Q3 2022 ManpowerGroup Inc Earnings Call
Welcome to the manpower group third quarter earnings results Conference call. At this time, all participants are in a listen only mode until the Q&A session of today's conference. This call will be recorded if you have any objections. Please disconnect at this time.
I will turn the call over to manpower group, Chairman and CEO Jonas Prising, Sir you may begin.
Welcome to the third quarter conference call for 2022.
Our Chief Financial Officer, Jack Mcginnis is with me today are you.
Convenience.
We have included our prepared remarks within the Investor Relations section of our website at manpower group Dotcom.
I will start by going through some of the highlights of the quarter and Jack will go through in the third quarter results and guidance for the fourth quarter of 2022.
I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.
Good morning, everyone. This conference call includes forward looking statements, including statements concerning economic and geopolitical uncertainty, which are subject to known and unknown risks and uncertainties.
Payments 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.
Two of our earnings release presentation. Further identifies forward looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures.
Thanks, Jack just last month, we brought together our top 100 manpower group global leaders for the first time since before the pandemic.
It's an energizing time with our leadership team with global clients and thought leaders on talent shortages customer innovation and text disruption, providing us with an energizing outside and inside out perspective.
Headline conclusion was that human capital on skilled talent is at the forefront of every business leaders agenda and likely to remain so as they navigate rapid technology transformation and then uncertain economic outlook.
It would also be remiss of me here in Milwaukee. This morning, not to mention that our leadership event also included an inspiring contribution from the Milwaukee Bucks leadership team.
Third the growth in innovation strategy, culminating in the NBA Championship a couple of years ago and maybe another one this season, which starts Tonight go box.
I'll share more on what we're hearing from our leaders and our clients a little later when I cover our perspective on the labor market.
Turning to our financial results in the third quarter revenue was $4 8 billion up 5% year over year in constant currency or 2% in organic constant currency.
Our EBITDA for the quarter was $171 million.
Adjusting for the U S acquisition integration costs, EBITA was $176 million, reflecting growth of 21% in constant currency year over year.
Reported EBITA margin was three 6% and adjusted EBITA margin was three 7%, earning.
Earnings per diluted share was $2.31 on a reported basis and $2.21 on an adjusted basis.
Adjusted earnings per share increased 32% year over year in constant currency.
What I hear from our leaders and talk to our clients. They confirm that labor markets are still holding up well, despite increasing economic headwinds.
Our own quarterly forward looking manpower group employment outlook survey and other indicators such as historically low unemployment in Europe and better than expected job creation in the U S.
To illustrate a resilient labor market.
At the same time and risks to the global economy has been growing and are having some impact on unemployment confidence elevated inflation energy prices and the Ukraine, Russia conflict remain a top concern as central banks respond with significant interest rate increases we continued to see solid them.
Land across our major markets today, but we know that increasing in Portugal firms may translate into cooling tower demand in some industries and skills ahead.
We continued to see solid demand across our brands in both temporary and permanent hiring across sectors.
P O M permanent placement market demand remains well above our pre pandemic levels of activity as employers continue to prioritize building the right blend of people technology and skills for sustainable growth.
The last two years have taught us that if we remain laser focused on what we can control supporting our people servicing our clients and candidates and executing our DDI strategy. We will continue to strengthen our mix of businesses and overall competitive position.
So at this point our business is now more diversified than ever which I will come back to later and we continued to see strong demand for our higher margin offerings.
We're also beginning to reap the benefits of our technology investments in short, we've never been more ready to navigate uncertainty and to pivot quickly to where opportunity lies.
And I'll now turn it over to Jack to take you through the results.
Thanks, Jonas revenues in the third quarter came in just below the midpoint of our constant currency guidance range.
Gross profit margin came in above our guidance range as adjusted EBITDA was $176 million.
Representing a 21% increase in constant currency from the prior year period, or a 9% increase on an organic constant currency basis.
As adjusted EBIT margin was three 7% and came in at the lower end of our guidance range, representing 50 basis points of year over year improvement or 20 basis points organically.
Due to the significant strengthening of the dollar, particularly against the euro year over year foreign currency movements continued to have a significant impact on our results.
It is important to note that our businesses operate in local currencies and as a result foreign currency translation does not impact cash flow activity within our businesses and the result is largely an accounting item based on reporting translation into U S dollars.
Foreign currency translation drove a 12% swing between the U S dollar reported revenue trend and the constant currency related growth rates.
After adjusting for the negative impact of foreign exchange rates, our constant currency revenue increased 5%.
