 6 months of the year.

As I mentioned last quarter, this includes the sale of the France CICE tax credit in April 2018 of EUR 191 million representing USD 234 million.

Excluding the CICE sale in both years, free cash flow represented an outflow of $86 million in 2018 compared to an outflow of $22 million in 2017.

This reflects higher growth of receivables in certain geographies and timing changes in certain payables.

We expect strong positive cash flows in the second half of the year.

At quarter-end, day sales outstanding increased by 2.5 days.

Consistent with prior quarters, changes in our business mix is driving some of the overall DSO increase.

We continue to execute on initiatives to improve the trend of DSO.

Capital expenditures represented $27 million during the first 6 months of 2018.

During the quarter, we purchased 653,000 shares of stock for $63 million, bringing total purchases for the 6-month period to 1.1 million shares for $113 million.

As of June 30, we have 1.8 million shares remaining for repurchase under the $6 million share program approved in July of 2016.

Our balance sheet was strong at quarter-end with cash of $768 million and total debt of $1.09 billion, bringing our net debt to $321 million.

Our debt ratios are very comfortable at quarter-end with total debt to trailing 12-month EBITDA of 1.2 and total debt to total capitalization at 28%.

Our debt and credit facilities of June 30 reflect a maturity of the previous EUR 350 million note and an effective interest rate of 4.5% during June.

We replaced this facility with an 8-year duration EUR 500 million note and an effective interest rate of 1.8%.

During June, we also updated our revolving credit agreement but replacing it with a new agreement for a 5-year term at the same time borrowing capacity of $600 million.

The revolving credit agreement remains unused.

There was no change to the EUR 400 million note with an effective interest rate of 1.9% maturing in September of 2022.

Next, I'll review our outlook for the third quarter of 2018.

We are forecasting earnings per share to be in the range of $2.37 to $2.45, which includes a negative impact from foreign currency of $0.05 per share.

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

The impact of acquisitions represents 20 basis points of our growth rate projection for the third quarter.

These are relatively flat year-over-year and only represent a very slight improvement.

As a result, this represents a billing days-adjusted organic constant currency growth rate of 4% at the midpoint, which would represent an increase from the 3% organic days-adjusted constant currency growth in the second quarter, primarily due to anticipated improvement in the Americas, Northern Europe and APME.

From a segment standpoint, we expect constant currency revenue growth in the Americas to be in the mid-single digits, Southern Europe to be in the low- to mid-single digits, Northern Europe growing in the low single-digit range and Asia Pacific Middle East growing in the high single to low double-digit range.

We expect a revenue decline at Right Management in the mid-single digits.

Our operating profit margin during the third quarter should be down 10 basis points compared to the prior year quarter, reflecting continued technology investment and reduced operating leverage in certain countries where we expect reduced growth.

We expect our income tax rate in the third quarter to approximate 27%.

As usual, our guidance does not incorporate additional share repurchases, and we estimate our weighted average shares to be 66 million, reflecting share repurchases through June 30.

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

Thanks, Jack.

Reflecting on the second quarter revenue trend.

Although our revenue growth was softer than we expected, we believe we have opportunities for improved profitable growth in the future.

This optimism is evident in our conversations with our clients, indicating resilience of employer confidence.

The continued strength of the global labor markets was also confirmed by our Q3 ManpowerGroup Employment Outlook Survey, which again showed favorable hiring intent in 43 out of 44 countries surveyed.

And in addition, our recent Global Talent Shortage Survey confirmed that labor markets are getting tighter as our Talent Shortage Index reached its highest level in 12 years, with 45% of employers indicating difficulties in finding the talent they need.

In summary, in the current environment access to human capital continues to be of critical importance for employees across the world, and we are well placed to take advantage of that demand with our strong and connected brands, our extensive portfolio of services and our unrivaled global footprint.

To conclude our prepared remarks, I would like to thank our employees throughout the 80 countries and territories in which we operate.

We are very grateful for the commitment and dedication that they devote to help empower the success of our clients around the world and for finding meaningful and sustainable employment for people across a wide range of skills and industries.

Thank you for everything you do to make us successful.

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

Operator?

(Operator Instructions) Our first question is coming from Andrew Steinerman of JPMorgan.

Jonas, I wanted to know what you think is causing the deceleration in French temporary help.

Is it the labor strikes?

Is it something broader?

Our economists are still suggesting favorable real GDP.

Do you feel like there might be an economic pause in France?

And why are you optimistic about the French temporary help business, kind of, post the summer?

Yes.

Thanks, Andrew.

We -- when we speak to our clients, what they say is that the French economy is growing very quickly, and their manufacturing output and activity was very high at the end of 2017 and coming into 2018.

