ManpowerGroup(MAN) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1 – Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, recent standards, revenue recognition, share-based compensation, acquisitions, restructuring, income taxes, EPS, goodwill, debt, retirement plans, shareholders' equity, interest and other expenses, derivative instruments, leases, and segment data Consolidated Balance Sheets The Consolidated Balance Sheets show a slight decrease in total assets and total liabilities from December 31, 2021, to June 30, 2022, with cash and cash equivalents increasing, while accounts receivable and current liabilities generally decreased Consolidated Balance Sheet Highlights (in millions): | Item | June 30, 2022 | December 31, 2021 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Cash and cash equivalents | $886.2 | $847.8 | $38.4 | 4.5% | | Accounts receivable, net | $5,343.9 | $5,448.2 | $(104.3) | -1.9% | | Total current assets | $6,401.9 | $6,422.7 | $(20.8) | -0.3% | | Total assets | $9,618.5 | $9,828.9 | $(210.4) | -2.1% | | Total current liabilities | $5,401.1 | $5,780.5 | $(379.4) | -6.6% | | Long-term debt | $942.2 | $565.7 | $376.5 | 66.5% | | Total shareholders' equity | $2,444.8 | $2,531.7 | $(86.9) | -3.4% | Consolidated Statements of Operations For the three months ended June 30, 2022, revenues from services decreased year-over-year, but gross profit, operating profit, and net earnings all increased. For the six months ended June 30, 2022, revenues remained relatively flat, while all profit metrics saw significant increases Consolidated Statements of Operations Highlights (in millions, except per share data): | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | YoY Change | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | YoY Change | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Revenues from services | $5,074.1 | $5,277.1 | -3.8% | $10,217.4 | $10,201.5 | 0.2% | | Gross profit | $921.2 | $860.1 | 7.1% | $1,818.3 | $1,628.2 | 11.7% | | Operating profit | $180.7 | $169.9 | 6.3% | $319.4 | $268.3 | 19.0% | | Net earnings | $122.2 | $111.6 | 9.5% | $213.8 | $173.6 | 23.2% | | Net earnings per share – diluted | $2.29 | $2.02 | 13.4% | $3.97 | $3.13 | 26.8% | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for the three and six months ended June 30, 2022, decreased compared to the prior year, primarily due to significant foreign currency translation losses, partially offset by gains on derivative instruments Consolidated Statements of Comprehensive Income (Loss) Highlights (in millions): | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net earnings | $122.2 | $111.6 | $213.8 | $173.6 | | Foreign currency translation adjustments | $(122.1) | $28.3 | $(158.0) | $(68.2) | | Total other comprehensive (loss) gain | $(71.9) | $15.5 | $(82.1) | $(25.0) | | Comprehensive income | $50.3 | $127.1 | $131.7 | $148.6 | Consolidated Statements of Cash Flows Cash provided by operating activities significantly decreased for the six months ended June 30, 2022, compared to the prior year, mainly due to changes in operating assets and liabilities. Cash used in investing activities increased, while cash provided by financing activities saw a substantial positive swing due to proceeds from long-term debt Consolidated Statements of Cash Flows Highlights (in millions): | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Cash provided by operating activities | $21.3 | $195.4 | | Cash used in investing activities | $(40.7) | $(30.8) | | Cash provided by (used in) financing activities | $143.8 | $(223.8) | | Effect of exchange rate changes on cash | $(86.0) | $(46.5) | | Change in cash and cash equivalents | $38.4 | $(105.7) | | Cash and cash equivalents, end of period | $886.2 | $1,461.4 | | Interest Paid | $18.1 | $20.4 | | Income taxes paid, net | $89.5 | $82.7 | Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from December 31, 2021, to June 30, 2022, primarily due to other comprehensive losses (driven by foreign currency translation) and share repurchases, partially offset by net earnings Shareholders' Equity Changes (in millions): | Item | Balance, Dec 31, 2021 | Balance, June 30, 2022 | Change | | :-------------------------------- | :-------------------- | :------------------- | :----- | | Total Shareholders' Equity | $2,531.7 | $2,444.8 | $(86.9) | Key Activities (Six Months Ended June 30, 2022, in millions): | Item | Amount | | :-------------------------- | :----- | | Net earnings | $213.8 | | Other comprehensive loss | $(82.1) | | Repurchases of common stock | $(160.0) | | Dividends paid | $(71.2) | Notes to Consolidated Financial Statements The notes provide detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, recent accounting standards, revenue recognition, share-based compensation, acquisitions and dispositions, restructuring costs, income taxes, net earnings per share, goodwill and other intangible assets, debt, retirement plans, shareholders' equity, interest and other expenses, derivative financial