ManpowerGroup Inc (MAN) 2019 Q2 法說會逐字稿

Welcome to ManpowerGroup's Second Quarter Earnings Results Conference Call.

(Operator Instructions) This call will be 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 2019.

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

We'll start our call today by going through some of the highlights of the second quarter, then Jack will go through the operating results and the segments, our balance sheet and cash flow as well as comments on our outlook for the third quarter.

I will then follow with some concluding thoughts before we start our Q&A session.

But before we proceed, Jack will now cover 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.

We assume no obligation to update or revise any forward-looking statements.

Slide 2 of our earnings release presentation includes important information regarding previous SEC filings and reconciliations of non-GAAP measures.

Thanks, Jack.

Our second quarter earnings represent a solid result in view of the current global environment.

Revenue in the second quarter came in at $5.4 billion, flat year-over-year in constant currency.

On a same-day basis, our underlying organic constant currency revenue decrease was 1%.

And this represents a stable trend from the 1% decrease on this same basis noted in the first quarter.

Sequentially, although Europe continued to experience revenue decreases, this was offset by constant currency revenue increases in the Americas and APME.

Right Management improved their revenue trend to a decrease of 1% in constant currency year-over-year.

Operating profit for the quarter was $131 million, down 33% in constant currency.

Our results included special items recorded in the quarter, consisting of a noncash accounting gain related to our acquisition of the remaining interest in our Manpower Switzerland business and goodwill impairment charges, which Jack will discuss in more detail.

Excluding these special items, operating profit was $196 million for the quarter, a decrease of 7% in constant currency.

Operating profit margin came in at 2.4%, down 130 basis points from the prior year.

And after excluding the special items, operating profit margin was 3.7%, down 30 basis points from the prior year after also excluding the restructuring costs in the prior year equal to the top end of our guidance range.

Earnings per share for the quarter was $2.11.

Excluding the special items in the quarter, earnings per share was $2.05, a decrease of 8% in constant currency after also excluding restructuring costs in the prior year.

Our businesses did not experience significant revenue trend changes in the second quarter from the previous quarter.

This environment continued to be one of sluggish trends in Europe and modest constant currency growth elsewhere.

At the same time, labor markets continued to be tight, and we believe that there continues to be good opportunities for growth in many markets.

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

And although overall hiring intentions are good, the outlook is mixed, and we're seeing significant variation across global labor markets.

Quarter-over-quarter hiring intentions are strengthening in 18 countries and weakening in another 18 countries according to our MEOS survey.

Employers in Europe plan modest yet varied hiring as uncertainty and unpredictability around trade wars and Brexit continue, while in the U.S. and in some parts of the Asia Pacific region, organizations are planning to hire at levels we haven't seen for many years.

In this environment, we are laser-focused on driving profitable growth in countries with opportunities, while controlling costs in markets where we're experiencing headwinds.

All while staying committed to uphold our reputation as one of the highest-quality providers of staffing and workforce solution services in our industry.

In this environment, we will continue to invest in technology and advancement of our digital platforms as this remains core to everything we do today and in the future.

Just one example of this is Power Suite, our integrated tech stack, powerful combination of best-in-breed technologies for every stage of the HR value chain from connecting with candidates and managing the workforce to coaching and developing people.

It is also what allows us to leverage data and analytics that give us insights that help predict workforce needs and drive business performance.

We have also invested in our essential IT infrastructure to ensure our business applications remain highly secure within our network.

Before I turn it over to Jack to go through the financials, I also wanted to highlight the successful public offering of our China business on the Hong Kong Stock Exchange last week.

As we have previously discussed, we repositioned the business 4 years ago with a strategic joint venture partner.

Our objective was to better penetrate the fast-growing local Chinese market, having already secured leading positions with many foreign multinational companies.

This has been a very successful strategy and the business has grown into the leading workforce solutions provider in the Greater China region.

With an objective to further accelerate the growth rate and reach in this market, the listing of this business in Hong Kong provides the best opportunity to accomplish this goal.

The public offering proceeds of the newly listed company will be used primarily to expand its business and to invest further in digital capabilities.

ManpowerGroup is very committed to the Greater China region.

And with this offering, we remain the largest shareholder and well placed to benefit from continued successful growth.

We're proud of the Greater China team's accomplishments and are very excited about what the future holds for us in this strategic and growing market.

I would now like to turn it over to Jack to provide additional financial information and a review of our segment results and our second quarter outlook.

Thanks, Jonas.

Revenues in the second quarter came in at the midpoint of our constant currency guidance range.

Our gross profit margin was down 10 basis points year-over-year and came in at the midpoint of our guidance range.

Excluding special items and prior year restructuring charges, our second quarter performance resulted in operating profit decline of 12% or 7% on a constant currency basis on flat revenues in constant currency.

We continue to experience the impact of operational deleveraging in this lower revenue environment.

This combined with favorable direct cost adjustments and strong SG&A management during the quarter resulted in operating profit margin at the top end of our guidance of 3.7% before special items.

Breaking our revenue trend down into a bit more detail.

After adjusting for the negative impact of currency of about 5% in the quarter, our constant currency revenue was flat.

The Switzerland acquisition increased revenues by 2%, while fourth quarter of 2018 dispositions contributed to 60 basis points of revenue decline in the quarter, resulting in a net impact from acquisitions of plus 1.4%.

Slightly less billing days this year contributed to a slight revenue decline.

Excluding the positive impact of acquisitions and the negative impact of less billing days, the organic constant currency days adjusted revenue decline was about 1% in the second quarter as expected, which represented a continuation of the 1% decline in the first quarter on a similar basis.