But as they saw a little bit of a slowdown, and if you look at the PMI date, and you look at other things, the French National Bank yesterday came up with a report confirming that whilst the economic outlook was positive and they expected it to continue to do well, they did note the slowdown right now, but that they expected to see a pickup towards the end of the year.

So in our conversations with our clients, they say that they've -- they came in a little bit ahead of their skis at the beginning.

They're working off their inventory and I think that's what we're seeing from our manufacturing clients.

We haven't seen an impact on the strikes directly, but, of course, there could be a derivative effect of that when -- with our clients.

But I would say our optimism is really founded on the understanding of the fundamentals, which continue to look good for France.

Our conversations with our clients, our own surveys, which indicate that France should be able to see some better growth after the summer.

We don't know exactly when that would be.

But clearly, the return in September is going to be important for us to understand and then going forward from there.

So as Jack said in our prepared remarks, we're optimistic about our opportunity to see some improved growth in France towards the end of the year.

And our next question is coming from Hamzah Mazari of Macquarie Group.

The first question is just if you could maybe just touch on how investors should think about any tariff impact on your business?

I know you have exposure to industrial staffing.

Maybe just highlight for us any direct impact, any indirect impact.

Are you concerned?

I know visibility is low because it's early days, but just, sort of, any comments there.

I would say, more broadly, that we keep monitoring effect of -- potential effect of the trade wars or tariff disputes, the impact of new legislation potentially introduced by populist governments that come in, the effect of a hard and soft Brexit and things like that on a continuing basis.

And of course, we think that, that could have an impact.

But I would say, in general, and in specific to your question around tariffs, we have not seen any impact at this point.

And should that change, of course, we'll take that into account.

But so far, we've not seen any impact from those tariff discussions at this point.

Okay.

And then just maybe for Jack.

Maybe if you could just talk about how you are thinking about the buyback?

I know it's not in guidance.

The stock has derated significantly.

If we look at historically at your buybacks, you stepped it up a lot in 2015 when we were sort of in an industrial recession around that time.

Maybe just frame for us how do we think about capital allocation going forward?

Sure, Hamza.

I guess I'd start by saying our capital allocation strategy remains consistent.

So we haven't changed our allocation strategy.

To your point, what you've seen is a good track record of us returning cash to our shareholders through share repurchases.

And that continued through the second quarter.

Our approach will continue to be opportunistic.

We don't have set amounts that we announce, so we do have an opportunistic approach.

And as we've said before, in terms of capital allocation overall, if we are not allocating cash to acquisitions, we will certainly continue to do share repurchases.

And I would say you should expect that, that share repurchases would continue into the third quarter.

Our next question is coming from Mark Marcon of Baird.

I was wondering if you could give us a bit of an update with regards to what you're hearing as it relates to the CICE, both in terms of the way that your competitors are potentially reacting, and how we should think about pricing.

And then in addition to that, any latest developments with regards to the subsidies that are going to replace the CICE?

Mark, this is Jack.

Yes.

I guess, I'd say the short story is, there really hasn't been any significant developments, I think, in line with our previous comments.

All along, we've expected that we probably won't get more detail, more specific detail that will help us give more guidance on this topic until the preliminary budget comes out from the government in late September.

So there hasn't been anything formal happening on that.

I do know that this continues to be an area that there's a lot of discussion around, just within corporate France in general.

But as of right now, there really hasn't been anything significant talk about since our last call.

In terms of your point on the subsidies, what we do know is part of the very general framework that they put out previously, as we would expect subsidies to increase, particularly in the class of workers in the 1x to 1.6x minimum wage, their preliminary guidance talked about the going up an incremental 3.9% versus the previous levels and also talked about the continuation of the 6% subsidy for CICE today continuing in a new form into 2019.

But as we've said before, the -- some of the details that we really need to be able to give a more precise guidance on this is exactly how profit sharing will work on that benefit, and that we don't expect to have more detail on that until the preliminary budget.

And when do you think the preliminary budget will come out now?

Is it still September?

Yes.

Typically, the very end of September.

Okay.

And did -- you may have given it and I missed it, but the -- what were the revenue trends by month in France?

And how's July looking early on?

Yes.

So I'd say this quarter, the revenue trends by month for France aren't as helpful because of the holiday impact for both April and May.

So I think, generally speaking, if you look at April, it was mid-single-digit increase.

May was closer to flattish based on the significant impact of holidays, a lot of holidays falling on Tuesdays and Thursdays.

And June came back to stronger growth more in line with what we saw in April.

But I think the trend that we saw specific to July was a step-down.