instruments, leases, and segment data (1) Basis of Presentation and Accounting Policies This note outlines the basis of financial statement presentation, key accounting policies for allowance for doubtful accounts and leases, and the methodology for goodwill impairment testing, highlighting a potential impairment risk for the Netherlands reporting unit Allowance for Doubtful Accounts Rollforward (Six Months Ended June 30, 2022, in millions): | Item | Amount | | :-------------------------- | :----- | | Balance, December 31, 2021 | $121.6 | | Provisions charged to earnings | $6.1 | | Write-offs | $(4.3) | | Translation adjustments | $(7.5) | | Balance, June 30, 2022 | $115.9 | - The Netherlands reporting unit, part of the Northern Europe segment, had a fair value exceeding its carrying value by approximately 5.5% as of the third quarter of 2021. Management is closely monitoring its performance, as failure to meet operating targets could lead to goodwill impairment for the $103.5 million recorded goodwill[39] (2) Recent Accounting Standards The company adopted new FASB guidance on government assistance as of January 1, 2022, with no impact on financial statements. Guidance on contract modifications due to LIBOR transition also had no material impact. New guidance on business combinations, effective January 1, 2023, is not expected to have a material impact - FASB guidance on disclosures about government assistance (effective Jan 1, 2022) had no impact on Consolidated Financial Statements[41] - FASB guidance on accounting for contract modifications due to LIBOR transition (effective upon issuance, applicable through Dec 31, 2022) has not had any material impact[42] - New FASB guidance on business combinations (effective Jan 1, 2023) is not expected to have a material impact[44] (3) Revenue Recognition Revenue is recognized over time for certain client contracts, corresponding to the value provided. Deferred revenue decreased from $34.8 million at December 31, 2021, to $27.3 million at June 30, 2022. The note also disaggregates revenue by service type and timing across reportable segments Deferred Revenue (in millions): | Date | Amount | | :---------------- | :----- | | June 30, 2022 | $27.3 | | December 31, 2021 | $34.8 | Revenue Disaggregation by Service Type (Three Months Ended June 30, in millions): | Segment | 2022 Total | 2021 Total | | :---------------- | :--------- | :--------- | | Americas | $1,262.7 | $1,044.3 | | Southern Europe | $2,201.4 | $2,422.4 | | Northern Europe | $1,027.1 | $1,190.5 | | APME | $603.7 | $619.9 | | Consolidated Total | $5,074.1 | $5,277.1 | Revenue Disaggregation by Timing of Recognition (Six Months Ended June 30, in millions): | Segment | 2022 Services Transferred Over Time | 2022 Services Transferred at a Point in Time | 2022 Total | 2021 Services Transferred Over Time | 2021 Services Transferred at a Point in Time | 2021 Total | | :---------------- | :---------------------------------- | :--------------------------------------- | :--------- | :---------------------------------- | :--------------------------------------- | :--------- | | Americas | $2,435.5 | $78.4 | $2,513.9 | $2,007.0 | $40.2 | $2,047.2 | | Southern Europe | $4,312.9 | $82.4 | $4,395.3 | $4,516.1 | $66.6 | $4,582.7 | | Northern Europe | $2,045.9 | $75.7 | $2,121.6 | $2,266.9 | $57.4 | $2,324.3 | | APME | $1,177.6 | $44.3 | $1,221.9 | $1,206.2 | $41.1 | $1,247.3 | | Consolidated Total | $9,971.9 | $280.8 | $10,217.4 | $9,996.2 | $205.3 | $10,201.5 | (4) Share-Based Compensation Plans Share-based compensation expense increased for both the three and six months ended June 30, 2022, compared to the prior year, reflecting expenses related to various equity awards Share-Based Compensation Expense (in millions): | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30 | $11.0 | $9.4 | | Six Months Ended June 30 | $21.6 | $16.9 | (5) Acquisitions and Dispositions Cash consideration for acquisitions decreased significantly in the first half of 2022 compared to 2021. The company disposed of its Russia business in January 2022, recognizing an $8.0 million net loss. The acquisition of ettain group in October 2021, intended to diversify into higher-value services, resulted in $515.0 million in goodwill and $360.0 million in customer relationship intangible assets Cash Consideration for Acquisitions, Net of Cash Acquired (in millions): | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Six Months Ended June 30 | $1.4 | $13.3 | - Disposed of Russia business on January 17, 2022, for $3.2 million cash proceeds, recognizing a one-time net loss of $8.0 million[54] ettain group Acquisition (October 1, 2021, in millions): | Item | Fair Value | | :------------------------------------ | :--------- | | Goodwill | $515.0 | | Intangible assets (customer relationship) | $360.0 | | Total assets and liabilities acquired | $930.9 | | Carrying value of intangible assets (June 30, 2022) | $342.0 | | Carrying value of goodwill (June 30, 2022) | $515.0 | (6) Restructuring Costs No new restructuring