Due to the impact of net acquisitions, increasing revenue about 3% and slightly more billing days the organic days adjusted revenue increase was about 2% compared to our guidance of 3% at the midpoint.
The slightly lower revenue trend was a result of more modest growth than anticipated in the manpower brand, particularly in northern Europe .
Turning to the EPS Bridge reported earnings per share was $2 13.
Which included eight related to the experienced U S acquisition integration costs.
Excluding the integration costs adjusted EPS was $2 21.
Walking from our guidance midpoint, our results included a softer operational performance of eight cents.
Slightly lower weighted average shares due to share repurchases in the quarter, which had a positive impact of <unk>.
An improved effective tax rate, which had a positive impact of four cents.
The foreign currency impact that was four cents worse than our guidance, particularly due to the euro and pound weakness during the quarter.
And other expenses had a positive <unk> impact.
Next let's review our revenue by business line year over year on an organic constant currency basis, our manpower brand reported revenue growth of 1%.
The experience brand reported revenue growth of 5% and then talent solutions brand reported revenue growth of 10%.
Within power solutions, we continue to see significant revenue growth in our P. O as permanent hiring trends remained strong across our key markets in the third quarter.
Our MSP business saw a slight revenue decline in the quarter as we anniversary significant levels of revenue growth in the prior year period, while right management experienced a slight revenue decline representing an improvement from the more significant decline in the second quarter.
Looking at our gross profit margin in detail our gross margin came in at 18, 3%.
Staffing margin contributed a 60 basis point increase which included strong growth in higher margin business and experienced U S and.
In addition, the experienced U S acquisitions separately added 30 basis points.
Permanent recruitment contributed a 50 basis point GP margin improvement is hiring activity continued to be strong across our largest markets.
Power solutions contributed 10 basis points of improvement and other items represented a positive 20 basis points.
Moving on to our gross profit by business line during the quarter manpower brand comprised 56% of gross profit.
Our experienced professional business comprised 27% and talent solutions comprised 17%.
During the quarter, our consolidated gross profit grew by 9% on an organic constant currency basis year over year.
Our manpower brand reported an organic constant currency gross profit increase of 6% year over year.
Organic gross profit in our experience brand increased 14% in constant currency year over year.
This reflects strong growth in higher margin solutions as well as the continued strength of permanent recruitment.
Organic gross profit in town solutions increased 17% in constant currency year over year.
This was driven by the strong performance in our P. O discussed earlier, which was partially offset by a slight decrease in MSP as we anniversary strong growth in the prior year period, and a slight decrease in right management.
Our SG&A expense in the quarter was $717 million, excluding acquisition integration costs, SG&A was 14% higher on a constant currency basis, and 9% higher on an organic constant currency basis.
This reflects continued investment in the growth sectors of the business, primarily reflecting additional recruiters and sales personnel and experienced RPE L and various growth opportunity markets and manpower.
The underlying increases consisted of operational costs of $62 million.
Incremental costs related to net acquired businesses of 33 million offset by currency changes of $74 million.
Adjusted SG&A expense as a percentage of revenue represented 14, 8% in the third quarter.
The Americas segment comprised 26% of consolidated revenue.
Revenue in the quarter was $1 2 billion, an increase of 27% in constant currency or 8% on an organic constant currency basis.
OUP was 71 million as adjusted OUP was $77 million and OUP margin was six 2%.
The U S is the largest country in the Americas segment, comprising 72% of segment revenues.
Revenue in the U S was $887 million, representing a 37% days adjusted increase or 7% organically compared to the prior year.
As adjusted to exclude acquisition integration costs.
Your P for our U S business was $60 million in the quarter, representing an organic increase of 14% as.
As adjusted OUP margin was six 8%.
Within the U S. The manpower brand comprised 25% of gross profit during the quarter.
Revenue for the manpower brand in the U S increased 3% during the quarter, our consistent trend from the 3% growth recorded in the second quarter.
The experience brand in the U S comprised 46% of gross profit in the quarter.
With an experienced in the U S. It skills comprised approximately 90% of revenues.
Experienced U S had another very strong quarter with revenues growing 16% organically.
The acquired U S experienced business had solid revenue growth during the quarter and the integration is largely complete with some final activities wrapping up early in the fourth quarter.
Power solutions in the U S contributed 29% of gross profit and experienced revenue growth of 6% in the quarter.
This was driven by our P O as permanent hiring programs were active in the third quarter.
U S. MSP business saw slight revenue decline as we anniversary significant growth in the prior year period, but continued to perform well.
Within right management career transition activity increased as we began to anniversary record low levels of activity in the U S and the prior year period.