On a reported basis, earnings per share was $2.11, which included special items consisting of an $80 million accounting gain on the purchase of our remaining interest in our Manpower Switzerland business, which had $1.32 positive impact, and goodwill impairment and related tax and other charges representing $64 million of goodwill impairment, $2 million of other charges and $10 million of related discrete tax expense, which in the aggregate had $1.26 negative impact on earnings per share.

Excluding these special items, earnings per share was $2.05, $0.05 above the midpoint of our guidance range.

The drivers of this result include $0.04 on slightly better effective tax rate, $0.02 on favorable other expenses, which was offset by $0.01 on slightly worse foreign currency exchange rates than expected.

Looking at our gross profit margin in detail, our gross margin came in at 16.2%.

The staffing/interim margin continues to reflect an improving trend from previous quarters.

The staffing margin also benefited about 10 basis points from favorable direct cost adjustments in France during the quarter.

Many of our largest markets continue to see tight labor market conditions and this has contributed to improved staffing margins based on our ongoing initiatives, particularly in France, the U.S. and Japan.

Lower contribution from Solutions was driven by lower Talent Based Outsourcing activity year-over-year.

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%.

During the quarter, our Manpower brand reported an organic constant currency gross profit decrease of 3%.

This was an improvement from the 4% decline 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.

Light industrial skills experienced a slightly higher rate of decrease in gross profit during the quarter compared to office and clerical skills, a trend that was largely in line with the first quarter experience.

Gross profit in our Experis brand declined 3% on an organic constant currency basis during the quarter, a decrease from the flat trend experienced in the first quarter.

This was driven by the U.K. and to a lesser degree the U.S.

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.

Organic gross profit in the quarter was up 1% on an organic constant currency basis, which is slightly less than the 2% growth in the first quarter trend driven by lower activity in our Proservia business during the quarter.

Right Management experienced a decline in gross profit of 5% on an organic constant currency basis during the quarter, which was a slight improvement from the 6% decline in the first quarter.

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

Our reported SG&A expense in the quarter was $740 million, including the $66 million of goodwill impairment and the related charges.

The goodwill impairment and related charges represented $60 million of goodwill impairment related to our Germany operations and $4 million goodwill impairment and $2 million of costs related to our New Zealand operations.

Although we have made good progress in executing various initiatives within our Germany business, the performance of the business in the current market conditions and the impact of temporary staffing regulation have resulted in a more cautious outlook for the business, resulting in a partial write-down of the goodwill.

We also incurred a write-down of the goodwill and some small related costs for our New Zealand business.

Excluding the goodwill impairment and related charges, SG&A expense was $674 million, a decrease of $25 million after excluding restructuring costs from the prior year.

This decrease was driven by $31 million from currency changes, $3 million from operations and $3.4 million from dispositions that were partially offset by an increase of $12.1 million related to acquisitions.

On organic constant currency basis, excluding special items and prior year restructuring costs, SG&A expenses were flat compared to the prior year.

Excluding the goodwill impairment and related charges, SG&A expenses as a percentage of revenue in the quarter represented 12.5%, which reflected strong cost management despite the impact of lower revenues year-over-year.

The Americas segment comprised 19% of consolidated revenue.

Revenue in the quarter was $1 billion, an increase of 3% in constant currency.

OUP equaled $49 million and represented a decrease of 11% in constant currency from the prior year reflecting investments in the U.S. The U.S. is the largest country in the Americas segment comprising 60% of segment revenues.

Revenue in the U.S. was $631 million, down 1% compared to the prior year, equal to the same level of decrease in the first quarter after adjusting for billing days.

And considering rounding, this represented an improvement from the first quarter trend and demonstrates continued progress for the U.S. business.

During the quarter, OUP for the U.S. business decreased 16% to $32 million, reflecting investment in growth initiatives as well as technology.

OUP margin was 5.1%, a decrease of 90 basis points from the prior year.

Staffing gross profit margin increased year-over-year as the pricing environment reflects the scarcity of talent in the U.S. 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 1% in the quarter or flat when adjusted for billing days, an improvement from the 3% decrease in the first quarter.

Reaching a flat days adjusted revenue result is a significant milestone for the U.S. Manpower business, and this reflects the progress resulting from the investment in the business.

The Experis brand in the U.S. comprised 35% of gross profit in the quarter.

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

During the quarter, our Experis revenues declined 4% from the prior year.

And after adjusting for billing days, this represented a decline of 3%.

This represents a decrease from the 1% decline experienced in the first quarter.

ManpowerGroup Solutions in the U.S. contributed 23% of gross profit and experienced 5% revenue growth in the quarter equal to the growth rate in the first quarter.

We continue to see strong demand by our clients for higher-value RPO and MSP solutions and recent large global RPO wins are expected to flow through in future quarters.

We expect the U.S. business to see slight improvement in the current year-over-year revenue trend in the third quarter.

Our Mexico operation had revenue growth in the quarter of 2% in constant currency or 5% after adjusting for billing days.

We expect similar growth in Mexico into the third quarter.

Revenue in Canada was up 10% in constant currency or 12% after adjusting for billing days.

We're very pleased with the performance of our Canada business as they continue to produce market-leading growth.

We expect Canada to have a very strong performance in the third quarter.

Revenue growth in the other countries within Americas was up 13% in constant currency.

This growth was driven primarily by strong revenue growth in Central America, Peru, Brazil, Colombia and Chile.

Southern Europe revenue comprised 45% of consolidated revenue in the quarter.

Revenue in Southern Europe came in at $2.4 billion, an increase of 4% in constant currency.

Adjusting for the Switzerland acquisition and billing days, this represented a flat revenue trend, a continuation from the flat trend experienced in the first quarter on this same basis.

OUP equaled $124 million.

Excluding prior year restructuring costs, OUP increased 5% from the prior year in constant currency or 2% in organic constant currency after accounting for Switzerland.

OUP margin of 5.2% represented an increase of 10 basis points excluding prior year restructuring costs.