costs were recorded in the first half of 2022 or 2021. Payments of $6.8 million were made from the restructuring reserve, which primarily covers severance and office closures, leaving $16.5 million remaining, expected to be paid by the end of 2023 Restructuring Reserve Changes (Six Months Ended June 30, 2022, in millions): | Item | Amount | | :-------------------------- | :----- | | Balance, December 31, 2021 | $23.3 | | Costs paid | $(6.8) | | Balance, June 30, 2022 | $16.5 | (7) Income Taxes The effective income tax rate decreased to 29.8% for Q2 2022 and 31.0% for H1 2022, favorably impacted by a reduction in the French corporate tax rate and a more beneficial mix of pre-tax earnings. Gross unrecognized tax benefits were $72.6 million as of June 30, 2022, with no significant changes expected in the next 12 months Effective Income Tax Rates: | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30 | 29.8% | 33.2% | | Six Months Ended June 30 | 31.0% | 33.3% | - Gross unrecognized tax benefits, including interest and penalties, were $72.6 million as of June 30, 2022. If recognized, the entire amount would favorably affect the effective tax rate, except for $6.0 million[63] (8) Net Earnings Per Share Diluted net earnings per share increased to $2.29 for Q2 2022 and $3.97 for H1 2022, driven by higher net earnings and a decrease in weighted-average diluted shares outstanding due to share repurchases Net Earnings Per Share (in millions, except per share data): | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net earnings per share – basic | $2.32 | $2.05 | $4.02 | $3.17 | | Net earnings per share – diluted | $2.29 | $2.02 | $3.97 | $3.13 | | Weighted-average common shares outstanding – diluted | 53.4 | 55.4 | 53.8 | 55.5 | (9) Goodwill and Other Intangible Assets Total goodwill decreased to $1,669.9 million as of June 30, 2022, from $1,722.2 million at December 31, 2021, primarily due to currency impact and post-closing acquisition adjustments. Finite-lived intangible assets also saw a slight decrease. Amortization expense for intangible assets is projected to be $18.2 million for the remainder of 2022 Goodwill and Intangible Assets (in millions): | Asset Type | June 30, 2022 (Net) | December 31, 2021 (Net) | | :-------------------------- | :------------------ | :-------------------- | | Goodwill | $1,669.9 | $1,722.2 | | Finite-lived intangible assets | $383.9 | $405.3 | | Indefinite-lived intangible assets | $177.0 | $178.3 | | Total intangible assets | $560.9 | $583.6 | Changes in Goodwill by Segment (in millions, Dec 31, 2021 to June 30, 2022): | Segment | Balance, Dec 31, 2021 | Acquisitions | Currency Impact | Balance, June 30, 2022 | | :---------------- | :-------------------- | :----------- | :-------------- | :------------------- | | Americas | $1,058.9 | $(4.6) | $(1.1) | $1,053.2 | | Southern Europe | $146.7 | — | $(10.6) | $136.1 | | Northern Europe | $313.7 | — | $(29.3) | $284.4 | | APME | $76.9 | — | $(6.7) | $70.2 | | Corporate | $126.0 | — | — | $126.0 | | Total | $1,722.2 | $(4.6) | $(47.7) | $1,669.9 | - Expected total consolidated amortization expense related to intangible assets for the remainder of 2022 is $18.2 million[68] (10) Debt The company entered into a new $600.0 million revolving credit facility in May 2022, replacing the previous one and transitioning to SOFR as the base rate. In June 2022, €400.0 million of 3.50% notes due June 30, 2027, were issued to refinance existing notes, with proceeds used in July 2022 - New Credit Agreement for a $600.0 million five-year revolving credit facility entered into on May 27, 2022, using SOFR as the base rate index[74] - Issued €400.0 million aggregate principal amount of 3.50% notes due June 30, 2027, on June 30, 2022, to repay existing €400.0 million notes due September 2022[77] (11) Retirement Plans Total benefit cost for defined benefit pension plans decreased for both the three and six months ended June 30, 2022, compared to the prior year. Contributions to pension plans were $4.5 million and to retiree health care plans were $0.6 million for the six months ended June 30, 2022 Defined Benefit Pension Plan Total Benefit Cost (in millions): | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30 | $4.0 | $5.4 | | Six Months Ended June 30 | $8.2 | $10.8 | - Contributions made to pension plans were $4.5 million and to retiree health care plan were $0.6 million for the six months ended June 30, 2022[78] (12) Shareholders' Equity Accumulated other comprehensive loss increased to $(471.5) million at June 30, 2022, primarily due to foreign currency translation. The Board declared a semi-annual dividend of $1.36 per share in May 2022. The company repurchased 1.7 million shares for $160.0 million in the first half of 2022, with 3.5 million shares remaining authorized under the 2021 authorization Accumulated Other Comprehensive Loss (in millions): | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Foreign currency translation | $(338.8) | $(180.8) | | Translation gain (loss) on