In the fourth quarter, we expect a lower rate of revenue growth as compared to the third quarter trend in the U S, which reflects continued growth in experience offset by softening manpower and talent solutions demand.
Southern Europe revenue comprised 42% of consolidated revenue in the quarter.
Revenue in Southern Europe came in at 2 billion, representing a 1% decrease in organic constant currency.
<unk> P equaled $100 million and OUP margin was four 9%.
France revenue comprised 57% of the southern Europe segment in the quarter and increased 3% in constant currency.
OUP was $57 million in the quarter and OUP margin was four 9%.
Although Russia, Ukraine related supply chain disruptions continue to impact the automotive construction and logistics sectors in France throughout the third quarter, the revenue trend stabilized with France, experiencing a relatively steady and slightly better than expected growth rates during the quarter.
We are expecting the year over year constant currency revenue growth rate in the fourth quarter from France to be similar to the third quarter growth rate.
Revenue in Italy, equaled $395 million in the quarter, reflecting an increase of 3% and days adjusted constant currency.
OUP equaled 29 million and OUP margin was seven 3%.
As we continue to anniversary significant revenue growth in the prior year period, we estimate that Italy will have a slightly lower constant currency revenue trend in the fourth quarter compared to the third quarter.
Our northern Europe segment comprised 20% of consolidated revenue in the quarter.
Revenue of 954 million represented a 1% decline in organic constant currency.
OUP represented $13 million and OUP margin was one 3%.
Our largest market in northern Europe segment is the UK, which represented 37% of segment revenues in the quarter.
During the quarter UK revenues decreased 4% on a constant currency basis.
This includes the exit of certain low margin arrangements replace with higher fee base margin business as well as an increased exposure to resilient public sector work.
We expect a slightly improved revenue trend in the fourth quarter compared to the third quarter decline.
In Germany revenues decreased 13% in constant currency in the third quarter.
As we have discussed in the past, Germany remains one of our most difficult markets due to the regulations impacting management of the bench workforce the outsized impact of the automotive sector and the continued supply chain disruptions brought on from the Russia, Ukraine War.
We have taken actions to improve our Germany business and are progressing various initiatives focused on business mix and operational improvements.
Overall in the fourth quarter, we are expecting a slightly improved level of revenue decline compared to the third quarter.
The Asia Pacific Middle East segment comprises 12% of total company revenue in the quarter revenue grew 12% in constant currency to $587 million.
<unk> was $24 million and OUP margin was 4%.
Our largest market in the <unk> segment is Japan, which represented 44% of segment revenues in the quarter.
Revenue in Japan grew 12% in constant currency or 11% on a days adjusted basis.
We remain very pleased with the consistent performance of our Japan business and we expect continued strong revenue growth in the fourth quarter.
I'll now turn to cash flow and balance sheet and our nine months year to date free cash flow equaled $233 million compared to $343 million in the prior year.
In the third quarter free cash flow was very strong and represented $254 million compared to $172 million in the prior year.
At quarter end days sales outstanding increased just under one day at 59 days.
Capital expenditures represented 14 million during the third quarter.
During the third quarter, we repurchased 1.14 million shares of stock for $85 million.
As of September 30th we have two 4 million shares remaining for repurchase under the share program approved in August of 2021.
Our balance sheet ended the quarter with cash of 527 million and total debt of $896 million net.
Net debt equaled 369 million at quarter end.
Our debt ratios at quarter end reflect total adjusted gross debt to trailing 12 months adjusted EBITDA of 1.17.
And total adjusted debt to total capitalization at 27%.
Our debt and credit facilities summary reflects the new Euro note issuance maturing in June of 2027 at an effective interest rate of 351, 4%.
In accordance with the timeline, we communicated when we announced the U S experienced acquisition, we repaid the remaining $50 million, which was drawn on the revolving credit agreement during the quarter.
Next I'll review, our outlook for the fourth quarter of 2022.
Our guidance continues to assume no material additional COVID-19, our Russia, Ukraine War related impacts include.
Leading supply chain and energy related disruptions in Europe beyond those that exist today.
On that basis, we are forecasting underlying earnings per share for the fourth quarter to be in the range of $2 11.
The $2 19.
Which includes an unfavorable foreign currency impact of 38 cents per share.
We have disclosed our foreign currency translation rate estimates at the bottom of the guidance slide.
This does not include the impact of the final portion of our projected acquisition integration costs of $3 million to $5 million, which will continue to be broken out separately from ongoing operations.
Our constant currency revenue guidance range is between a decrease of 1% and an increase of 3% and at the midpoint represents a 1% increase.