Permanent recruitment growth was 10% in constant currency or 6% on an organic constant currency basis.

France revenue comprised 59% of Southern Europe segment in the quarter and was flat from the prior year in constant currency.

This represented a stable trend from the flat days adjusted revenue result in the first quarter.

Although France experienced an improvement in the revenue trend from April to May, we experienced softer revenue trends in June and early July.

OUP was $76 million, an increase of 10% in constant currency, and OUP margin was up 50 basis points in constant currency at 5.3%.

Staffing margin expansion drove a gross profit margin increase in the quarter year-over-year.

This was due to underlying margin improvement in the business and a benefit from direct cost adjustments as mentioned in the gross profit margin discussion earlier.

Activity levels in France continue to be uneven.

Considering the further decline in July for the third quarter overall, we expect a flat to slightly down revenue trend.

Revenue in Italy equaled $394 million, representing a decrease of 6% in constant currency.

This was in line with expectations and equal to the first quarter trend on a days adjusted basis.

Permanent recruitment fees increased 11% on a constant currency basis over the prior year.

Excluding restructuring costs in the prior year, OUP declined 5% in constant currency to $30 million, while OUP margin expanded by 10 basis points to 7.6% as perm growth benefited gross margin combined with strong SG&A cost management.

Our Italy business is performing well in a difficult environment, and we expect a slightly improved revenue trend in the third quarter.

Revenue in Spain declined 1% in constant currency from the prior year but represented a 4% increase on a days adjusted basis.

This reflects an improvement from the 1% constant currency decline in the first quarter.

We also expect Spain to have a slightly improved revenue trend in the third quarter.

As previously mentioned, we acquired the remaining interest in our Switzerland Manpower franchise in early April.

This business represented 5% of Southern Europe's revenues and performed well in the quarter despite a softening market.

Our Northern Europe segment comprised 22% of consolidated revenue in the quarter.

Revenue declined 10% in constant currency to $1.2 billion.

On a days adjusted basis, this represented an 8% decline, which was slightly better than the 9% decline in the first quarter on the same basis.

OUP equaled $24 million.

Excluding restructuring costs in the prior year, OUP declined 32% in constant currency, and OUP margin was down 70 basis points.

The decline was driven by the significant deleveraging in Germany, the Netherlands and Sweden.

Our largest market in Northern Europe segment is the U.K., which represented 33% of segment revenue in the quarter.

U.K. revenues were down 3% in constant currency or down 1% after adjusting for billing days.

This represents a significant improvement from the 5% decline in the first quarter.

This was a better-than-expected result.

Our Manpower business in the U.K. improved to a 3% constant currency revenue increase in the second quarter, which represented a significant increase from decline in the first quarter driven by the anniversary of reductions in production from a large automotive client.

Conversely, our Experis business experienced a decrease in revenue of 7% in constant currency, which represents a decrease from the first quarter revenue growth driven by the anniversary of large growth a year ago and the reclassification of select clients between brands.

We expect a slightly improved revenue trend for the U.K. into the third quarter.

In Germany, revenues declined 26% on a constant currency basis during the second quarter or a decline of 24% on a days adjusted basis, which represented an additional 1% decline from the first quarter.

Germany remains very challenging market driven by lower manufacturing activity and regulation that continues to drive higher than historical levels of temp conversions at clients.

I previously mentioned the goodwill impairment charges recorded at the consolidated level.

Although the market in Germany continued to deteriorate in the second quarter, we have experienced stabilization in our underlying activity.

We anticipate improvement in the revenue trend during the third quarter as we begin to anniversary sharp declines in the prior year.

In the Nordics, we grew revenues 3% on a days adjusted constant currency basis.

This represented an improvement from the 1% days adjusted growth in the first quarter.

We experienced a slight improvement in the rate of revenue decline in Sweden and also strong increases in the rate of revenue growth in Norway during the quarter.

We expect to see similar revenue trends in the Nordics overall in the third quarter.

Revenue in the Netherlands decreased 22% on a days adjusted constant currency basis during the second quarter.

Adjusting for the disposition of our language translation business last year, this represented a 19% days adjusted revenue decline, which is a slight decrease from the 17% days adjusted decline in the first quarter.

This reflects the impact of a slightly weaker market and exit of select clients at the end of 2018 largely due to pricing decisions.

We expect a slightly improved trend in the third quarter.

Belgium experienced revenue decline of 6% in constant currency or a decline of 8% on a days adjusted basis during the second quarter.

This represented a decline from the 6% days adjusted constant currency decrease in the first quarter.

We expect a slightly improved revenue trend in the third quarter.

Other markets in Northern Europe had a revenue increase of 4% in constant currency, driven by strong growth in Russia.

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

In the quarter, revenue was up 1% in constant currency to $709 million or 3% after adjusting for billing days.

Adjusting for the disposition at the end of 2018, this represented an organic days adjusted constant currency increase of 7% in the second quarter and represents a continuation of the 7% growth rate in the first quarter on the same basis.

OUP equaled $28 million in the quarter.

This represented a 1% decrease in constant currency, and OUP margin decreased 10 basis points.

I previously referenced the goodwill and related charges of $6 million recorded at the consolidated level for New Zealand.

Revenue growth in Japan was up 5% on a constant currency basis.

And adjusting for billing days, this represented a 10% growth rate, which was an increase from the 5% growth rate in the first quarter on the same basis.

Both OUP and OUP margin improved on stronger revenues and SG&A efficiency in the quarter.

Our Japan business is performing very well, and we continue to expect strong revenue trends into the third quarter.

Revenues in Australia and New Zealand declined 15% in constant currency adjusted for billing days.

This represented an expected further decline from the 6% decline in the first quarter, when we announced we would be exiting certain low-margin business in Australia in order to improve our profitability.