derivative instruments | $53.2 | $(18.4) | | Translation loss on long-term intercompany loans | $(132.1) | $(133.6) | | Gain on interest rate swap | $2.0 | — | | Defined benefit pension plans, net | $(55.6) | $(56.7) | | Retiree health care plan, net | $(0.2) | $0.1 | | Accumulated other comprehensive loss | $(471.5) | $(389.4) | - Semi-annual dividend declared: $1.36 per share on May 6, 2022 (vs. $1.26 in May 2021)[81] Share Repurchases (Six Months Ended June 30): | Year | Shares Repurchased (millions) | Total Cost (millions) | | :--- | :---------------------------- | :-------------------- | | 2022 | 1.7 | $160.0 | | 2021 | 1.5 | $150.1 | - As of June 30, 2022, 3.5 million shares remained authorized for repurchase under the 2021 authorization (13) Interest and Other Expenses, Net Interest and other expenses, net, increased significantly for both the three and six months ended June 30, 2022, primarily due to increased foreign exchange losses and higher interest expense Interest and Other Expenses, Net (in millions): | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest expense | $10.6 | $9.7 | $21.0 | $19.9 | | Interest income | $(2.8) | $(3.1) | $(5.6) | $(6.2) | | Foreign exchange loss | $3.3 | $0.6 | $5.1 | $3.1 | | Miscellaneous income, net | $(4.4) | $(4.4) | $(11.1) | $(8.6) | | Interest and other expenses, net | $6.7 | $2.8 | $9.4 | $8.2 | (14) Derivative Financial Instruments and Fair Value Measurements The company uses derivative instruments, including cross-currency swaps and forward contracts, to manage foreign currency exchange rate and interest rate risks through net investment hedges, cash flow hedges, and fair value hedges. Fair value measurements are primarily based on Level 2 inputs for derivatives and Level 1 for deferred compensation plan assets - Uses cross-currency swaps, forward contracts, and foreign currency denominated debt for net investment hedges to protect the value of net investments in foreign subsidiaries[86] - Uses cross-currency swaps and forward currency exchange contracts for cash flow hedges to manage foreign currency denominated debt and operational expenses[89][91] - Entered into a forward starting interest rate swap in June 2022, accounted for as a cash flow hedge, resulting in a $2.0 million gain upon settlement[93] Fair Value of Derivative Assets (in millions): | Balance Sheet Location | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Accounts Receivable, net | $12.1 | $24.7 | Fair Value of Derivative Liabilities (in millions): | Balance Sheet Location | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Short-term borrowings and current maturities of long-term debt | $419.2 | $454.4 | | Long-term debt | $521.2 | $565.2 | | Accrued liabilities | $13.6 | $29.9 | | Total instruments | $954.0 | $1,049.5 | (15) Leases Total lease expense decreased for both the three and six months ended June 30, 2022. Operating lease ROU assets and liabilities also decreased. The weighted average remaining lease term is 4.9 years, with a weighted average discount rate of 2.3% Total Lease Expense (in millions): | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Three Months Ended June 30 | $36.8 | $40.6 | | Six Months Ended June 30 | $75.6 | $82.5 | Operating Lease Information (in millions, except years and %): | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Operating lease ROU assets | $314.0 | $373.4 | | Operating lease liabilities - current | $101.8 | $110.0 | | Operating lease liabilities - long-term | $222.2 | $275.8 | | Total operating lease liabilities | $324.0 | $385.8 | | Weighted Average Remaining Lease Term | 4.9 years | 5.0 years | | Weighted Average Discount Rate | 2.3% | 2.9% | (16) Segment Data The company operates through four geographic segments: Americas, Southern Europe, Northern Europe, and APME. Revenues from services and operating unit profit (OUP) are disaggregated by these segments, with staffing and interim services forming the majority of revenues Revenues from Services by Segment (Three Months Ended June 30, in millions): | Segment | 2022 | 2021 | | :---------------- | :----- | :----- | | Americas | $1,262.7 | $1,044.3 | | Southern Europe | $2,201.4 | $2,422.4 | | Northern Europe | $1,027.1 | $1,190.5 | | APME | $603.7 | $619.9 | | Consolidated Total | $5,074.1 | $5,277.1 | Operating Unit Profit (OUP) by Segment (Six Months Ended June 30, in millions): | Segment | 2022 | 2021 | | :---------------- | :----- | :----- | | Americas | $153.7 | $100.1 | | Southern Europe | $206.9 | $188.7 | | Northern Europe | $14.1 | $22.7 | | APME | $41.5 | $41.1 | | Corporate expenses | $(77.8) | $(74.5) | | Intangible asset amortization expense | $(19.0) | $(9.8) | | Operating profit | $319.4 | $268.3 | Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources. It includes an overview of business conditions, detailed analysis of operating results for the three and six months ended June 30, 2022, segment-specific performance, and a reconciliation of non-GAAP financial measures Forward-Looking Statements This