ManpowerGroup: Above-Expectations Results And Guidance Support A Buy Rating

seekingalpha04-19

ManpowerGroup's first quarter EPS and second quarter bottom-line guidance were better than what Wall Street had predicted.The stock boasts a consensus FY 2024 dividend yield of 4%, and the company has...

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(NYSE:MAN) stock is rated as a Buy. My previous February 8, 2022 write-up assessed ManpowerGroup's results for the final quarter of 2021. The current update focuses on the takeaways from MAN's recently disclosed financial metrics. Both MAN's actual Q1 2024 bottom line and its forward-looking Q2 2024 earnings guidance were ahead of the market's expectations. The stock's potential shareholder yield is also appealing. I still award a Buy rating to ManpowerGroup, after taking into account its financial performance, financial prospects and capital return. The Analysts' View Of MAN's Expected Q1 Performance The sell side had a cautious view of ManpowerGroup's Q1 2024 results prior to the company's actual earnings release on April 18. Specifically, both MAN's top line and bottom line were expected to contract by a larger extent in the first quarter of 2024. As per consensus financial estimates taken from S&P Capital IQ, ManpowerGroup's YoY revenue decline was forecasted to worsen from -2.6% and -3.7% for Q3 2023 and Q4 2023, respectively to -6.9% in the latest quarter. On a quarter-on-quarter basis, the market anticipated that MAN's top line would decrease by -4.5% from $4,630.5 million in the fourth quarter of last year to $4,422.3 million for the first quarter of the current year. Separately, the analysts projected that MAN's normalized earnings per share or EPS will fall by -36.5% QoQ and -43.0% YoY to $0.92 (source: S&P Capital IQ) in Q1 2024. In contrast, ManpowerGroup's actual core EPS contraction for Q2 2023, Q3 2023, and Q4 2023 was relatively milder at -32.2% YoY, -37.6% YoY and -30.3% YoY, respectively. But ManpowerGroup's actual Q1 2024 results didn't disappoint the market, as detailed in the subsequent section. First Quarter Earnings Were A Positive Surprise On April 18, 2024, before the market opened, MAN revealed the company's financial performance for the first quarter of this year with a press release. Revenue for ManpowerGroup declined by -7.3% YoY to $4,403.3 million in Q1 2024, which was largely in line with (or just -0.4% below) the Wall Street's consensus top line forecast of $4,422.3 million. Adjusted for foreign exchange effects, MAN's top line would have decreased by an even narrower -5.5%. More significantly, MAN's Q1 2024 normalized EPS amounted to $0.94, and this was equivalent to a +2.2% bottom-line beat as compared to the consensus bottom-line estimate of $0.92. The company's earnings beat for the first quarter of the current year was driven by above-expectations gross profit margin and a less significant decrease in operating expenses vis-à-vis its top line. ManpowerGroup's first quarter normalized gross profit margin of 17.5% was the same as what the company achieved in Q4 2023, and the company's actual Q1 gross margin surpassed the analysts' consensus projection of 17.3% (source: S&P Capital IQ) by +0.2 percentage points. MAN highlighted in its Q1 2024 earnings release that the company's \"staffing margins remained strong\" which provides an explanation for its better-than-expected gross margin. On the other hand, MAN's selling and administrative costs decreased by -6.4% YoY for Q1 2024, which was better than the -7.3% YoY revenue contraction for the company in the same quarter. In the company's first quarter results release, ManpowerGroup drew attention to its \"good management of SG&A (Selling, General & Administrative)\" expenses which was another key factor (apart from above-expectations gross margin) supporting the company's first quarter earnings beat. ManpowerGroup also highlighted at the company's recent first quarter earnings briefing (source: S&P Capital IQ) that \"competition\" has stayed \"rational\" and \"pricing remained solid\", which means that its profitability has been largely unaffected by competitive pressures. In the next section, I touch on MAN's management guidance. Second Quarter Bottom-Line Guidance Exceeded Expectations Before ManpowerGroup released its forward-looking quarterly financial guidance, the Wall Street analysts predicted that MAN will register a normalized EPS of $1.27 (source: S&P Capital IQ) for the second quarter of 2024. The mid-point of the company's actual Q2 2024 bottom-line guidance was $1.29 per share, and that turned out to be +1.7% better than the sell side's prior consensus second quarter estimate. It is worthy of note that the company's operations in the Other Americas and APME (Asia Pacific and Middle East) business units performed well in the most recent quarter. ManpowerGroup's Other Americas division was the only business unit to record positive YoY constant-currency revenue expansion in Q1 2024. For the most recent quarter, MAN's APME business unit was the sole division to register positive operating income growth on a constant-currency basis in YoY terms. MAN shared its observation of \"solid demand in Latin America and Asia-Pacific region\" in its first quarter results release. At its Q1 2024 earnings call, ManpowerGroup noted that \"in some of our largest markets (e.g. France), activity levels in April so far are pretty much aligned with we have seen in Q1.\" In other words, MAN hasn't observed anything negative in the early part of Q2 2024 that would have unfavorable read-throughs for its near-term prospects. MAN also outlined its expectations at its first quarter earnings briefing that \"we would expect to see some really good improvements in our efficiency\" going forward, as reflected in its metrics like SG&A-to-revenue or gross margin. The positive factors mentioned above have given the company the confidence to guide for above-expectations core EPS in Q2 2024. Positive On Continued Share Buybacks In early August last year, MAN initiated a new stock buyback plan which provided it with the capacity to repurchase 5.0 million of its own shares, or roughly 10% of its shares outstanding. The company subsequently spent $50 million on share repurchases for each of the past three quarters (Q3 2023, Q4 2023, and Q1 2024). Assuming that ManpowerGroup continues to allocate $50 million to buybacks every quarter, this translates into a share buyback yield of approximately 6%. Separately, MAN offers a consensus FY 2024 dividend yield of around 4%. At the company's most recent quarterly results briefing, ManpowerGroup stressed that \"the current environment has not been very conducive to acquisitions.\" This explains why MAN is focused on distributing \"excess cash via our share repurchase program and the dividend continues to be a high priority\" as per its recent management commentary. To sum things up, ManpowerGroup offers an attractive potential forward shareholder yield (buybacks and dividends divided by market capitalization) of 10%. Key Risk Factors The main downside risks for ManpowerGroup relate to staffing demand and shareholder capital return. If demand for staffing in the company's better-performing Other Americas and APME segments or a major market like France weakens, MAN's actual Q2 2024 results might possibly fall short of its own guidance and analysts' expectations. Also, ManpowerGroup's actual shareholder yield for the current year could be lower than expected, if the company chooses to slow down the pace of share buybacks in the subsequent quarters. Concluding Thoughts  My rating for ManpowerGroup is a Buy. MAN's consensus FY 2025 normalized P/E is 10.5 times, which is much lower than its historical five-year mean P/E ratio of 14.1 times as per S&P Capital IQ data. ManpowerGroup's better-than-expected results and guidance indicate that the company is witnessing positive earnings momentum, so it is realistic to expect the stock to trade closer to its historical average valuation multiple in the future. More importantly, investors are paid to wait for the improvement in MAN's business performance over time, considering its enticing shareholder yield.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428684122"}