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Manpower Earnings: We Maintain Our FVE After Weaker Q2 Results, but We See Upside in Shares Long Term

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ManpowerGroup Inc
(MAN)

We maintain no-moat Manpower’s MAN fair value estimate at $106. Manpower’s second-quarter results were slightly below our expectations, as hiring demand continues to soften. Management released third-quarter EPS guidance of $1.37 at the midpoint, a significant decline compared with last year’s $2.13. We curb our near-term revenue forecasts of low-performing geographic segments, such as the Americas. Nonetheless, we think the stock remains undervalued and currently trades at a 20% discount in 4-star territory.

During the second quarter, consolidated revenue declined 4.3% year on year to $4.9 billion. Total operating margins dropped 140 basis points to 2.2%, nearly flat sequential growth compared with the previous two quarters. Enterprise clients, which contribute over 60% of revenues, continued to pull back on hiring. As a result, Talent Solutions, an enterprise-focused brand, suffered a 9% revenue reduction. Its flagship offering, Recruitment Process Outsourcing, saw a significant decline as large corporations converted to in-house models to cut costs. The decrease in order volume was particularly pronounced in the United States, which accounts for nearly a fifth of the firm’s total revenue. We now forecast the U.S. market to decrease by 13% year on year in 2023, a significant drag on overall sales growth.

We attribute Manpower’s suboptimal performance to the temporarily weak market demand. When the macroeconomic environment improves, we expect sales to rise as well. We anticipate a strong rebound in Talent Solutions. Its well-known brand and high-quality services safeguard its competitive positioning. In fact, Talent Solutions was named an industry leader in RPO earlier this month for the 13th year. Likewise, we believe the prospects for Experis remain positive despite a revenue decline of 11% this past quarter. Companies will continue to advance their digital and technological capabilities, which drives the demand for IT-related talent.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Joshua Aguilar

Sector Director
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Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

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