Morningstar | Slightly Lowering Our FVE for Manpower as Europe Continues to Be a Headwind
No-moat-rated Manpower reported weaker first-quarter results as Europe continues to experience an economic slowdown. We expect to modestly lower our fair value estimate primarily due to a slight drop in our operating margin assumption to around 3.50%, reflecting weaker near-term growth in Europe. Manpower reported $5.0 billion of revenue for the quarter, with top-line growth down 9% year over year compared with last year's first quarter. Operating margins decreased 70 basis points to 2.1% from 2.8% year over year.The sluggish economic environment poses a headwind to Manpower with the company's significant revenue exposure (65% of revenue generated in Europe) across the eurozone area. In the first quarter, Germany and the Netherlands continued to experience challenging results as market conditions have slowed further. Nevertheless, the pricing environment across Europe is stable and provides support to bill rates. The firm’s operations in the United States and France offset the weakness in the rest of Europe as demand for IT staffing (in the U.S.) strengthened during the first quarter.
Manpower primarily operates in the temporary placement market (63% of gross profit), making a sluggish economic outlook challenging to future near-term results. Additionally, uncertainty around Brexit and new governments in Italy and Spain may delay managers' hiring plans across Europe. However, we think the firm will continue to expand its operations in higher-margin segments such as permanent placements, Manpower Solutions, and Right Management. Permanent placements in terms of total gross profit mix reached 17.3% from 16.8% year over year.
Finally, the firm is expecting similar results in the second quarter to the first quarter, with revenue growth expected to be down by low to mid-single digits, with Europe as a major near-term headwind. The weakness in Southern Europe is expected to stabilize on the back of stronger growth in France.
ManpowerGroup provides a range of workforce solutions and services, which include recruitment and assessment, training and development, career management, outsourcing, and workforce consulting. The company's family of brands and offerings includes Manpower, Experis, Right Management, and ManpowerGroup Solutions. The company's portfolio of recruitment services includes permanent, temporary and contract recruitment of professionals, as well as administrative and industrial positions. All of these services are provided under its Manpower and Experis brands. The company provides services under its Experis brand, particularly in the areas of Information Technology, Engineering, and Finance.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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