And that's -- in Jonas' earlier point, that's what we've used for our guidance.

We're seeing what the trend is in July, so it's below the third quarter -- the second quarter trend overall.

So the second quarter overall for France, as we've talked about, was about 3% growth.

We're seeing that reduce from that level in early July, so think of it as low single digits.

And that's just what we're seeing now, and that's what we're using for the guidance.

But to Jonas' point, it really depends on how France comes back after the summer holidays.

And if they come back strong in production then certainly, we'll see some upside from there.

Great.

And then one last follow-up.

Just the monthly trends in the U.S. between ManpowerGroup and Experis.

And do you expect Experis be up year-over-year in the U.S. in the third quarter?

I'll get Jack to give you some of the details between the various brands.

But overall, what we said was going to happen in the second quarter roughly played out in that way.

We saw improvement for Manpower and Experis as well as Solutions for that matter, and we're continuing on our path to see that business come back.

So while we're still not where we want to be, we did see the improvement that we were expecting, and we're expecting also going into the third quarter to see continued improvement.

So whilst we still have some more work to do, we're on the right track as far as the U.S. business is concerned.

Yes, and I think, Mark, in terms of the trend that you asked for, on the Manpower brand in the U.S., we saw a steady improvement as we talked about for the U.S. overall.

That was driven by the Manpower brand during the quarter.

So think of it as mid-single digits decline in April and May, improving to low single digits in June.

And on the Experis side, when you look at that average rate for the quarter of that mid-single digits, that was improved.

Through the end of June, we saw an improvement -- similar, steady improvement but off a higher level of decline, so steady improvement on the Experis side through the end of June, ending in the mid-single digits.

Our next question is coming from Tim McHugh of William Blair Company.

As we see growth, I guess, kind of becoming stronger in Latin America, Asia, I guess, some of these smaller countries that we don't talk about as much.

How do we think about the margin impact of that in terms of the revenue, I guess, mix shift to a certain degree?

Are those higher-margin, lower-margin countries relative to the company average?

I would say -- and Jack can come back to the margin impact, but I would say, as you correctly observed, and as I mentioned in our prepared remarks, this quarter is a nice illustration of having a very strong and the largest global footprint in our industry as far as our coverage is concerned, and how we could see some of the emerging markets in Latin America and Asia Pacific really making a very strong contribution and an acceleration.

So that was really good to see.

And as you may recall from our investor materials, although those markets don't, at this time, represent as much in revenue, they represent almost 40% in terms of our volume.

So we feel really good about our footprint in those markets.

And I think in this quarter, you saw a number of them stepping up and really contributing also to the growth level.

Yes, I would just add on to that.

I think specific, Tim, to the margins.

As Jonas said, typically they run at a lower margin.

You can see that when you look at the APME segment overall at their OUP margin will be below what you'll see in some of the other areas.

But I think the key point is the improvement during the quarter.

So significant improvement in APME, up 50 basis points on an OUP margin, and a lot of that is being driven by those countries that we mentioned.

So very, very strong performance by India, Greater China, a lot of the other countries that we mentioned in our prepared remarks and an improving trend in terms of gross profit margin as well.

And I'd say the same thing for a lot of the Latin America countries.

I think if you look at Mexico, very, very strong OUP margin improvement year-over-year in the second quarter for us.

And that goes as well for a lot of the countries in the other Americas as well.

So a very positive trend.

And I would say the advantage of being so strong in a lot of these emerging markets is that we can diversify the business both from an Experis perspective, our Solutions business as well as our perm very early in their evolution.

And that's part of the reason why you're seeing also the positive evolution from a margin perspective.

Okay, great.

And a follow-up.

Just -- I guess maybe more broadly, margins.

I guess you're still growing at mid-single digits, but I guess some of the technology investments that you described, I guess, are limiting margins or as I would've thought that would've been a fast enough pace of growth to kind of see expansion still.

So are we at a period where you're going to continue to step up that technology investment for a while, and we shouldn't be expecting margin expansion for a little bit here?

Can -- I guess, can you just update thoughts on, I guess, the path over the next year or 18 months?

Yes, Tim, I'd say, you're right, we call that out specifically as an item that's impacting the third quarter outlook.

But I would say the impact of that has been something that we've been dealing with for a number of quarters.

So we have been progressively doing technology enhancements and technology spend.

So I think it's not going to be an exact straight line.

I think, in the third quarter, there's a bit more happening, which has a little bit more of an impact.

But that, combined with some of the lower growth and some of the countries where we've been having very good operating leverage, is driving some of that pressure.

And I think, specifically, France has been an area where we've had very good operating leverage based on that stronger growth.

