Manpower Slumps Despite Strong Quarter

Shares fell Thursday as investors fretted that the employment-services outfit's growth may be slowing

Investors had high hopes for Manpower (MAN). Despite beating analysts expectations and widening profits, those hopes were lowered on July 19 by the staffing firm's second quarter earnings report.

The company reported earnings per share of $1.20, vs. 90 cents a year ago. Its total earnings were $1.86 per share including 66 cents from a change in French payroll taxes. Revenues were up 14.8% and net earnings nearly doubled.

"Expectations going into the quarter were quite high given the economic growth we've been seeing out of Europe combined with the declining dollar," says Mark Marcon, an analyst at Robert W. Baird. Manpower gets less than 10% of its revenue from the U.S., with most of the rest from Europe.

From the beginning of the year through Wednesday, Manpower stock was up 26%. Some analysts gave Manpower's profit announcement good initial reviews, but investors thought otherwise. The stock was down 3.9% on Thursday.

The main culprit? France, where Manpower gets 35% of its revenue and 54% of its profits.

On the one hand, Manpower was helped by a change in France's payroll tax and the falling U.S. dollar. If currencies were held constant, French revenues would be up 8.5%, vs. the 16.2% Manpower reported.

On the other hand, the firm warned that fast growth in France may be slowing. "People get spooked when they see slower growth," says Jeffrey M. Silber, an analyst at BMO Capital Markets.

French revenue could still be up 4% to 6%. Much of the decline may be due to softer construction or manufacturing in France. The French election earlier this year may also have stimulated economic activity that is now cooling off, Baird's Marcon says. (Baird expects to do investment banking business with Manpower.)

Despite the lowered expectations, business in France is much better than in the U.S. "We see the U.S. continuing to be sluggish, and [in] France, a slightly lower rate of growth than what we might have been anticipating a quarter ago," Jeffrey A. Joerres, Manpower's chairman and chief executive, told analysts.

In the U.S., Manpower revenues fell 8.6%. Is that a sign of a weakening U.S. labor market? Analysts say the results do reflect weakness in manufacturing and clerical work, Manpower's specialties. But, Manpower has little exposure to other parts of the U.S. labor market that are doing well.

One curious fact: While U.S. revenues fell, U.S. profits were up 16.2%. That's a sign the firm is going after higher profit business.

There are other positive signs for Manpower. Its other European businesses are booming. Marcon points out that temporary staffing only became legal ten years ago in Italy, but Manpower's Italian profits now exceed those in the U.S.

He says Manpower is well-positioned to benefit from growth in the staffing industry internationally, both in Europe and eventually in India and China.

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