Similarly, based on this and adjustments in New Zealand for similar reasons, we expect further revenue declines in the next few quarters in the double digits percentage range.

Revenue in other markets in Asia Pacific Middle East were up 7% in constant currency.

And adjusting for dispositions, this represented a 16% growth rate.

This was the result of strong growth in the number of markets including India, Vietnam and Singapore.

Jonas mentioned a Greater China public offering, and I will discuss this further as part of the third quarter outlook.

Our Right Management business reduced the rate of decline in the second quarter.

During the quarter, revenues were down 1% in constant currency to $50 million, improving from a 5% decline in the first quarter.

OUP equaled $9 million.

Excluding restructuring costs in the prior year, OUP decreased 9% on a constant currency basis as SG&A reductions helped to partially offset the impact of revenue reductions.

Excluding restructuring costs in the prior year, OUP margin decreased to 160 basis points to 17.9%.

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

Free cash flow, defined as cash from operations less capital expenditures, was $253 million for the first 6 months of the year.

This included the sales of portion of France CICE tax credit in April 2019 of EUR 92 million, representing $104 million.

Excluding the CICE sale in both years, free cash flow represented $149 million in 2019 compared to an outflow of $86 million in 2018 as accounts receivable balances were growing more significantly in 2018.

At quarter end, day sales outstanding decreased by about 1 day.

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

Capital expenditures represented $24 million during the quarter.

During the quarter, we used cash of $212 million to purchase the remaining interest in the Manpower franchise Switzerland business.

Corporate cash balances were utilized to fund the acquisition during the second quarter.

Because we've previously held a partial ownership basis and the cash held within this business, the acquisition resulted in the consolidation of positive net cash held in Switzerland.

Although acquisitions within our capital allocation strategy are focused on higher-margin businesses, we are pleased to have allocated capital towards the purchase of our remaining interest in this long-standing Manpower franchise.

This represents our last significant international franchise, and we believe this business has the potential to improve its operating unit profit margin significantly under our management as we leveraged the full suite of ManpowerGroup brands as well as our operational efficiency expertise.

Our ongoing capital allocation strategy remains unchanged.

That is, after a dividend to our shareholders, the first priority for excess cash is directed towards acquisitions.

Although we are cautious on acquisitions, we continue to believe that acquisitions can be a key lever in accelerating the increased mix of our higher-margin Experis and Solutions businesses.

In the event there are no acquisitions, we continue to believe our approach of opportunistic share repurchases are a preferred way to return excess cash to our shareholders.

During the second quarter, we utilized cash for the purchase in Switzerland and did not purchase any shares of stock.

As of June 30, we have 1.9 million shares remaining for repurchase under the 6 million share program approved in August of 2018.

Our balance sheet was strong at quarter end with cash of $770 million and total debt of $1.07 billion, bringing our net debt to $303 million.

Our debt ratios are very comfortable at quarter end with total debt to trailing 12 months EBITDA of 1.25 and total debt to total capitalization at 28%.

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

At quarter end, we had EUR 500 million note outstanding with an effective interest rate of 1.8% maturing in June of 2026, 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 remained unused.

Next, I'll review our outlook for the third quarter of 2019.

We have a few unique considerations impacting the quarter, so I will break this down for you.

As we mentioned, the Greater China JV completed its initial public offering issuing new shares to investors in the region.

And as a result, we no longer have a majority interest and will no longer consolidate this business.

We do remain the largest shareholder and will be recording our 38% interest below operating profit in other income, other expense going forward.

We believe this business has the potential to grow and perform very well, and that our net earnings will benefit from our ownership stake over time.

However, as a result of no longer consolidating this business, our revenue trends, gross profit margin and operating profit margin will be lower as a result of the deconsolidation as this business is a higher-margin business.

Specifically, in the third quarter, we expect the impact of deconsolidating the business will be to reduce revenues by 2.2%, reduce GP margin by about 10 basis points and reduce operating profit between 5 and 10 basis points.

Conversely, our other income will grow going forward as we pick up our share of Greater China's earnings net of taxes.

We also expect a negative impact in the tax rate in the third quarter due to the French Finance Bill adopted July 11.

The finance bill canceled the previously enacted 2.4% corporate tax rate reduction retroactive to the beginning of 2019.

And the bill is expected to be signed by President Macron and published in the official journal in the coming weeks.

Including these developments, we are forecasting earnings per share for the third quarter to be in the range of $1.88 to $1.96, which includes a negative impact in foreign currency of $0.04 per share and a negative impact from the France tax change of $0.05 per share.

The Greater China public offering results in a onetime noncash accounting gain that will be recognized in the third quarter, which we will plan to report on separately as part of our third quarter results, and this item is not in our guidance.

Our constant currency revenue guidance range is between flat and positive 2%.

Walking from the midpoint of 1% constant currency growth, the impact of the Switzerland acquisition net of the fourth quarter 2018 dispositions and now the Greater China deconsolidation, basically offset each other.

Considering a higher day count, the billing days adjusted organic constant currency revenue trend is flat in the third quarter, which is an improvement from the 1% decline in the second quarter on the same basis.

From a segment standpoint, additional billing days in the quarter generally increase all regions' constant currency growth except APME.

We expect constant currency revenue growth in the Americas to be in the mid-single digits with Southern Europe growing in the mid- to high single digits with about 5% of this increase driven from the Switzerland acquisition.

Northern Europe decreasing in the low single digits with about 60 basis points reduction related to the Netherlands disposition in the fourth quarter of 2018, and Asia Pacific Middle East decreasing in the double-digit teens range with about 17% of this decrease due to deconsolidation of Greater China and the previous disposition in the fourth quarter of 2018.

We expect the revenue trend for Right Management in the slightly down to slightly up range.