section serves as a cautionary note regarding forward-looking statements, emphasizing that they are based on current assumptions and subject to risks and uncertainties, including the impacts of the COVID-19 pandemic, the Russia-Ukraine War, and changes in labor and tax legislation - Forward-looking statements are based on management's current assumptions and expectations and are subject to risks and uncertainties beyond control[115] - Key risk factors include impacts of the COVID-19 pandemic, volatile economic conditions (e.g., Russia-Ukraine War, sanctions, supply chain disruptions), changes in labor and tax legislation, and failure to implement strategic technology investments[115] Business Overview The business is cyclical and sensitive to macroeconomic conditions. Foreign currency exchange rates, particularly the strengthening dollar, had a significant unfavorable impact on reported revenues and diluted EPS in Q2 2022. The Americas segment saw revenue growth driven by the Experis acquisition, while European and APME segments experienced declines due to unfavorable exchange rates. Gross profit margin improved due to a favorable business mix and growth in higher-margin offerings - Business is cyclical and sensitive to macroeconomic conditions, with demand for services dependent on labor market strength and workforce flexibility trends[116] - In Q2 2022, the strengthening dollar had a 9.5% unfavorable impact on revenues and approximately $0.25 per share unfavorable impact on diluted net earnings per share[117] Q2 2022 Revenue Changes by Segment (YoY): | Segment | Reported Change | | :-------------- | :-------------- | | Americas | +20.9% | | Southern Europe | -9.1% | | Northern Europe | -13.7% | | APME | -2.6% | - Gross profit margin improved in Q2 2022 due to a favorable change in business mix, growth in higher margin offerings (e.g., permanent recruitment up 34.4%), and improved Manpower staffing margins, partially offset by lower revenues in Right Management[120] Operating Results - Three Months Ended June 30, 2022 and 2021 For the three months ended June 30, 2022, revenues decreased by 3.8% (but increased 5.7% in constant currency). Gross profit increased by 7.1% (16.4% in constant currency), and net earnings increased by 9.5% (21.5% in constant currency). Diluted EPS rose by 13.4% to $2.29, despite a $0.25 per share unfavorable impact from foreign currency Selected Consolidated Financial Data (Three Months Ended June 30, in millions, except per share data): | Metric | 2022 | 2021 | Reported Variance | Constant Currency Variance | | :-------------------------- | :----- | :----- | :---------------- | :------------------------- | | Revenues from services | $5,074.1 | $5,277.1 | (3.8)% | 5.7% | | Gross profit | $921.2 | $860.1 | 7.1% | 16.4% | | Gross profit margin | 18.2% | 16.3% | +190 bps | | | Operating profit | $180.7 | $169.9 | 6.3% | 18.1% | | Operating profit margin | 3.6% | 3.2% | +40 bps | | | Net earnings | $122.2 | $111.6 | 9.5% | 21.5% | | Net earnings per share – diluted | $2.29 | $2.02 | 13.4% | 25.7% | | Effective income tax rate | 29.8% | 33.2% | -340 bps | | - Revenue decrease of -3.8% (5.7% increase in constant currency) was attributed to decreases in Southern Europe (-9.1%), Northern Europe (-13.7%), and APME (-2.6%), partially offset by a 43.7% increase in the United States (12.3% organic)[125][126] - Gross profit margin increased by 190 basis points due to a 90 bps favorable business mix (higher permanent recruitment), 30 bps from improved staffing/interim margins, 30 bps from Experis acquisition, 30 bps from non-staffing Experis margin improvement, and 20 bps from currency changes, partially offset by 10 bps unfavorable Right Management mix[127][128] - Net earnings per share - diluted was unfavorably impacted by approximately $0.25 per share due to foreign currency exchange rates and by approximately $0.04 per share (net of tax) from Experis acquisition integration costs[129] Operating Results - Six Months Ended June 30, 2022 and 2021 For the six months ended June 30, 2022, revenues from services remained flat at 0.2% (but increased 7.7% in constant currency). Gross profit increased by 11.7% (19.2% in constant currency), and net earnings increased by 23.2% (33.9% in constant currency). Diluted EPS rose by 26.8% to $3.97, despite a $0.35 per share unfavorable impact from foreign currency Selected Consolidated Financial Data (Six Months Ended June 30, in millions, except per share data): | Metric | 2022 | 2021 | Reported Variance | Constant Currency Variance | | :-------------------------- | :----- | :----- | :---------------- | :------------------------- | | Revenues from services | $10,217.4 | $10,201.5 | 0.2% | 7.7% | | Gross profit | $1,818.3 | $1,628.2 | 11.7% | 19.2% | | Gross profit margin | 17.8% | 16.0% | +180 bps | | | Operating profit | $319.4 | $268.3 | 19.0% | 29.6% | | Operating profit margin | 3.1% | 2.6% | +50 bps | | | Net earnings | $213.8 | $173.6 | 23.2% | 33.9% | | Net earnings per share – diluted | $3.97 | $3.13 | 26.8% | 38.0% | | Effective income tax rate | 31.0% | 33.3% | -230 bps | | - Revenue increase of 0.2% (7.7% in constant currency) was driven by a 44.9% increase in the United States (13.7% organic), partially offset by decreases in Southern Europe (-4.1%), Northern Europe (-8.7%), and APME (-2.0%)[132][133][134] - Gross profit margin increased by 180 basis points due to a 90 bps favorable business mix (higher permanent recruitment), 40 bps from improved staffing/interim margins, 30 bps from Experis acquisition, 30 bps from non-staffing Experis margin improvement, and 10 bps from currency changes, partially offset by 20 bps unfavorable Right Management mix[134] - Net earnings per share - diluted was unfavorably impacted by approximately $0.35 per share due to foreign currency exchange rates, $0.15 per share from the Russia business disposition, and $0.09 per share (net of tax) from Experis acquisition integration costs[137] Segment Operating Results This section details the operating performance of each geographic segment: Americas, Southern Europe, Northern Europe, and APME, highlighting revenue trends, gross profit margin changes, selling and administrative expenses, and Operating Unit Profit (OUP) margins for both the three and six months ended June 30, 2022 Americas The Americas segment experienced strong revenue growth in Q2 and H1 2022, primarily driven by the Experis acquisition and increased demand in the United States. However, Mexico saw a significant decline due to new labor legislation. Gross profit margins and OUP margins improved across the segment Americas Revenue from Services (Three Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | Organic Constant Currency Variance | | :-------------- | :---------- | :---------------- | :------------------------- | :--------------------------------- | | United States | $903.9 | 43.7% | 43.7% | 12.3% | | Other Americas | $358.8 | (13.6)% | (9.0)% | (9.0)% | | Total Americas | $1,262.7 | 20.9% | 22.7% | 3.8% | - Mexico revenue decreased -60.9% (-60.8% in constant currency) due to labor legislation[140][170] Americas Revenue from Services (Six Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | Organic Constant Currency Variance | | :-------------- | :---------- | :---------------- | :------------------------- | :--------------------------------- | | United States | $1,793.3 | 44.9% | 44.9% | 13.7% | | Other Americas | $720.6 | (11.0)% | (7.5)% | (7.5)% | | Total Americas | $2,513.9 | 22.8% | 24.2% | 5.3% | - Mexico revenue decreased -61.2% (-61.1% in constant currency) due to labor legislation[141][171] - Gross profit margin increased in both Q2 and H1 2022 due to increases in permanent recruitment, improved staffing/interim margins, the Experis acquisition, and higher-margin MSP and RPO offerings[142] Americas OUP Margin: | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Second Quarter | 6.4% | 5.4% | | First Half | 6.1% | 4.9% | Southern Europe Southern Europe experienced revenue decreases in Q2 and H1 2022 due to unfavorable currency exchange rates, particularly in France and Other Southern Europe. Italy showed constant currency growth. Gross profit margins and OUP margins generally improved, driven by permanent recruitment and staffing/interim margins Southern Europe Revenue from Services (Three Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | | :-------------------- | :---------- | :---------------- | :------------------------- | | France | $1,238.2 | (8.1)% | 4.1% | | Italy | $454.3 | (3.2)% | 9.7% | | Other Southern Europe | $508.9 | (16.1)% | (7.8)% | | Total Southern Europe | $2,201.4 | (9.1)% | 2.2% | Southern Europe Revenue from Services (Six Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | | :-------------------- | :---------- | :---------------- | :------------------------- | | France | $2,430.6 | (4.1)% | 5.8% | | Italy | $899.3 | 3.1% | 13.8% | | Other Southern Europe | $1,065.4 | (9.3)% | (2.7)% | | Total Southern Europe | $4,395.3 | (4.1)% | 5.1% | - Gross profit margin increased in both Q2 and H1 2022 due to increases in permanent recruitment business and staffing/interim margins[149] Southern Europe OUP Margin: | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Second Quarter | 5.1% | 4.8% | | First Half | 4.7% | 4.1% | Northern Europe Northern Europe experienced revenue decreases in Q2 and H1 2022, primarily due to unfavorable currency exchange rates and the disposition of the Russia business. Despite this, permanent recruitment business and Experis staffing services showed growth. OUP margin decreased in both periods Northern Europe Revenue from Services (Three Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | Organic Constant Currency Variance | | :-------------- | :---------- | :---------------- | :------------------------- | :--------------------------------- | | Northern Europe | $1,027.1 | (13.7)% | (2.4)% | 0.1% | | United Kingdom | | (15.4)% | (5.8)% | | | Nordics | | (4.1)% | 10.1% | | | Germany | | (19.0)% | (8.3)% | | | Netherlands | | (16.3)% | (5.2)% | | | Belgium | | (9.5)% | 2.4% | | Northern Europe Revenue from Services (Six Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | Organic Constant Currency Variance | | :-------------- | :---------- | :---------------- | :------------------------- | :--------------------------------- | | Northern Europe | $2,121.6 | (8.7)% | (0.3)% | 2.0% | | United Kingdom | | (9.3)% | (3.1)% | | | Germany | | (14.6)% | (5.9)% | | | Netherlands | | (12.7)% | (3.8)% | | | Belgium | | (4.9)% | 4.9% | | | Nordics | | 1.6% | 12.8% | | - Gross profit margin increased in both Q2 and H1 2022 due to increases in staffing/interim margins, a direct cost adjustment, and growth in permanent recruitment business[156] Northern Europe OUP Margin: | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Second Quarter | 1.1% | 1.5% | | First Half | 0.7% | 1.0% | APME The APME segment experienced revenue decreases in Q2 and H1 2022, primarily due to unfavorable currency exchange rates and the exit of a low-margin client arrangement in Australia. Japan saw constant currency growth, driven by permanent recruitment. Gross profit margins improved, but OUP margins saw only slight increases APME Revenue from Services (Three Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | | :---------- | :---------- | :---------------- | :------------------------- | | APME | $603.7 | (2.6)% | 9.7% | | Japan | | (5.2)% | 12.4% | | Australia | | (15.3)% | (8.6)% | APME Revenue from Services (Six Months Ended June 30, in millions): | Region | 2022 Amount | Reported Variance | Constant Currency Variance | | :---------- | :---------- | :---------------- | :------------------------- | | APME | $1,221.9 | (2.0)% | 7.8% | | Japan | | (1.4)% | 12.4% | | Australia | | (24.1)% | (18.6)% | - Gross profit margin increased in both Q2 and H1 2022 due to improved staffing/interim margins and growth in permanent recruitment business[162] APME OUP Margin: | Period | 2022 | 2021 | | :--------------------------- | :----- | :----- | | Second Quarter | 3.7% | 3.6% | | First Half | 3.4% | 3.3% | Financial Measures This section defines and reconciles non-GAAP financial measures, 'constant currency' and 'organic constant currency,' which are used to assess underlying business performance by removing the impact of foreign currency exchange rate changes, acquisitions, and dispositions - Constant currency removes the impact of foreign currency exchange rate changes to indicate actual growth or decline of operations[167] - Organic constant currency further removes the impact of acquisitions in the current period and dispositions from the prior period from the constant currency calculation to show the actual growth or decline of the ongoing business[168] Consolidated Revenues from Services Reconciliation (Three Months Ended June 30, in millions): | Metric | Reported Variance | Impact of Currency | Constant Currency Variance | Impact of Acquisitions and Dispositions (In Constant Currency) | Organic Constant Currency Variance | | :-------------------------- | :---------------- | :----------------- | :------------------------- | :----------------------------------------------------------- | :--------------------------------- | | Revenues from services | (3.8)% | (9.5)% | 5.7% | 3.2% | 2.5% | | Gross Profit | 7.1% | (9.3)% | 16.4% | 5.0% | 11.4% | | Selling and Administrative Expenses | 7.3% | (8.7)% | 16.0% | 4.2% | 11.8% | | Operating Profit | 6.3% | (11.8)% | 18.1% | 8.3% | 9.8% | Consolidated Revenues from Services Reconciliation (Six Months Ended June 30, in millions): | Metric | Reported Variance | Impact of Currency | Constant Currency Variance | Impact of Acquisitions and Dispositions (In Constant Currency) | Organic Constant Currency Variance | | :-------------------------- | :---------------- | :----------------- | :------------------------- | :----------------------------------------------------------- | :--------------------------------- | | Revenues from services | 0.2% | (7.5)% | 7.7% | 3.3% | 4.4% | | Gross Profit | 11.7% | (7.5)% | 19.2% | 5.4% | 13.8% | | Selling and Administrative Expenses | 10.2% | (6.9)% | 17.1% | 4.4% | 12.7% | | Operating Profit | 19.0% | (10.6)% | 29.6% | 10.0% | 19.6% | Liquidity and Capital Resources Cash provided by operating activities decreased significantly in H1 2022 due to increased working capital needs from revenue growth. Capital expenditures increased, and net debt proceeds were substantial due to new notes issuance. The company maintains strong liquidity with a new $600.0 million revolving credit facility and sufficient cash, while continuing share repurchases and dividend payments Cash Provided by Operating Activities (Six Months Ended June 30, in millions): | Year | Amount | | :--- | :----- | | 2022 | $21.3 | | 2021 | $195.4 | - Working capital needs increased in H1 2022 due to strong revenue growth, as accounts receivable collection cycles are longer than payroll payment cycles, leading to a decline in operating cash flows[174][175] Capital Expenditures (Six Months Ended