ManpowerGroup (MAN) Rides on Acquisitions, Debt Woe Persists

ManpowerGroup Inc. MAN is currently riding on buyouts, strong pricing discipline and cost control, which are benefitting the top line.  

The company delivered mixed fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. Adjusted EPS of $2.44 outpaced the consensus mark by 24 cents and improved 15.1% on a year-over-year basis. Revenues of $5.39 billion lagged the consensus mark by $152 million and declined 4.3% year over year.

ManpowerGroup has an impressive surprise history. The company beat estimates in three of the trailing four quarters, the average being 4.4%. For the first quarter of 2019, the consensus mark declined 5.6% in the past 30 days.

What’s Driving ManpowerGroup?

The company is currently benefiting from a strong staffing industry, leading to robust manufacturing and non-manufacturing activities as well as higher corporate spending post the tax reform. While the economy continues to create new jobs despite a low jobless rate, a tight labor market is compelling companies to pay higher to attract and retain employees. There are ample opportunities for ManpowerGroup to grow in the United States in the near to mid-term as the demand environment for staffing services is strong.

ManpowerGroup is trying to mitigate the ongoing revenue softness through strong pricing discipline and cost control methods. It continues to witness solid growth in the solutions business, especially in MSP and RPO solutions. In a bid to increase productivity and efficiency, the company is making significant investments in technology. It is implementing front office systems, cloud-based and mobile applications.

ManpowerGroup is consistently acquiring and investing in companies on a global basis to strengthen its diverse portfolio. Buyouts continue to support the company’s top line. Acquisitions contributed 20 basis points (bps) to fourth-quarter 2018 revenue growth rate.

ManpowerGroup Inc. Price

ManpowerGroup Inc. Price | ManpowerGroup Inc. Quote

Risks

Southern Europe, the company’s largest reportable segment (43% of 2018 revenues), is likely to continue to experience staffing margin pressure stemming from competitiveness and employment (CICE) rate decline in France. The rate fall from 7% to 6% of eligible wages will be effective with payroll paid initiated from Jan 1, 2018.

Also, ManpowerGroup has a debt-laden balance sheet that may limit future expansion and worsen risk profile. As of Dec 31, 2018, long-term debt was $1.03 billion, while cash and cash equivalents were $591.9 million.

Zacks Rank & Stocks to Consider

Currently, ManpowerGroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the Zacks Business Services sector are Insperity, Inc. NSP, Information Services Group, Inc. III and Everi Holdings Inc. EVRI. While Insperity sports a Zacks Rank #1, Information Services Group and Everi Holdings carry a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Insperity, Information Services Group and Everi Holdings is 18%, 14% and 20%, respectively.

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