ManpowerGroup (MAN) Shares Drop 2.9% On Q1 Earnings Miss

Premium business services company, ManpowerGroup Inc. (NYSE:MAN) reported mixed first-quarter 2017 results. Quarterly adjusted earnings fell short of the Zacks Consensus Estimate by 1.8%, but revenues surpassed the same by 1.4%. However, share price of the stock dropped 2.89% ($2.99) at the close of the Apr 21 trading session, post the earnings release. We view the company’s weaker-than-expected bottom-line performance during the reported quarter as the primary reason responsible for this negative sentiment.

Quarter in Details

Earnings

Quarterly adjusted earnings came in at $1.09 per share, up 11.2% year over year.

However, the bottom line fell short of the Zacks Consensus Estimate of $1.11.

The company noted that restructuring expenses hurt quarterly earnings by nearly 30 cents per share, however a lower income tax rate benefited the same by roughly 20 cents per share. Notably, ManpowerGroup stated that a strong U.S. dollar (relative to other currencies) also weighed over the company’s quarterly earnings by 3 cents per share in the quarter.

Revenues

Revenues during the first quarter came in at $4,757.2 million, up 3.7% year over year. The top line also exceeded the Zacks Consensus Estimate of $4,690 million.

Segmental Details

ManpowerGroup reports revenues in terms of five segments, primarily classified on a geographic basis.

Sales from Southern Europe totaled $1,803.9 million, up 6.9% year over year. Asia Pacific & Middle Eastern (APME) sales increased 9.7% year over year to $632.4 million during the quarter. Northern Europe revenues during the quarter were $1,238.7 million, up 2% year over year.

However, first-quarter 2017 revenues from Americas came in at $1,026.2 million, down 1.9% year over year. Also, Right Management sales dropped 12.5% year over year to $56 million.

Costs

Total cost of services during the quarter increased 4.1% year over year to $3,969.4 million. Selling and administrative expenses were $660.8 million, up 2.9% year over year. Interest and other expenses were up 17% year over year during the reported quarter.

Margins

Gross profit margin during the quarter was 16.6%, down 30 basis points (bps) year over year. Operating margin contracted 20 bps to 2.7% during the quarter.

Balance Sheet and Cash Flow

Cash and cash equivalents were $724.4 million as of Mar 31, 2017, up from $598.5 million recorded at the end of 2016. Long-term debt at end of first-quarter 2017 came in at $796 million compared to $785.6 million recorded on Dec 31, 2016.

At the end of the first three months of 2017, ManpowerGroup provided cash worth $191 million from operating activities, as against $164.6 million recorded in the year-ago period. Capital expenditure during the quarter was $10.8 million compared with $16.6 million recorded at the end of first-quarter 2016.

Outlook

ManpowerGroup believes that its European business would strengthen in the quarters ahead. The company is poised to grow on the back of productive workforce and sound restructuring initiatives. However, on the other hand, adverse foreign currency translation impact is expected to hamper near-term results.

The company anticipates earnings within the range of $1.67–$1.75 per share in second-quarter 2017. The guidance includes the predicted negative currency impact of 8 cents per share, but excludes the effect of restructuring charges.

Our Take

Bullish factors such as increasing global demand, service diversification and greater operational efficacy are anticipated to drive near-term top- and bottom-line performance for the company. Over the last one month, shares of this Zacks Rank #2 (Buy) stock yielded a return of 1.28%, outperforming 0.58% growth recorded by the Zacks categorized Staffing Firms industry.

Notably, the attractiveness of this stock as a current investment choice is further accentuated by its favorable Vale Growth and Momentum Style Score ‘A’.

However, a stronger U.S. dollar might be a major setback. We even believe that escalating costs, if not checked soon, might trim the company’s margins in the upcoming quarters.

Other Stocks to Consider

Some other similarly-ranked stocks in the same space are listed below:

ABM Industries Incorporated (NYSE:ABM) has a positive average earnings surprise of 16.08% for the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Booz Allen Hamilton Holding Corporation (NYSE:BAH) has a positive average earnings surprise of 1.63% for the last four quarters.

Fiserv, Inc. (NASDAQ:FISV) generated a positive average earnings surprise of 1.20% in the past four quarters.

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