So I wouldn't say that you should expect that -- to see an outsize trend of that technology investment over the next few quarters having a bigger and bigger impact.

I'd say, we've been doing a very good job of having that spend come in while we're able to fund it with good SG&A efficiencies, and I think you should expect to see that.

So I wouldn't read too much into the trend into the third quarter.

Our next question is coming from George Tong of Goldman Sachs.

I'd like to dig a little bit deeper into France.

Can you discuss how your competitive position is evolving with the recent slowdown?

And what your view is on how production is likely to perform after the summer holidays based on your conversations with customers?

Well, we -- our position in the French market is a little bit more skewed towards manufacturing.

So we're not surprised to see that when that slows down a bit that we would see some of those effects.

And -- the -- having said that, I think there is very clearly enough external market indications that the market has slowed down, be it at a macro level or at an industry level from our perspective.

So we think this is a general trend, and we feel good about our positioning within that trend, and we believe that given our mix that we are moving with the market.

And we are hopeful, as we've said, that this is a lull and that we start to see some more activity based on an improved environment later on in the year.

And September will be an important month for us, but it could happen a bit later.

But overall, we remain optimistic that we'll have growth opportunities in France.

And at this point, we consider this a lull.

We don't know how long it will last, and we'll manage it either way.

But we still feel good about the prospects of France.

It's a country that's really just recently seen some better growth in '17.

2018 growth is -- has come down a little bit in terms of its projections from where it was before, but it's still improving to -- from a year-over-year perspective, and we think that the reforms that France is undergoing will also make it more competitive and thus more conducive for growth from our perspective.

So overall, we feel good about the prospects in France, although we, of course, are managing through this -- the softer environment at this time.

And I -- George, I would just add to that in terms of what's actually happening in the underlying trend.

So despite the revenue trend and the slowing that we saw, still very good underlying progress in the staffing margin.

And we've seen that for a number of quarters now, and that improved again into the second quarter.

So when you think about it, we've talked about the fact that we've had to absorb that 60 basis point decrease in staffing margins based on the CICE rate reduction.

And as a result of continued strong pricing discipline, we continue to narrow that gap again in the second quarter.

So that was very positive.

The other item that we talked a lot about in terms of France a year ago was the turnaround we were doing in the Proservia business there.

And that's actually worked very well.

And so that actually is contributing to our gross profit margin in France this year.

So it's a lift as opposed to a drag from a year ago.

And so that's been very good progress as well.

So we'll continue -- to Jonas' point, we'll continue to execute on those strategies.

And I think on an underlying basis, we see good opportunity continue to improve the efficiency.

Yes.

Very helpful.

And I guess, related to your point on margins.

In the quarter margins, obviously, contracted, gross margins about 40 bps year-over-year.

Can you elaborate on wage inflation trends you're seeing in your various Northern and Southern European markets, and what bill pay spread assumptions you're factoring into your 3Q guidance?

Yes.

I'd say, no significant changes there, George.

I think the trend that we've talked about in the recent quarters is, we're still seeing fairly muted levels of wage inflation.

And that continues into the second quarter.

So we're not seeing a dramatic change, I'd say, on a general overall basis.

Certainly, there will be pockets where we will see that in terms of the more in-demand skill sets that we'll see wage inflation around.

But generally speaking, we haven't seen a dramatic shift.

I think, using the U.S. as an example, we haven't seen a dramatic -- in our data, we haven't seen a dramatic change from what the BLS data has published on an overall basis.

So still in mid-2s to 3% range of wage inflation.

And we're not projecting that that's going to change dramatically into the third quarter.

I think on margins -- on gross margins overall, to your point though, I think that trend in the second quarter of down 40 basis points, we were really encouraged by the progress we made during the second quarter.

And you'll remember, in the first quarter and the fourth quarter, we were looking at 60 basis point declines year-over-year.

And we didn't note that FX was part of that last quarter, and we had sickness as part of that as well.

So it was encouraging to see, on a constant-currency basis, decline in GP margin was only 30 basis points.

So we expected to see stabilization in that client mix shift, and that's exactly what we saw in Italy.

And we saw improvement in our staffing margin trend during the second quarter, and as I mentioned earlier, good solid improvement in France as well.

So the outlook for the third quarter is, you'll see that gross profit margin at 30 basis points so continuing the progress, we -- and holding onto that progress that we saw in the second quarter of narrowing that gap to 30 basis points and taking that into the third quarter.

Our next question is coming from Manav Patnaik of Barclays.

This is Ryan on for Manav.

Just a question on the U.S. Can you just help us understand some the improvement there?