So organic days adjusted basis, as we have now anniversaried. The U S experienced acquisition the impact of net dispositions increases the revenue growth slightly and along with a lower number of billing days, our organic constant currency growth rate represents 2% at the midpoint.
This represents a stable trend from the third quarter revenue growth on the same basis.
We expect our EBITDA margin during the fourth quarter to be up 20 basis points at the midpoint compared to the prior year.
We estimate that the effective tax rate for both the fourth quarter and the full year of 2022 to be 30%.
As we consider the tax rate for 2023 as part of the preliminary 2023, France budget. The French government has announced the intention to reduce the remaining French business tax known as C V E by 50% in 2023.
The current proposal also then intends to fully abolished the remaining French business tax in 2024.
If this preliminary budget provision is finalized as drafted this initiative has the potential to reduce our global effective tax rate by approximately one 5% in 2023, bringing.
Bringing our consolidated effective tax rate to 28, 5%.
And by another one 5% in 2020 for bringing the global tax rate down to 27% at that time.
We will continue to monitor any developments on this proposal, including any potential offsetting provisions who will provide an update on our year end earnings call.
As usual our guidance does not incorporate restructuring charges or additional share repurchases and we estimate our weighted average shares to be $51 7 million.
I will now turn it back to you honest.
Thanks Jack.
Our last call we focused on the Digitization component of a digitize diversify and innovate strategy.
Today, I will share progress around our diversification.
Our business mix continues to shift towards our higher value brands with our higher margin businesses experiment talent solutions, representing 44% of our gross profit up from 35% in 2019.
Our manpower brand is also seeing good opportunities to diversify towards specialized skill sets both in perm and temporary staffing and reflected in improved gross margins for that brand as well.
Experience is a key part of our diversification strategy and earlier. This month, we celebrated one year since our acquisition of the attain group in the U S. We.
We are very pleased with the excellent contributions of the team and integration into experience strengthening our offerings in digital workspace business transformation enterprise applications and cloud infrastructure and experience has provided an all time high contribution of 27% of manpower group gross profit year to date.
Experience is now positioned as one of the largest IP resourcing and solutions provider in both the global market and in the U S.
Those strong capabilities in the Resourcing and solution space have also been recognized by leading industry analysts experience was recently named a leader and star performer in Everest group's U S contingent staffing services peak matrix assessment, which highlight our delivery capabilities our proprietary AI.
Tabled tools that chart personalized career paths for our key professionals.
As well as the breadth of our upskilling offerings, including experienced career accelerator and experienced a cat.
In addition to our leading experienced business, we continued to accelerate our diversification strategy with the growth of our talent solutions brand.
There are two other little offerings have recently been recognized with our talent solutions type thing managed service provider MSP once again, achieving global leader and star performer acknowledgment in Everest group's peak matrix assessment. This is the ninth consecutive year. We've received this designation scoring high.
Really for technology innovation, including until they reach our self service business intelligence platform that enables to scripted and predict their program performance and market data.
With our diverse business mix of leading global brands more and more companies are turning to us for expertise to enable them to manage uncertainty.
Obtaining the operational and strategic flexibility to accelerate the digital transformation and drive workforce trends addressing societal value at scale.
Sustainability and accelerating ESG progress continued to be a top priority for our clients and stakeholders.
So proud to have published our second annual working to change the World plan in September .
The charts are significant progress around our planet people and prosperity and principles of governance, and notably a reduction of direct emissions by 39%.
Social mission progress by addressing the growing structural skills shortages.
We are committed to leading in this space and leveraging our science based approach embedding ESG and our business strategy and focusing our contributions have solutions around our human capital expertise and capabilities.
Building on our doing well while doing good foundation.
On that note I was pleased to expand our commitment to supporting refugees through our partnerships with welcome U S and as co host of the 10th partnership for refugees U S business Summit, where we joined 40, plus leading companies and committing to higher more than 22000 refugees over the.
Next three years with similar initiatives ongoing elsewhere in the world as well.
In closing, we see strong labor markets and continued solid demand, but we acknowledge that downside risks have significantly increased for the global economic outlook.
Our experienced global leadership team knows they have to have one foot on the accelerator for market opportunities and the other on the brake whether slowing demand and we're confident in our ability to successfully navigate whatever market changes lie ahead.
With that I'd now like to open the call to Q&A operator.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by the number one please make sure. Your line is on mute it and record your name after the prompt to cancel your request. Please press star two once again to ask a question that will be star followed.
By the number one.
Our first question is coming from the line of Andrew Spiderman of J P. Morgan Your line is open.
Hi, Good morning, this is Stephanie filling in for Andrew.
