ManpowerGroup Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 20, 2023

Key Takeaways

  • Management reported Q1 revenue down 2% year-over-year in constant currency, with a further 3% decrease expected in Q2 amid softer U.S. and European staffing demand.
  • Adjusted Q1 EBITDA margin was 2.8% with adjusted EPS of $1.61, and Q2 margins are forecast to decline by ~100 basis points with EPS of $1.58–$1.68 due to reduced operational leverage.
  • Robust growth in Asia Pacific, Middle East & Latin America (APMEA revenues +7% CC) offset Western market headwinds, underscoring the benefit of geographic diversification.
  • Permanent recruitment showed ongoing strong growth in key markets including the UK, France, Italy, Japan, Spain and the Nordics, as clients shift toward specialist and advanced-skill hiring.
  • The company continued SG&A discipline and headcount reductions while investing in digital platforms (e.g., PowerSuite NEXT) and repurchasing $30 million of shares in Q1.
AI Generated. May Contain Errors.
Earnings Conference Call
ManpowerGroup Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Welcome to ManpowerGroup First Quarter Earnings Results Conference Call. And now, I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Priesing. Participants, sir, you may begin.

Speaker 1

Welcome to the Q1 conference call for 2023. Our Chief Financial Officer, Jack McGinnis, is with me today. For your convenience, we have included our prepared remarks within the Investor Relations section of our website at manparkgroup.com. I'll start by going through some of the highlights of the quarter, Jack will go through the Q1 results and guidance for the Q2 of 2023. And I'll then share some concluding thoughts before we start our Q and A session.

Speaker 1

Will now cover the Safe Harbor language.

Speaker 2

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. These statements 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.

Speaker 2

Slide 2 of our earnings release presentation further identifies forward looking statements made in this call and factors that may cause our actual results could differ materially and information regarding reconciliation of non GAAP measures.

Speaker 1

Thanks, Jack. In our previous earnings call, We reported that our organizations remain focused on maintaining and augmenting headcount for essential talent, though we were also continued into the Q1 of this year with demand for staffing services slowing further, most notably in the U. S. Europe continued to experience the modest decrease in demand in most major markets during the quarter following a trend that started early in to participants are recalibrating their workforces after a period of bullish hiring, shifting their focus towards more intentional hiring for specialist skills and in demand roles, Although this cautious environment is resulting in lower volumes of staffing activity in the U. S.

Speaker 1

And Europe, We continue to support our clients by delivering the in demand specialist resources they need in this environment. Are also playing a big role in replenishing the permanent workforce in critical parts of their businesses. It is important to note that business trends in Asia Pacific, the Middle East and Latin America continue to be quite robust And help offset the more challenging environment in the U. S. And Europe, illustrating the advantage of our geographically diversified market presence.

Speaker 1

I just finished business review meetings on the ground in our Asia and Latin America businesses, and I'll talk more about that later. Are ready. Turning to our financial results. In the Q1, revenue was $4,800,000,000 down 2% are in constant currency. Our reported EBITDA for the quarter was $127,000,000 are participating.

Speaker 1

Adjusting for restructuring costs, EBITDA was $133,000,000 representing an 11 are in constant currency year over year. Reported EBITDA margin was 2.7% and adjusted EBITDA margin was 2.8%. Earnings per diluted share were $1.51 on a reported basis and $1.61 on an adjusted basis. Adjusted earnings per share were down are in constant currency. Our clients have indicated that despite the slowing environment, Core business transformation must continue underscoring the need for different and more advanced skills.

Speaker 1

Our own quarterly ManpowerGroup employment survey data This demand for talent is evidenced by ongoing strong growth in permanent recruitment in many of our largest markets, including the UK, France, Italy, Japan, Spain and the Nordics among others. We'll now pass to Jack to share more details on the financials.