How much of that was just, kind of, catching up to the market?

And how much of that was driven by some of the internal changes that you made?

Well, we think the teams are executing well, and -- in an environment that is good.

So we have opportunities, we have demand for our services and solutions in all of our brands here in the U.S. We're very mindful of making sure that we apply pricing discipline.

We think demand for talent is high in the U.S., and we want to make sure that we get the right kind of growth.

And I think the team is starting to make good progress there.

I'd still think that we have more work to do, and -- until we get to where we need to be.

But we're pleased with the progress that we've seen so far.

Got it.

And then in Italy, obviously, there's been some proposals on the temp labor side.

I know it's pretty early, but any thoughts there on some of those early proposals, and how you guys think of that?

Yes.

I would say regarding the decree in Italy, it's still very early days.

This is all very recent.

So this was initially announced on July 2 so during this month.

It was published July 13, and so from that date, it basically has a 60-day period in which the parliament reviews it, determines whether they're going to make changes and amendments, and that process is underway currently.

So the parliament is reviewing it.

There is some discussion that, that could be finalized, reviewed through the end of the month.

So later in July, there could be some developments regarding amendments to the proposed decree, and we'll just continue to watch it.

We know this is a big issue in the industry overall.

So broader than the staffing industry, this relates to fixed-term contracts as well.

So this is an issue for all of corporate Italy.

And this will be an issue that we know currently there's a lot of discussion happening in Italy regarding the decree, and we'll be watching that closely.

At this stage, it's really too early to tell, but we'll certainly provide updates on that in the future going forward.

Our next question is coming from Tobey Sommer of SunTrust.

I was hoping if you could give us a little bit of color on the Experis business in the U.S., and in particular, IT.

You made some progress and expect further progress with respect to, kind of, your pricing discipline.

But I'm curious about the pricing that you're seeing in the market overall, whether there's been any change there or anything that you would expect versus, kind of, pricing that you already commented on for the U.S. as a whole.

Well, Toby, I think the overall wage environment in the U.S. in terms of wage inflation is still reasonably muted.

I mean, it's somewhere between 2% and 3%.

Now within the area of IT skills, of course, the demand for those skills means that it's -- and the scarcity of resources means that we have opportunities to exercise pricing discipline and ensure that we get great -- good value for the great talent that our Experis team are finding for our clients.

And I would say that we've -- the team has been very good at making sure that we look at that, and we are getting the right amount of bill rate as well as improved spreads, and it's part of why our margins in the U.S. have been improving, and -- on the Experis side in particular.

And this is some of the trade-off.

Yes, it's harder to find the talent, but you are able to get a little bit better bill pay spreads as well as better bill rates for scarce talents.

There's not that many of them.

So the pace of progress might be a little bit slower, but we're pleased with how the team is approaching it and the gradual approach of continuing to make this improvement.

And as you heard us say in our prepared remarks, we expect further improvement for both Experis as well as for Manpower into the third quarter.

And the item I'd add to that, Jonas, is Experis did well in the second quarter in terms of perm recruitment.

So that doesn't always drive a big revenue trend in terms of the staffing revenues that come through the revenue line.

But they saw very good improvement in perm recruitment fees in the quarter as well as.

So another good sign that we're seeing strength in pockets of the business.

Can I get your perspective, also, on the H-1B visa activities that the administration is taking, whether that's impacting the IT staffing market in the U.S.?

And then I'm also curious about your perspective on statement of work growth there in the company's competitive positions you compete and execute that kind of work.

Well, I think, more broadly speaking, access to talent and skill talent is going to be a crucial competitive lever for the United States.

And to achieve that, we believe that immigration and access to that skilled talent, wherever it may be, is going to be a crucial advantage that we need to exploit and need to have that movement of talent into the market.

So -- and as far as restricting skilled talent coming from to the U.S, it may have an impact, of course, on the H1-B visas.

You saw how quickly the visas ran out once they were released.

So the demand for that kind of talent, not surprisingly, is still a very, very high.

As it regards to our own business, we're not that dependent on H1-B visas ourselves, although we have activities, also, where we're able to leverage our global footprint and make sure we access some of that talent to our operations, in particular in India and in other places.

But my view on that would generally be restricting access there is not going to be good for the country, nor is it going to be good necessarily for the industry as a whole because there's a lot of demand for those kinds of skills.

As it relates to statement of work, this is an area that we've seen evolve nicely in terms of our own business here in the U.S., and I think that could be a good growth opportunity and good opportunity for some progress with a number of our clients as well.

Okay.

With that, we've completed all calls in the queue, and we'd like to thank you for joining the call today.

And that concludes today's conference.

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