And my question is if we have a garden variety type of recession in the U S. In 2023.
Your view do you think labor will stay relatively tight and necessary does that hold back a strong economic recovery post recession.
Good morning, Stephanie.
You know labor markets in the U S remain very tight even at this point and if.
If we see some slowdown in the economy most economies.
Predict a loosening of the tightness, but it moves from very tight to maybe tight at 4.5% to 5%. If you look at the various ranges of those estimates.
And we think that that would be enough to bring wage inflation down further from where it is today, we believe wage inflation in the U S. S peaked earlier in the year, but it has not come down as quickly as we would've expected and the main reason for that is the lack of supply a workforce participation rate is.
Still significantly lower than it was pre pandemic and if you were to count the influx of people into the labor market that should have occurred.
That hasn't happened either so we don't have that in a shortfall in supply and that's what's keeping the wage inflation on the tightness of the labor market in the U S. At the same level. So we still think that this.
Softening all the labor market would be a very good environment for our business as companies navigate uncertainty they want the operational and strategic flexibility. So we think it is if that is what happens it is something that we're well equipped to manage.
Great. Thank you.
Okay.
Thank you. Our next question is coming from the line of Jeff Silber of BMO capital markets. Your line is open.
Thank you so much in the press release, you talked about taking some necessary cost actions in parts of your business that are experiencing slower market demand I know in your prepared remarks, you talked a little bit about Germany, but I'm. Just wondering if this is something youre doing in any other regions. Maybe you can give us a little bit of color in terms of the type of actions you're taking.
Thanks for the question Jeff. This is Jack Yeah, I'd be happy to talk to that so.
Really what that reflects is a bit of a balancing so while there continue to be great opportunities and we talked a lot about experienced U S performance in the U S. We're certainly investing in producers there and continuing to capture that market growth on the flip side as you know in some of those markets. So we did note that northern.
Europe was a bit softer during the quarter.
You know we are balancing that so where demand has softened and certainly you you heard us talk about automotive as well we are taking actions in those parts of the business to balance that and as we've talked about in the past you know people are about two thirds of our overall cost so that means making sure that worldwide.
Rising the workforce against those those sectors that we deliver into so we are doing that we will continue to do that we'll monitor the trends very closely.
That being said, there's still some very very good opportunities for us in manpower and we're seeing that across a lot of our European markets. So acknowledging parts of the sectors that are slowing a bit taking the actions we need to to make sure we're balancing that appropriately with the workforce.
And then also in areas, where we had been investing in specializations pump continues to be a great.
Area of investment for US, we're seeing really good returns on as well. So it will we will continue to be a balance in this environment that it is getting a bit tricky as we see some areas of softness but still good opportunities. So it's just getting that balance right. So that we can preserve margin and the parts of the business that we're seeing a bit soft.
Trends.
Okay. That's really helpful. If I could shift over to capital allocation I know M&A is massive type private top priority of this company, but you know you'd have done some selective M&A in the past.
Are you seeing expectations from potential sellers in terms of valuation multiples come back a little bit as we've seen the correction in the public company multiples.
Okay, I'd say Jeff.
And as we've said in the past I like the way you frame that we prefer organic growth that's certainly been our strength.
But we you know as we showed with the team there are circumstances, where if there is a good opportunity and we think it's a great cultural fit.
That could be a really good addition to our existing experience business and you know as we speak today, we're anniversarying.
That acquisition, it's been 12 months and that's what got grade as you heard in our prepared remarks, I'd say in terms of the environment you know I'd.
I'd say, it's probably a little too early to tell Jeff whether we're seeing valuation changes out there in in the professional staffing.
Staffing market I think if you look at the trends and if you just look at our experience business, 16% organic growth in the U S.
Holding up very very well so demand is still out there it's still quite strong. So I think it's a little too early to tell whether there's going to be any.
Any significant valuation changes in that sector.
Okay I appreciate the color. Thanks, so much.
Thank you. Our next question is from the line of Manav Patnaik of Barclays. Your line is open.
Hi, Good morning. Thank you for taking the question. This is actually Gonna Kennedy often manav.
Yes, usually uncertainty is good for temp staffing.
But then you know on the other end of that two months potentially could be bad just wanted to get your assessment as to where we are now and how should we how.
How we should think about the risks given the current macro backdrop and outlook.
Okay.
The.
The prepared remarks really covered or are you know observations that we see continued solid demand and good cross a good growth across all of our brands in Q3, but that the Mac.
Macroeconomic backdrop has certainly worsened.
But what you're referring to is is really uncertainty in an environment of good demand is good for us and I think our results in the third quarter and outlook into the fourth quarter really illustrates that point because we are looking into the fourth quarter with continued solid demand and expect the business to perform well.