Speaker 2

Thanks, Jonas. Revenues in the Q1 came in between the low end and the midpoint of our constant currency guidance range. Gross profit margin came in at the high end of our guidance range. As adjusted, EBITDA was 133,000,000 are participating in the same period, representing an 11% decrease in constant currency compared to the prior year period. As adjusted, EBITDA margin was 2.8% came in at the midpoint of our guidance range, representing 30 basis points of decline year over year.

Speaker 2

Due to the strengthening of the dollar, year over year foreign currency movements continue to have a significant impact on our results. It's 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 is largely an accounting item based on reporting translation into U. S. Dollars. Foreign currency translation drove about 5.5% swing between the U.

Speaker 2

S. Dollar reported revenue trend and the constant currency related trend. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue decreased 2%. Organic days adjusted revenue decreased 4% in the quarter compared to our guidance of minus 2.5% at the midpoint. Lower revenue trend reflected deteriorating environment during the Q1, particularly across the U.

Speaker 2

S. And Europe. Are ready. Turning to the EPS bridge on Slide 4. Reported earnings per share was $1.51 which included $0.10 related to restructuring costs.

Speaker 2

Excluding restructuring costs, adjusted EPS was $1.61 Walking from our guidance midpoint, our results included a softer operational performance are in the range of $0.04 a lower effective tax rate, which had a positive impact of 0 point 0 $1 foreign currency impact that was 0 point 0 $1 better than our guidance due to the strengthening of the euro and the pound during the quarter and other expenses, which included increased pension plan related interest costs, had a negative $0.03 impact. Next, let's review our revenues by business line. Year over year, on an organic constant currency basis, The Manpower brand reported a revenue decline of 1%. The Experis brand declined by 5% and the Talent Solutions brand reported a revenue decline of 1%. All participants The experience decline was driven by lower volumes from enterprise clients as we anniversaried significant growth in the prior year.

Speaker 2

Within Talent Solutions, we saw modest year over year revenue decline in RPO as we anniversary exceptional levels of permanent hiring across are in the prior year period. Our MSP business saw revenue declines in the quarter as we reduced certain lower margin activity. Albright management experienced significant revenue growth on higher outplacement volumes in the quarter compared to low levels in the prior year. Are ready. Looking at our gross profit margin in detail, our gross margin came in at 18.2%.

Speaker 2

Staffing margin contributed to a 40 basis point increase as Experis and Manpower both experienced staffing margin expansion. Are in the line with the operator. Permanent recruitment, including Talent Solutions RPO, contributed 10 basis point GP margin reduction As permanent hiring demand continued at reduced levels from the exceptional activity in the prior year period. Favorable direct cost adjustments, primarily in the U. S, contributed 10 basis points in the quarter.

Speaker 2

Bright Management Career Transition within Talent Solutions contributed 20 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, the Manpower brand comprised 56% of gross profit, our Experis Professional business comprised 27% and talent solutions comprise 17%. During the quarter, our consolidated gross profit increased 1% on an organic constant currency basis year over year. In our Experis brand decreased 2% in constant currency year over year.

Speaker 2

Organic gross profit in Talent Solutions increased 1% in constant currency year over year. This was driven by significant growth in right management. Gross profit and RPO decreased in the mid to high single digit percentage range in the quarter as we anniversary record levels of permanent hiring activity in the prior year period, while MSP experienced a slight GP decline during the quarter. Reported SG and A expense in the quarter was $745,000,000 Excluding restructuring costs, SG and A was 3% higher year over year on an organic constant currency basis, down from the 4% growth in the 4th quarter on the same basis. This reflects the balance of cost reductions in areas of slowing demand, while we continue to invest in strategic digitization initiatives as well as growth opportunities, most notably including Experis, Talent Solutions and Specialty Skills and Manpower.

Speaker 2

The underlying increases consisted of operational costs of $25,000,000 incremental costs related to net acquisitions and dispositions of businesses of are $3,000,000 offset by currency changes of $35,000,000 Adjusted SG and A expenses as a percentage of revenue represented 15.4% in are in the Q1 reflecting lowered operational leverage on the revenue decline. Restructuring costs totaled 7,000,000 The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1,100,000,000 Representing a decrease of 6% compared to the prior year period on a constant currency basis. Reported OUP was $49,000,000 and includes $1,000,000 of restructuring costs. As adjusted, OUP was $50,000,000 and OUP margin was 4.4%.