On a regional basis, the difference in billing days will have a favorable impact on revenue growth of about plus 0.5% in the Americas and plus 2% in Northern and Southern Europe.

APME has equal billing days year-over-year.

Our operating profit margin during the third quarter should be down 40 basis points compared to the prior year quarter, reflecting a continuation of the down 30 basis points trend experienced in the second quarter plus the impact of the Greater China deconsolidation.

The onetime noncash accounting gain related to the Greater China public offering is not incorporated into our guidance and will be disclosed as part of our third quarter results.

We expect our income tax rate in the third quarter to approximate 35.5%, including the French tax rate increase.

The third quarter impact of the expected July 2019 French tax rate increase is about 1.7%.

As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 60.6 million.

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

As you just heard, our third quarter guidance incorporates recent changes in our business.

During the last few quarters, you have seen us execute on very strategic initiatives, which include the Swiss franchise activity, the IPO over the Greater China business as well as certain dispositions of non-core operations in different countries.

We are making these portfolio adjustments in line with our strategic priorities to drive sustainable profitable growth and achieve our stated financial targets.

Along with our investments in technology and our innovation initiatives, we will continue to evolve our global portfolio and footprint over time as we execute our business strategies and focus on creating more value for all of our stakeholders.

Turning back to the immediate outlook, although we see some slight changes in certain markets, we expect the overall theme of trend consistency from the first half of the year to continue into the third quarter.

We are expecting European trend to continue to be largely offset by organic constant currency revenue increases in the Americas and in APME.

In this uneven global environment, demand for extensive portfolio workforce solutions and services across our global footprint continues to provide us with opportunities for profitable growth in many markets and brands.

Specifically, employers around the world are increasingly looking for technical and soft skills and are struggling to fill temporary and permanent positions.

Across all industries, there's an increasing focus on the need to upskill people in short cycles at speed and at scale to ensure businesses have the talent they need when they need it.

This ongoing demand for people with the right skills is why upskilling and reskilling the workforce is part of our strategic evolution and plan, so that we can provide our clients with the best talent while we develop and retain the most highly skilled and productive workers.

Last quarter, we talked about our MyPath offering, our global program designed to provide individuals with the fastest path to career progression, developing the skills required for jobs in growth sectors and increasing people's earnings potential through fast-track learning programs, on the job training, certification and work life experience.

So far this year, we have over 40,000 of our associates enrolled in MyPath in our French business with plans to increase their numbers further throughout 2019.

We are also significantly expanding MyPath in other countries.

One of those countries is the U.S., where we recently announced our partnership with Pearson, the world's learning company, to offer all of our U.S. Manpower associates the opportunity to complete their high school equivalent diploma at no personal costs.

When over 70% of jobs in the U.S. require a high school diploma or higher, we are helping people access education while they earn, building candid loyalty and providing our clients with a more qualified and skilled workforce.

We have committed to upskilling more than 30,000 associates per year through this and other similar initiatives in the U.S. alone.

This is how we are closing the skills gap, creating pipelines of skilled talent our clients need and a path to meaningful and sustainable employment for our associates.

It is how we're mitigating skills shortages and delivering our highest quality service, especially when such talent is difficult to find in tight labor markets.

We believe our commitment to upskilling our associates at scale across our countries and brands is unparalleled in our country.

This is yet another example of how we are differentiating ourselves as the leading global workforce solutions company today and into the future.

I would now like to open the call for Q&A.

Operator?

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

It's Andrew.

Jonas, if you could the third quarter guide, Manpower has been in a flat to slightly down revenue situation now for 4 quarters, if you include the third quarter.

What needs to change for Manpower's top line to return to sustainable growth?

Andrew, and I would say the -- what we take from the second quarter and also as you look into the third quarter is that stability in Europe is something that is a good starting point.

And actually, if you look at the second quarter, we saw improved performances in the U.K., in the Nordics as well as in Spain, France slightly lower but still managed the operating profit margins very well.

Italy, stable at a lower level but also with excellent operating profit.

So I would say the environment is truly uneven.

And of course, what we would be looking for is a greater degree of business confidence and to see some of the manufacturing indicators move in the right direction.

But as you can tell from our comments, it is an uneven environment.

You have some countries that are heading in the right direction, others that are going -- that are stable and a few that have gotten slightly worse but not very much worse.

So we're hopeful that we could see some improvement.

Of course, the difficulty is determining when that would occur.

And just make a comment on France.

You said so after June and July, our economists are still looking for 1.3% real GDP growth in France.

You -- do you think that would be a conducive environment for temporary help?

I think that if growth comes back because that's what would have to happen to get to that average 1.3% growth number, we would certainly see a pickup in the French business.

But we haven't seen it yet.

But if that growth number is supposed to be realized then we would see it, for sure.

Our next question is from the line of Jeff Silber of BMO Capital Markets.

Just wanted to follow up on France.

I think about a month ago or so, the French government proposed like it's what they're calling Act 2 of the French Labor Reform.

I know nothing is set in stone yet.

But if something like this goes into effect, how do you think that would impact your business?

In short, we think the changes as they -- as we understand them today and, of course, there are other things that we need to understand better, we think those changes are entirely manageable by our business.

And in fact, it might be an opportunity for us because we have a very strong workforce management program in place.

We also have a bench model.

And both of those could help offset some of the changes that are occurring.

And of course, the changes are aimed at managing the perceived abuse of short-term flexible contracts, so 1-day contracts.

Very similar to what you've seen in the U.K. and the debates around zero-hour contracts or the dignity decree in Italy.

So it's targeted to certain sectors, 7 industry sectors across France that are making extensive use of short-term contracts.

And that is something that we believe we can manage both because of our exposure being reasonably limited, although we are certainly present in those sectors, but also because of the nature of all our business and the length of assignments that we have.

So we think we can actually benefit from this.