And we're not really seeing any changes from what we've seen in Q3.
Okay. Thank you for that and a follow up if I may what kind of.
Cognizant of the comments in the prepared remark and in response to the question just now what our leading indicators.
Look out into 2023.
What is the visibility like what could we expect to see should there be a deterioration in demand or otherwise.
Well a lot of our business PMI is a good indicator that you can look at and the whilst we've seen some softening in PMI both in the U S and Europe both of them both of those regions are hovering around the 50, mark slightly below in Europe slightly above.
Here in the U S. So that is an indicator one could look at we tend to be concurrent with the economic cycle ahead of any labor market changes, but at this point and I emphasize at this point, there's no sign all the material slowdown in our business as you can tell from our outlook.
Moving into the fourth quarter, we know that things can change very rapidly as we saw during the pandemic.
But at this point, we're not seeing any signs beyond the con.
Concerns or some hesitation on the part of some employers and some skills and or in some market segments, but overall demand remains solid and we're not seeing any indications of a rapid downturn in our business at least into the fourth quarter.
Thank you very much I appreciate it.
Thank you. Our next question is from the line of Mark Marcon of Baird. Your line is open.
Good morning.
I wanted to ask a short term question and a long term question with regards to the short term question.
The guidance for for Southern Europe up 3% constant currency, Northern Europe , you know flat Earth alerts.
I'm wondering can you talk a little bit about like what the exit rates were in September and.
Now going into early October .
And to what extent, you're you have a you know a high level of confidence that there won't be any further deterioration.
Some of those markets that would enable you know southern Europe to continue to be up 3% or any areas that are you actually might be seeing some improvement because as.
As Jack knows you know a lot of investors are are you know really worried about the European macro environment.
Sure I'd be happy to take that Mark. So that's your you're starting with the short term and yeah, I'd say on southern Europe to give you a little more color on how we exited the quarter.
I think very much in line with the quarter overall for the most part so starting with France, we talked about the 3% growth rate for the quarter overall I think as we exited really right in line with that same level.
Of 3%, so and you know as we go to your other part of the question regarding what we're seeing in October similar trends you know, it's still early but I'd say the first half of October is running.
Really much in line with what we were seeing in the second half of September so very consistent and our guide for the fourth quarter at basically 3% for France, saying in line with the same trend from the third quarter really reflects just a stable environment and you know as we as we mentioned it really was good to see.
France stabilize in the third quarter, we did see a declining revenue rate in the first half of the year pretty progressively and that stopped which was good and it leveled out beginning in June which looked like the low point and we've seen some nice increases since then so it's been holding at that level and that's what we.
We're using for the guide.
Say, Italy.
Pretty similar story I think.
We always know that August is a bit of a tricky month with the with the summer holidays, but when we look at the overall quarter overall, 3% was our days adjusted growth for the quarter overall, we exited the quarter, maybe just a tad a tad higher than that which was good.
And I'd say as we look into October so pretty pretty much in line with with what we guided for.
Just to be down slightly from the second third quarter level, just based on the anniversary some very significant growth in the year ago period, So, Italy, we feel good about Italy is performing well just anniversarying some very significant growth. So I'd say those are the two big businesses for us in southern Europe that moved the needle and that would.
Give you a bit of a color on the overall trend.
Into the fourth quarter.
Great and then.
You mentioned that the U K might actually improve you know that would be.
You know different than a lot of people would expect over on this side of the pond.
What what are some of the key areas of improvement within the U K just to stay on the short term.
Yeah. So.
You're right market U K certainly isn't the headlines even this morning, as we speak I would say.
You know that the item that has been a very good development in our U K business is the amount of public sector work. The business does overall, it's about a third of the book overall as you know that's a very resilient.
Part of our sector to be providing into and and that's that's a big a big part of the equation for us that gives us confidence in the U K business I'd say, you know going into the fourth quarter seasonally there is theres a good uptick in business in the U K as well.
And as Jonas said based on demand at the moment.
That continues to be pretty strong and I know there were some questions about 2023 overall.
We get pretty good visibility in our order books for the next three months and that's how we do our forecast for the next quarter going ahead, and I'd say on that basis, I think we feel pretty good.
That the UK will have.
A pretty good fourth quarter I think the other item that's been.
Strong in the U K as problem they had a very strong quarter in the.
Third quarter on Perm recruitment.
It is.
As well so I think on an overall basis, we feel pretty good about that we have talked about the U K adjusting the book of the business a bit and that has impacted the growth rate and again, that's backing away from some lower margin arrangements and replacing them with some higher margin arrangements.