Speaker 2

The U. S. Is the largest country in the Americas segment, comprising 68% of segment revenues. Revenue in the U. S.

Speaker 2

Was $770,000,000 during the quarter, OUP for our U. S. Business was $32,000,000 in the quarter, representing a decrease of 49%. As adjusted, OUP margin was 4.1%. Within the U.

Speaker 2

S, the Manpower brand comprised 25% of gross profit during the quarter. Revenue for the Manpower brand in the U. S. Decreased 15% on a days adjusted basis during the quarter, representing a decline from the 8% decrease in the 4th are in the quarter. Manufacturing PMI in the U.

Speaker 2

S. Continued to decline during the Q1 from the 48 range in December turn the call over to the $46,000,000 range in March. Our U. S. Manpower business experienced a progressive pullback in demand during the course of the quarter.

Speaker 2

The Experis brand in the U. S. Comprised 45% of gross profit in the quarter. Within Experis in the U. S, IT skills comprised are in the range of 90% of revenues.

Speaker 2

On a days adjusted basis, Experis U. S. Revenue decreased 12 in the same period as we anniversaried peak 2022 growth of 33% organically in the year ago period. As referenced earlier, the year ago period experienced dramatic growth from enterprise clients for which activity levels are lower in the current period. Town Solutions in the U.

Speaker 2

S. Contributed 30% of gross profit and experienced revenue decline of 15% in the quarter. This was driven by a decrease in RPO revenues in the U. S. As permanent hiring programs continued at lower levels in the Q1 as we anniversaried exceptional growth in the prior year.

Speaker 2

Although RPO activity is lower in the current environment, 1st quarter RPO revenues were well above pre pandemic levels. The U. S. MSP business saw revenue decline as we reduced some lower margin activity, While outplacement activity within our right management business drove significant revenue increases. In the Q2 of 2023, we expect a similar are in the range of $1,000,000,000 in the quarter.

Speaker 2

Southern Europe revenue comprised 43% of consolidated revenue in the quarter. Revenue in Southern Europe came in at $2,100,000,000 Representing a 2% decrease in organic constant currency. OUP for our Southern Europe business was $90,000,000 during the quarter, Brands revenue comprised 57 percent of the Southern Europe segment in the quarter and revenue equaled $1,200,000,000 in the quarter and was flat on a day's adjusted organic constant currency basis. OUP for our France business was $45,000,000 in the quarter, Representing an organic decrease of 8% in constant currency. OUP margin was 3.8%.

Speaker 2

We are estimating the year over year constant currency revenue trend in the Q2 for France to be a slight decrease year over year. Revenue in Italy equaled $422,000,000 in the quarter, reflecting a decrease of 3% on a days adjusted constant currency basis. OUP equaled $31,000,000 and OUP margin was 7.3%. We estimate in constant currency that Italy will have a flat participate in the slide growth revenue trend year over year in the Q2. Our Northern Europe segment comprised 20% of consolidated revenue in the quarter.

Speaker 2

Revenue of $968,000,000 represented a 3% decline in organic constant currency. After excluding restructuring costs, adjusted OUP was $8,000,000 and OUP margin was 0.8%. Our largest market in the Northern Europe segment is the UK, which represented 35% of segment revenues in the quarter. During the quarter, U. K.

Speaker 2

Revenues decreased 12% on a days adjusted constant currency basis. Slightly lower rate of revenue decline in the 2nd quarter compared to the Q1. In Germany, revenues increased 1% and days adjusted constant currency in the quarter, representing 2 consecutive quarters of improvement driven by our Manpower business. Our Germany Managed Services Proservia business continues to require significant management attention and actions to improve performance. Are in the process of performing a detailed evaluation of the Proservia business and will provide a further update in future periods.