But without knowing all the details, at least we can tell at this point, it is entirely manageable in our current assessment.

Okay.

That's helpful.

If I could shift over to Germany, I'm just curious why did you take the goodwill impairment this quarter.

Was there something that's changed compared to prior quarters?

Jeff, I'd say when we looked at the goodwill impairment for Germany, I think coming off of the first quarter, where we talked about the restructuring charges that we took in the country, we continue to analyze the performance of Germany and I'd say stepping back from it, looking at the current market conditions would continue to soften into the second quarter and continuing to analyze the regulatory impacts.

And we talked about that in the prepared remarks.

We are seeing, as a result of the labor regulation, a higher degree of conversions of our temps to permanents by our clients.

And we're not anticipating that, that trend is going to change dramatically in the short term.

So we'll continue to look at that.

But all of that resulted us in just taking a more cautious outlook on the business going forward.

And that's what really resulted in the accounting goodwill impairment.

And the next question is from the line of Tim McHugh of William Blair & Company.

I just want to ask, I guess, how you're thinking more medium-term in this sort of environment about the pace of expense growth that you want?

And I guess how aggressive are you willing to be with getting, I guess, further kind of expense reductions as we look at kind of a choppy macro environment?

Or are you more on the view that you want to continue to invest because you believe this is just temporary and it's is going to come back?

Tim, this is Jack.

I guess I'd answer that.

It's really more of a regional view when we think about that.

To Jonas' comments and some of the prepared remarks, we are investing in regions that are continuing to grow.

So if I step back, and Andrew asked the question about the overall composition of the group and what will move us going forward to more positive growth, at the moment, as you can see from the second quarter results, Northern Europe had a 10% constant currency decline.

So what we see is really the rest of the world making up for that getting us close to flat, we're minus 1% organic days adjusted, and we move to flat in Q3.

And so I'd say it depends on the region.

And so to your point, you saw us do some pretty significant restructuring in the first quarter, a lot of that was aimed at Northern Europe.

So we are taking out cost.

And if you look at Northern Europe during the second quarter, there was a close to 10%, 11% cost reduction year-over-year in Northern Europe.

So we are making those moves, they are improving the underlying run rates in Northern Europe, particularly in Q2 from Q1.

So it really is a regional view, and so that is happening in the markets where we need to do that, but at the same time, in markets that are growing and making up for Northern Europe we continue to invest.

And as we said in the prepared remarks, technology is part of that as well, and we continue to invest in technology during the course of that as well.

Okay.

And then on the tax rate and the impact of France, I know you said that it's retroactive somewhat the law that's being signed.

So I guess this tax rate in the third quarter, are we catching up in terms of some of the tax accruals?

And I'm just trying to understand what we should be thinking about go forward from here beyond the third quarter in terms of the impact.

Yes.

It's really year-to-date catchup for the French legislation.

So as part of tax original -- France's original tax reform, the rate was scheduled to step down this year, and that's what was enacted, and that's what we were booking to.

So just over a 2% decrease in the corporate rate in France was part of their tax reform.

And this recent legislation basically cancels that out.

So it reverts back to the original rate from the prior year, so that's an increase, just over 2%.

And based on the size of France's operations, that results in an increase of about 1.7% in that effective rate in the third quarter.

So that's a 9-month catchup that's all happening in the third quarter because that tax rate goes back to the beginning of the year.

If you take that out, Tim, our tax rate is about 33.8% in the third quarter.

So in line with what we had guided for.

And what I would say is for the full year tax rate, our previous guidance was 34% for the full year.

I did say that if France did cancel their tax reduction, that would basically add about 50 basis points to the consolidated rate, and so that's what we're currently looking at about 34.5%.

The next question is from the line of Mark Marcon of Baird.

With regards to Germany, can you talk a little bit about the -- just how we should think about the progression of that regulatory change and how it ends up impacting the trends there?

And then how does it end up impacting the economics of the business there?

We've seen this -- these legislative changes really come into play in Germany during a time the labor markets are very tight.

So the impact that we're seeing right now is that we -- although it's hard to judge exactly what is legislation and what is the market downturn, we have seen an increased level of conversions, we have seen an increased level of sickness pay.

So those are things that we're, of course, monitoring and adjusting ourselves to, to ensure that we mitigate those impacts to the greatest degree possible.

We're still feeling good about the German market.

It is the biggest economy in Europe, 90 million people, a powerhouse where it's very important for us to have a good footprint.

And we're optimistic in the long-term outlook to Germany.

But in the meantime, of course, we're adjusting to these legislative changes and to what we believe is the probably worse-performing market right now in the world and certainly in Europe in terms of the industry dynamics due to the downturn in German manufacturing.

So it's a difficult -- the market conditions are difficult, and certainly the legislative changes are not helping us turn it around.

But we still have a good outlook as far as Germany is concerned and I think it's an important market for us.

And I would just add to that, Mark, that although we have seen a higher rate of conversions, we have been able to replenish that.

So we have seen stability in the associates on assignment in Germany, which is great to see, and it's becoming easier to forecast for us at this stage.

So that stability in the associates on assignment has been coming through the last couple of months and if we hold on to that, we'll see an improvement in the rate of revenue decline into the third quarter.

So the rate of conversions are basically preventing additional growth because we would have just added those additional associates on.

But so far, it's been helping us -- we've been replenishing that conversion rate, and that's been able to keep us stable on the associates on assignment.

The comps in Germany get a lot easier in Q3 and Q4 in particular.

Do you think given the way the trends are going, I'm just -- I'm trying to judge like how recent the impact is with regards to the regulatory change in terms of the impact.

Or whether by the time we get out to the fourth quarter or the first quarter assuming the macro environment doesn't worsen any further that we should start seeing stability.

We should, Mark.