And that's had a bit of an impact on the growth rate and we expect a bit of that to start to anniversary in the fourth quarter as well.
That's great and then longer term question you know between.
Experience and talent solutions, becoming an ever increasing percentage of the gross profit.
D G I initiatives.
I'm wondering how should we think about it you know obviously, there's a lot of concerns from a very short term perspective in terms of a macro downturn, but in terms of the next upcycle.
How could how would manpower look in terms of kind of the mix in terms of but gross profit coming from some of your higher margin areas and.
And then when we factor in D D I and some of the efficiency initiatives. There what are the longer term implications as it relates to you know longer term margin objectives.
Yeah, No sure Mark I'd be happy to talk to that as well. So you know as you know as you always talked about in the prepared remarks experienced in town solutions now at 44% of our gross profit.
Experience set an all time high at 27%.
What you know.
What that means as we go forward.
You know that that's going to continue to impact.
You know our overall opportunity to continue to expand EBITDA margin and I think you're seeing it in the results today and the year over year of 50 basis points EBITDA margin improvement organically 20, and I think as that business continues to grow and if I. Even if you look at the last couple of quarters experienced some talent solutions have.
Had the highest growth overall and we expect that to continue for experience certainly experience the market remains very strong and as that as they grow faster that will continue to improve that business mix. So as we go forward you should expect that that 44.
Percent will continue to edge up and become a bigger part of the overall pie and that will help our margins and we will continue to make the business more resilient as we go forward.
As well so I'd say those are some of the key aspects you talked about DDI and technology and we did indicate in the prepared remarks, we're starting to see some of the benefits of those so that's been a great accomplishment for us with <unk>.
With all of the implementations we've done.
Our new cloud based power suite fun office system on substantially all of the business is on it now and we're starting to see some great benefits. So that combined with the mix shift will start to see greater and we are seeing it recruiter productivity and some of the large markets, we've implemented and that will also.
Be a bit of a tailwind on GP margin and overall.
Efficiency on an overall basis. So all of those equate to what you should expect to be a stronger margin profile in in a recovery as we as we come out of a downturn for the next downturn.
Great. Thank you so much.
Oh.
Thank you. Our next question is from the line of Tobey Sommer of Jewish Securities. Your line is open.
Hey, Good morning. This is Josh for a bad bond for Toby looks like another strong quarter for Perm I was curious are you seeing the firm orders holding up through October and maybe you could frame your overall expectations for pork Perm in the fourth quarter guide.
We're still seeing good demand for apartment and you know we are now anniversarying some extremely strong prior year quarters, the third and the fourth quarter, but still we're seeing a very good perm demand coming.
Coming across all of our brands and you know we are expecting this to come down a little bit into the fourth quarter, but overall the levels of demand are still well above the pre pandemic levels. Some of the investments that we are making that Jack talked about earlier is to continue on our apartment.
<unk> across the brands, so we expect to see a slightly lower.
Growth next quarter, but still very good performance for all of our Perm activities.
Thanks, So then unexpired with U S. A I wanted to ask how clients are managing it spend in the current environment.
There's been some headlines around tech companies pulling in on hiring and was curious if you're seeing any impact there.
We work with all kinds of companies and one of the great strengths of our experienced operation here in the U S is a very strong presence in convenience as you're well aware of the shortage of skills in the market means that the talent that leaves the larger organizations.
<unk> is very quickly picked up by the market and smaller organizations that are likely to find more talent. So we actually think that you know right now what you're reading in the headlines gets absorbed very quickly into the market because demand for talent is still very strong.
Thanks for taking my questions guys.
Thank you. Our next question is from the line of Heather Bosky of Bank of America. Your line is open.
Hi, Good morning, Thank you for taking my question.
Can you talk a little bit about your guide for <unk> with regards to the manpower brand and you.
You talked about slightly slower growth I think it's the quarter just curious what you're seeing there and then a second question on Europe .
Kind of the biopsy here ahead of where you're still seeing what industries, where you're seeing strength and where you may have seen some softening in southern Europe . Thanks.
Yeah.
Thanks, Heather for the question Yeah. So I'd say, we don't we don't really give guidance by brand, but what I would say is if you look at Europe as we've talked about in the past Europe certainly is.
Majority manpower business. So as you look at the guide for Europe , That's a pretty good read through.
Of what we're expecting so I'd say on an overall basis.
Southern Europe , we're looking as we talked about a little bit earlier, it's fairly stable. So France is looking stable as we've talked about previously and I'd say, Italy, we still feel good about Italy is still expanding associates on assignment out, but we're anniversarying some very large growth so.