Speaker 2

All participants are in the Q2. Overall, in the Q2, we are expecting slightly improved year over year revenue growth compared to the Q1 trend. The Netherlands is one of our smaller businesses in Northern Europe. The revenue decrease in the Q1 of 7% days adjusted constant currency was a slightly higher rate of decline than the 4th quarter trend of minus 5% on the same basis. The Asia Pacific Middle East segment comprises 13% of total company revenue.

Speaker 2

In the quarter, revenue grew 7% in constant currency to to $606,000,000 As adjusted to exclude restructuring, OUP was $24,000,000 and OUP margin was 3.9%. Are in the line with the restructuring charges of $2,500,000 related to our Australia business. Our largest market in the APME segment is Japan, which represented 47% of segment revenues in the quarter. Revenue in Japan grew 13% in constant currency are 11% on a day's adjusted basis. We remain very pleased with the consistent performance of our Japan business.

Speaker 2

We expect continued strong revenue growth in the 2nd quarter. I'll now turn to cash flow and balance sheet. In the Q1, free cash flow equaled $111,000,000 compared to $52,000,000 in the prior year. At the end of the Q1, day sales outstanding decreased about half a day to 56 days. During the first quarter capital expenditures represented

Speaker 1

$13,000,000 During the

Speaker 2

Q1, we repurchased 369,000 shares of stock are ready for $30,000,000 As of March 31, we have 1,600,000 shares remaining for repurchase under the share program are approved in August of 2021. Our balance sheet ended the quarter with cash of 707,000,000 and total debt of $989,000,000 Net debt equaled $282,000,000 at quarter end. Our debt ratios at at quarter end reflect total adjusted gross debt to trailing 12 months adjusted EBITDA of 1.38% and total debt to total capitalization at 28%. Our debt and credit facilities remain unchanged during the quarter. After successfully lengthening our debt duration profile with the euro note executed in mid-twenty 22, we exit the quarter with a very strong balance sheet.

Speaker 2

Next, I'll review our outlook for the Q2 of 2020 Based on trends in the Q1 and April activity to date, our forecast is cautious and anticipates that The second quarter will continue to be challenging in the U. S. And Europe. We are forecasting underlying earnings per share for the Q2 to be in the range of 1.58 are participating in the call to $1.68 which includes an unfavorable foreign currency impact of $0.03 per share. We have disclosed our foreign I'll participate in the presentation.

Speaker 2

Our constant currency revenue guidance range is between a decrease of 5% 1%, at the midpoint represents a 3% decrease. The impact of net acquisitions and less billing days year over year is slight And the organic days adjusted constant currency revenue trend is the same 3% decrease at the midpoint. This is slightly lower than the 4 are in the Q1 on the same basis as the comparable growth rate stepped down from Q1 to Q2 last year. We expect our EBITDA margin during the Q2 to be down 100 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the 2nd quarter will be 30%.

Speaker 2

As usual, Our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 51,300,000. Will now turn it back to Jonas.

Speaker 1

Thanks, Jack. Although the environment is becoming more challenging, are in the position of diversification, digitization and innovation, strengthen our capabilities and make progress on shifting our business mix to higher value services supported by a market leading technology platform strategy We continue to make strong progress on diversifying our business with our higher margin brands, Experience and Talent Solutions, making up 44% of gross profit dollars. This together with our industry leading geographic footprint and strong balance sheet are down from the peaks in the prior year period. Gross profit levels remain well above pre pandemic levels, while our countercyclical Right Management business is currently experiencing significant gross profit growth. As I mentioned, I recently spent time with clients and our leaders in Asia and Latin America The economic outlook in both regions continues to be strong.