I think we'll see some improvement in the third quarter and to your point, we had a pretty sharp decline a year ago in the third quarter and that declined much further in the fourth quarter.

So we'll see improvement.

If we can hold the associates on assignment, which is the trend we've been seeing the last couple of months, as we walk into the third quarter and fourth quarter, we will start to see an improving revenue trend.

Great.

And then in France, the operating margin was a really nice improvement year-over-year despite the fact that we're not getting the CICE anymore.

Can you talk a little bit about what's going on over there?

And how the outlook for margins are in France?

Yes.

Regarding France, I guess the point I'd make is, we did point out that we had some direct cost adjustments in the quarter.

So that helped, that helped that bottom line results in terms of the improvements year-over-year and their operating unit profit margin.

But even putting that aside, we've been making very good progress in the underlying staffing margin.

And so that has been a trend we've been seeing for the last couple of quarters that's helped us offset that subsidy change that we've talked about.

And we feel good about that.

We feel good about the continuing.

The one item I would say though regarding the third quarter is, due to the fact that we've had some of those direct cost adjustments, that's helped us more than offset that pressure from the subsidy change.

We're not anticipating any direct cost adjustments in the third quarter.

So as a result of that, I think we'll see good progress on the underlying staffing margin.

We just won't have the recurrence of those direct cost adjustments we're estimating at this time into the third quarter, Mark.

And those direct cost adjustments ended up positively impacting the margin in France by how much?

I -- we said that overall, it helped our gross profit about 10 basis points, Mark.

So that probably gets you what you need.

Next is Gary Bisbee from Bank of America.

Jack, in the segment commentary, almost every segment you talked about expectations for some sequential improvement in the Q3 growth rates.

Obviously, in a lot of the business the comps look a lot easier.

I guess -- I just wondered if you could comment, are there some markets where you feel, like, sort of, in absolute dollar terms we're seeing improvement?

Or is the concept of the year-to-year comps improving a lot really the bigger driver of that commentary you provided about pretty consistent sequential improvement?

Yes.

Gary, I'd say comps certainly are a big part of it.

But if I look at the overall guidance in the regions in the key countries within those regions, what I'd say is, going back to the U.S., I'd say the U.S. is an area where we've seen steady improvements.

We've seen that for the last couple of quarters here.

And so a very significant milestone, Manpower getting to flat in Q2, which was great to see.

And we see that continuing to improve into the third quarter.

So I would definitely put the U.S. -- and the U.S. has a slightly harder comp going into the third quarter, and we still see improvement.

So I would put the U.S. in the camp of steady improvement anticipated consistent with what we've been seeing.

I would also -- I think when we look at Southern Europe, we've talked a little bit already about France.

But I'd say France, as we guided, we did see a little softening trend as we exited the quarter and into July.

Italy will improve largely due to the comps but good steady, underlying activity.

And I think Italy, we've had very good perm trends, and we see that continuing into the third quarter.

And I see Spain improving.

So Spain has good improvement in the second quarter, and we see that improving into the third quarter and that will be positive.

And I'd say that's positive for the business on an underlying basis as well.

And I guess as we look at Northern Europe, and that's where we've seen the most pressure over the last few quarters, the U.K. has been improving.

And so the U.K. improved -- came in better than we expected in the second quarter getting to a 1% decline in constant currency, and we see them continuing to improve into the third quarter as well.

So I'd say those are the main contributors.

I think in APME, we have guided to the fact that we are exiting some of that low-margin business in Australia.

That's the reason Australia has been a steeper negative decline as expected, and certainly we have the impact of the deconsolidation of China on an overall basis, which we've carved out.

But I would say that, that's a little bit of a lay of the land for the Q3 guide.

Great.

And then just following up quickly on the China deconsolidation.

Is it right that, that has limited -- do you think that, that has limited EPS impact?

I realize revenue profit and margin shift to the -- below the operating line, minority interest or other income.

But shouldn't it have a big impact on EPS?

Or is that -- is there some reason that it actually would have a meaningful impact?

No, Gary.

I think you're thinking of it the right way.

We don't carve out the results for China.

But you're definitely thinking of it the right way.

I think that's been a business on a quarterly basis that's given us consolidated operating profit dollars in the mid- to high single-digit millions quarterly.

And doing the math on that we've owned 51% previously.

So part of that goes away due to the minority interest claims.

And then going forward, what we'll have is just below -- all of it will be picked up below the line now.

Instead of the net 51%, it will be net 38% net of taxes.

So I think you're thinking of it the right way in terms of the overall impact.

The next question is from the line of Tobey Sommer of SunTrust.

In the context of your experience globally in riding out cycles in accelerations and decelerations in growth, do you -- does the cadence of regulatory and tax changes in your markets tend to lessen as you have periods of softness here?

Or -- because I know France and some of the other major markets tend to tweak things with some regularity.

So based on your experience, should we expect more or less of that at this juncture, do you think?

The rate of legislative proposals of various kinds has frankly been reasonably evenly distributed over a number of years.

I don't know that I would tie it to any specific economic cycles as much as possibly tying it to ideological views or what -- whether labor market flexible is good or whether labor market flexibility is bad.

And if you have a change in government and policymakers have a more ideological view, we might see a flurry of activity that is aimed at regulating our industry and/or the use of flexibility generally in that market.

I would say though that so far, fortunately, those changes while sometimes difficult to adjust to in the end have mostly been manageable for us because everyone understands the benefit that the economy has and the labor markets have for employment or flexibility of the kind that we provide on a global basis in over 80 countries.

So, so far the changes that have occurred have been manageable for the most part.

There are some legislations that we're seeing.

Clearly the one we spoke about earlier with Germany has made it more difficult to navigate.