Italy had very strong OUP margin in the quarter, we expected to lead to have a very strong fourth quarter as well so.
I'd say on that side that that continues to look fairly stable to strength in the fourth quarter.
On the flip side as we've talked about.
I'd say you know some of the bench countries, Germany and.
Now the lens.
There continues to be a bit more softness and you can see that in the revenue trend. So I'd say on an overall basis, we would expect those businesses to continue to show revenue decline in the fourth quarter, but you know I think as we anniversary the prior year period, there's some.
<unk> for a slightly improved level of decline in those businesses as we get to the year end and based on some year end seasonal work as well and I think we had a good discussion on the U K earlier, which is a big part of northern Europe .
Segment overall, and we feel good about the.
The composition of the book there with the sectors that we're focused on.
U K does not have large exposures to automotive like we have in Germany, and France. So U K I think has an opportunity to show slight improvement from the third quarter trend into the year end period. So.
And maybe the last one that we haven't really talked too much about.
Are the Nordics in the Nordics are two large businesses in the Nordics, Norway and Sweden.
And you know combined good 6% growth in the third quarter and I'd say more of the same into the fourth quarter. Those businesses typically have a strong fourth quarter that is making its way into the overall region. Overall. So you should expect mid single digit revenue performance from them.
Well so that's.
That kind of gives you a bit of a flavor of some of the bigger European businesses with manpower exposure. Yeah. I appreciate that I guess and I apologize I was curious in prior quarters, you talked a little bit about autos and construction and how those sort of verticals are trending up.
Curious about about that thank you sorry about that.
So Heather we're not seeing really any material improvement in automotive at this point construction is still a challenge in some of the markets across Europe .
But the manufacturing demand remains.
Solid so there's no real change to what we've seen in this quarter and as we project into the.
The fourth quarter. So the same sectors, where we saw weakness in prior quarters and really that's driven the weakness all the way through the year and notably.
The motive in some of our markets.
Some logistic weakness as.
Commercial as far as e-commerce appears to be waning somewhat compared to the pandemic.
That is also a noticeable and some in some markets, but broadly speaking most industries and segments are showing solid demand also until the fourth quarter.
Thank you I appreciate that.
Yes.
Thank you we will take one more question from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks, good morning.
Supply chain disruptions are continuing to weigh on the automotive construction and logistics sectors in France, you mentioned that stable outlook, what factors could drive upside and downside to a stable outlook.
So there could be a number of things working in our favor should they occur. The first one obviously would be a cessation of hostilities between Ukraine, and Russia, which seems very unlikely.
A significant drop in energy and food prices, which of course is also very related to the first so those would be clear upsides and really the reverse of that.
It would be the continued conflict worsening energy and food prices and difficulty for the.
Central banks to get inflation rates, and and we're talking about nominal inflation here down to a more manageable level fast enough and if they don't see that happening you know I'm sure that many economists are saying they will increase the rates and the.
Risk of a hard landing becomes much greater so those would be the you know both the opportunities what would change the picture and what could make it worse, but I should note, though that.
At this point the labor markets are still very resilient.
And all of them are below pre pandemic levels in terms of their unemployment rates.
So employers are looking for talent they keep on hiring and that is what you see reflected in our outlook in Boston our results for the third quarter as well as our outlook into the fourth quarter.
Very helpful.
Mentioned that Germany is being negatively impacted by regulations affecting the management of the bench workforce can you discuss the regulations and quantify the impact of manpower.
We can't really quantify it but I would say the regulations had been there for a number of viewers and that just makes the Germany, a very complex market to navigate we have our own issues that we're working on addressing we had a heavy reliance on automotive which used to be a very good sector for us and it is now.
Clearly a drag and has been for some time, so we need to rebalance our business mix and where we're pulling all the levers you would expect us to do to turn that business around but as Jack mentioned as well the markets, where you had bench models, where the employees the temporary staff all our permanent employees.
<unk> is more susceptible to higher margin pressure due to sickness absenteeism and there as well the legislation changes that have occurred over the past couple of years and it just makes it more challenging and it makes it makes it takes us longer to turn that business around but we have we are market issues, but we also have our own issues that we're addressing.
And we will we will keep making progress.
On that business.
Very helpful. Thank you.
Thank you at this time speakers, we do not have any further questions on queue.
Alright, thanks, everyone and thanks for all your questions and that concludes our third quarter earnings call and we look forward to speaking with you on our fourth quarter earnings call in a few months. Thanks, everyone.
Thank you for participating in today's conference you may now disconnect.