Speaker 1

Business conditions are especially conducive to an increased demand for our temporary staffing services. This is very evident across most of our Latin America businesses, where just last week, I had the pleasure of celebrating the is the 1st year of our very successful business in Chile. As global supply chains normalize and China reopens, The growth outlook in the APME regions is also very bright. Japan, our largest business in the APME region and 5th largest globally, has been extremely resilient post pandemic and our business is continuing a strong track record of revenue and profit growth. In fact, our Japan business has had 34 consecutive quarters of constant currency growth, Congratulations to the Japanese leadership team who have been laser focused on the growth sectors based on the data and trends we've been predicting and tracking for many years.

Speaker 1

Specific to digitization, in Q1, We further expanded our global PowerSuite technology platform with the launch of PowerSuite NEXT for right management in the U. S, This B2C platform provides talent career development and outplacement services with personalized virtual coaching, Furthermore, we're delighted that Wright Management was named a global leader and star performer in Everest Group's recent outplacement and career transition services peak matrix assessment, scoring high This year, 2023, we celebrate our 75th anniversary. And throughout our history, we have been at the forefront of innovation helping businesses and workers adapt to new technologies, economic shifts and social trends. We've never hesitated to move quickly to take advantage of new opportunities. Our experienced leadership team is poised to pivot to where growth lies and our breadth of diversified solutions across geographic markets will continue to set us apart and help our clients and candidates win Our belief that meaningful and sustainable employment has the power to change the world remains central to all we do.

Speaker 1

In March, we were recognized as 1 of the World's Most Ethical Companies by Eteosphere for the 14th time, the only firm in the industry to be recognized for more than a decade for playing a critical role in driving are in the same period. As always, we know that a key driver of our are in a great team that doubles down on our priorities and remains focused on the path forward. And I'd like to close by thanking our will be participating in our company's prepared remarks and contributions. Our DDI strategy and our purpose remains our North Star Being disciplined in our execution is how we will continue to strengthen our capabilities and lay the foundation to create long term are participating in the same period. I'd now like to open the line for Q and A.

Speaker 1

Operator?

Operator

Thank you. We will now begin the question and answer session. Please unmute your phone and record your name and company clearly when prompted. Your name and company are required to introduce your Our first question comes from Mark Marcon from Baird. Your line is now open.

Speaker 3

Good morning, Egon, this is Jack. Two big questions. 1, Can you just describe the pace of change As the quarter unfolded, to what extent was March worse than, say, February, all participants Particularly in the markets that ended up showing weakness like the U. S. Or the U.

Speaker 3

K. That's the first question.

Speaker 1

Good morning, Mark. What we saw U. S. Catch up to the European declines we've seen really over the last 5 quarters quite quickly, frankly. So the U.

Speaker 1

S. Had the biggest came from our enterprise client segments, so larger businesses in the U. S. And the U. K.

Speaker 1

Pulling back. And that's what we saw evolve during the quarter. But maybe Jack, you want to give a little bit more color on the specifics?

Speaker 2

Yes, sure. I'd be happy to. So specifically on the U. S, we saw a gradual deterioration over are in the course of the quarter that was building through the end of the quarter. So I'd say if you look at that average rate for the quarter of minus 13.

Speaker 2

We ended the quarter slightly, slightly higher than that. And as I talked about the guide, we expect a Similar trend into the Q2, might be a tad bit higher as we take that higher rate. So that was the U. S. I think the U.

Speaker 2

K, fairly constant throughout I think the quarter started a little softer and that just carried through the entire way. So when you look at that average for the UK are down 0.5% as we kind of look at that trend. And I'd say maybe just on the 3rd biggest market for us would be Italy. And Italy actually on the flip side strengthened over the course of the quarter. So we saw Italy actually exit are in the quarter closer to flattish, which was good and we take that into our second quarter forecast where we think Italy will likely do a bit are better than the trend from the Q1.

Speaker 3

Great. And then with regards to the U. S, obviously, you mentioned Spares and the enterprise clients pulling back from what were really high comparison periods a year ago. How broad based was that pullback in terms of the Experis business, Either within the U. S.

Speaker 3

Or even globally and what are your expectations on a go forward basis with regards to in terms of how that could unfold over the second and potentially even 3rd quarters.