Because frankly, we don't think seeing that Germany has a bench model, so that means all of our employees -- all of the associates we have are our full-time employees to then add to that a temporary staffing legislation that would, sort of, contravene the notion that they are firm and full-time employees of ours makes no sense from our perspective and that has been more difficult to manage, but we are adjusting to that change.

But I wouldn't tie regulatory changes really to anything related to economic cycles but mostly ideological views of what is good for the labor markets when governments change.

With respect to your RPO and MSP business, what has growth been?

And is there any change in composition of the drivers of that growth, the new business versus expanding relationships with existing customers?

I'd say that the RPO business, we saw some improvement in the second quarter, which was good.

So our MSP business improved as well, and our Proservia business was moving forward well as well for our regional business in Europe.

So where we saw some weakness in our Solutions business was really the other what we call Talent Based Outsourcing business, and that is something that we can see fluctuate from time to time.

But our global offerings are continuing to make good progress.

I'd say that some of the hesitation maybe we've seen it from some clients in terms of committing to larger RPO contracts could be related to -- in some markets could be related to their desire maybe to control the inflow of the candidates themselves.

But having said that, we have a very strong pipeline and some good wins, so we would expect to see the RPO business continue to pick up pace as we move forward.

So no major shifts in our business composition and still a very good outlook for our Solutions business going forward.

Eunice, any more questions?

Yes.

We do have a question that came from the line of Kevin McVeigh of Crédit Suisse.

Jack, you guys have done a real nice job kind of restructuring the business.

How do we think about -- like what level of absolute dollar of revenue do you need to expand the margins?

Because it looks like, it sounds like, it's a little bit of Asia Pacific.

But the gross margins, the operating margin a little bit deleveraging.

What's the breakeven point from an absolute dollar perspective or reported revenue where the margins start to flex back up?

Kevin, I'd say definitely, what we've said historically is, if we can get revenues in the mid-single-digit revenue growth, then we're starting to really see operating leverage.

I would say we don't need to even see that on an overall consolidated basis.

It really depends on the region.

So you've seen us in a lower revenue environment actually continue to have an opportunity to expand margin when certain regions are doing really, really well.

And so the great example of that would be France and Italy.

So France and Italy, if they're seeing nice growth, although we could still have other parts of the world that could be seeing declines, then we really start to get operating leverage in big parts of the business and that falls through to the bottom line.

So -- but we do need some of our larger regions to have decent revenue growth, and I'd say mid-single digits.

Now with that being said, with our cost efficiency initiatives that we continue to execute, that is providing additional cost savings in a much lower revenue environment for us as well.

And that's -- we continue to work that in, and that continues to be part of our strategy going forward to create more room in a lower-revenue environment to be able to get back to expanding margin.

But we are going to need a bit more help on the revenue side.

Understood.

And then just real quick.

On the buyback, no stock in the quarter.

Was that a function of the -- you were in the process of listing the Asia business?

Or is it just the proceeds from allocation to the Swiss business?

Or just any thoughts on that as we think about the third quarter.

Yes.

Kevin, I'd say we used cash in the quarter for the Switzerland acquisition.

And as we've said before, when we look at excess cash, if there is an acquisition, that gets first priority.

And I'd say that, that's really the story for the quarter overall.

I wouldn't read anything into it more than that.

We continue to think share repurchases are a great vehicle for returning cash to our shareholders.

We'll continue to do that opportunistically.

So really that was the story in the second quarter.

And the next question is from the line of George Tong of Goldman Sachs.

This is [Blake], on for George.

APME grew 1.3% constant currency, slowing from high single-digit, low double-digit growth throughout 2018.

Looks like there were tough comps this quarter.

But do you see any idiosyncratic headwinds that may have weighed on growth in the region?

Yes.

I guess I'd clarify that when we look at APME, they actually -- you have to remember that we did a disposition in the fourth quarter of 2018.

So for that reason, it's really tricky.

You have to really look at the organic underlying days adjusted growth.

And so organically, they actually grew 7%.

So APME has been performing very well.

That 7% was in line with what we saw last quarter on an underlying basis.

Adjusting for the disposition, it was 7% as well.

So APME is doing very well.

And I'd say the big driver there is Japan.

Japan came in at 10% days adjusted in the second quarter.

And that's a phenomenal result for our Japan business, which has been very steady and has been really picking up their revenue growth recently.

And we see Japan continuing to have a good third quarter outlook as well.

So I'd say we feel really good about APME.

We are seeing, as I mentioned earlier, we are exiting some low-margin business in Australia and New Zealand and that will have an impact a bit.

But overall, that will be good for our profitability going forward.

Great.

That's really helpful.

Looks like operating margins came down 30 bps to 3.7% this quarter, and you're expecting another 40 basis points decline year-over-year in 3Q.

Can you discuss progress made on recent technology investments?

And when you expect to see margin tailwinds?

Yes.

I guess I'd say, in terms of the margin walk overall, to your point, we guided to down 40 basis points in the second quarter.

We came in at down 30 basis points.

And as we look to the third quarter, the guide is down 40 -- really the change there is the China deconsolidation as we've pointed out.

So the China deconsolidation, that was a higher-margin business.

As we deconsolidate that, that will have an impact in our operating profit margin.

That's the main driver for why it's a little bit lower in the third quarter.

I'd say technology, just quickly, that, that really hasn't changed very much.

I think we continue to invest in technology.

We've talked about that.

That's in our run rate and that's not really a change from the second quarter to the third quarter.

So that's somewhere in the range of 10 to 15 basis points of investment that we continue to make.

Thanks, Blake.

And that brings us to the end of our second quarter earnings call.

We look forward to speaking with you on our next call discussing the third quarter earnings.

And until then, we wish you a good rest of the summer and hope you have a great weekend.

Thank you.

Thank you.

And that concludes today's conference call.

Thank you all for participating.

You may disconnect now.