June 30, in millions): | Year | Amount | | :--- | :----- | | 2022 | $41.7 | | 2021 | $24.6 | Net Debt Proceeds (Six Months Ended June 30, in millions): | Year | Amount | | :--- | :----- | | 2022 | $384.7 | | 2021 | $1.2 | - Entered into a new $600.0 million revolving credit facility in May 2022, with $549.6 million available as of June 30, 2022. Also has access to $318.2 million in uncommitted subsidiary credit lines, with $282.8 million available[183][184][185][186] - Declared a semi-annual dividend of $1.36 per share in May 2022[188] - Repurchased 1.7 million shares for $160.0 million in H1 2022, with 3.5 million shares remaining authorized under the 2021 authorization[189] - Aggregate commitments totaled $2,419.3 million as of June 30, 2022, including debt, operating leases, and severance. Guarantees and stand-by letters of credit totaled $805.1 million[190][191] Item 3 – Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the market risk disclosures previously provided in the 2021 Annual Report on Form 10-K - No material changes to market risk disclosures as of the filing date[195] Item 4 – Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022. No material changes to internal control over financial reporting were identified during the last fiscal quarter - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[196] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[197] PART II - OTHER INFORMATION This part includes disclosures on risk factors, equity security sales, audit committee approvals, compensatory arrangements, and a list of exhibits Item 1A – Risk Factors The company's operations remain subject to the risk factors previously disclosed in its 2021 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 - Company operations are subject to risk factors previously disclosed in the 2021 Annual Report on Form 10-K and Q1 2022 Form 10-Q[200] Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The Board of Directors authorized the repurchase of 4.0 million shares in August 2021, in addition to a previous 6.0 million share authorization. During Q2 2022, the company repurchased 1.14 million shares at an average price of $87.60, with 3.5 million shares remaining authorized under the 2021 plan - Board authorized repurchase of 4.0 million shares in August 2021, supplementing a 6.0 million share authorization from August 2019[201] Issuer Purchases of Equity Securities (Three Months Ended June 30, 2022): | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Number of Shares That May Yet Be Purchased | | :----------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------- | :------------------------------------------ | | April 1 - 30, 2022 | 368,229 | $92.31 | 368,229 | 4,276,791 | | May 1 - 31, 2022 | 449,200 | $91.25 | 449,200 | 3,827,591 | | June 1 - 30, 2022 | 324,001 | $77.16 | 324,001 | 3,503,590 | | Total | 1,141,430 | $87.60 | 1,141,430 | 3,503,590 | Item 5 – Other Information This section details the Audit Committee's approval of audit-related and non-audit services provided by Deloitte & Touche LLP and describes a new severance agreement for the Chief People and Culture Officer, Michelle Nettles Audit Committee Approval of Audit-Related and Non-Audit Services The Audit Committee approved various audit-related and non-audit services performed by Deloitte & Touche LLP, including tax return preparation/review, transfer pricing advice, and audit certifications - Audit Committee approved audit-related and non-audit services by Deloitte & Touche LLP, including tax services (preparation, review, consultation), transfer pricing advice, and audit certifications[204] Compensatory Arrangements of Certain Officers A new letter agreement was entered into with Michelle Nettles, Chief People and Culture Officer, on August 4, 2022, providing for severance and post-employment benefits, replacing a similar expiring agreement. The new agreement expires on August 4, 2025, or two years after a change of control - Michelle Nettles, Chief People and Culture Officer, entered into a new letter agreement on August 4, 2022, for severance and post-employment benefits, replacing a similar expiring agreement[205] Item 6 – Exhibits This section lists all exhibits filed with the Form 10-Q, including the new Credit Agreement, Fiscal and Paying Agency Agreement, a letter agreement for an officer, and various certifications and XBRL documents - Key exhibits include the Credit Agreement (May 27, 2022), Fiscal and Paying Agency Agreement (June 30, 2022), Letter Agreement with Michelle S. Nettles (August 4, 2022), CEO and CFO certifications, and Inline XBRL documents[208][210] SIGNATURES The report is duly signed on behalf of ManpowerGroup Inc. by its Executive Vice President and Chief Financial Officer, John T. McGinnis, and Senior Vice President, Global Controller and Treasurer, Donald Mondano - Report signed by John T. McGinnis (Executive Vice President and Chief Financial Officer) and Donald Mondano (Senior Vice President, Global Controller and Treasurer) on August 5, 2022[213]