Speaker 1

All participants Well, as you mentioned, Mark, the pullback that we're seeing in the U. S. Comes after very high growth rates in the prior year period. And it is focused on enterprise clients. Our convenience business for Experis is holding up much better.

Speaker 1

And although seeing some declines, substantially lower declines than what we're seeing on the enterprise side. So We feel good about the business in, Experis in the U. S. And the other market that saw the same step down from an enterprise expected was the UK. Excluding those two markets, experience showed good growth everywhere else globally.

Speaker 1

So we continue to feel extremely good about the opportunities for Experis as a brand going forward because we see that clients, although pulling back from their very strong investments in technology around digital transformation, they still are going to be undergoing significant digital efforts, which is benefiting and will continue to benefit Experis Going forward and what we're seeing here in the U. S. In particular and to a lesser degree also in the UK is really businesses pulling back from the very strong spending they had a year ago and we feel good about The prospects of Experis and we feel very good about our convenience business as well, Mark.

Speaker 2

I would just add, Mark, operator Just a little more context, Experis overall was only down 2% in GP dollars as we showed on the GP turn the call over to the operator. So although there's some bigger decreases that we talked about in the U. S. And the U. K, which are enterprise driven, when you look across Convenience is performing really well and that includes the Attain acquisition, which is holding up very well and we're actually seeing good growth in certain pockets, are participating in Financial Services.

Speaker 2

So a little additional context.

Speaker 3

Great. And then if I can squeeze in one last one. Just on the guidance overall, the revenue and gross profit guidance is in line with our expectations, but the EBIT guidance is materially below. What's the driver in terms of just the with gross profit holding up, what's the driver with the EBIT I'll following up, is it just SG and A deleveraging or are there incremental investments that are occurring?

Speaker 2

Yes. Thanks, Mark, for that question. I would say the context is the deleveraging. We are are seeing a lower revenue trend on a constant currency basis into the 2nd quarter. As you said, the good news is GP margin is holding up quite well at 18% at the midpoint.

Speaker 2

But SG and A and I should say SG and A is coming down. As we talked about in our prepared remarks organically, SG and A was down was a 3% growth rate, which was down from the 4% growth rate in the 4th quarter. And you should expect that growth rate to continue to come down as part of our guidance for the Q2. But with that being said, It's not a broad based reduction across all parts of our business. As we said and as you can see from the GP dollar trends, The business is still holding up quite well in various parts.

Speaker 2

So we're still investing. We're looking at you should expect that GP dollars will are fine in the second quarter from the Q1 trend based on the revenues, but there's still some very good are in the business. We talked about Experis and parts of the business that are still seeing some really good growth in Financial Services. And we did emphasize we continue to invest in digitization in our technology platform. So We think that's a strategic advantage for us.

Speaker 2

We believe we have a leading technology global platform And as a result, although the SG and A trend will continue to improve in the Q2, we're not in an environment where we're taking broad based are in the range of dramatic reductions based on the fact that the market is still holding up relatively well in certain areas.

Speaker 1

Great. Thank you. Are ready.

Operator

Thank you. Our next question comes from Jeff Silber of BMO Capital Markets. Your line is now open.

Speaker 4

Thank you so much. You've given us some color by geography and by client size. I'm wondering if you can get a little bit more color By industry verticals, specifically in the UK and Europe.

Speaker 1

So as you heard in our prepared remarks, Jeff, we feel very good about our business in Latin America and Asia Pacific. They're continuing to grow. And having just visited Asia as well as Latin America recently, our clients are still looking for talent, the labor markets are tight And the opportunities are plentiful. When it comes to Europe and the U. S, as you heard us talk about in our prepared remarks, Europe started to decline in the Q1 of 2022 and has really have been on a path of modest decreases in demand overall and that's The U.

Speaker 1

S. Is the part of the geography that made the biggest step down. And as you've just heard us discuss, a lot of that comes from enterprise clients Albert? No, deciding that the economic outlook is uncertain. They are holding on to their workforces, which is why you see our perm numbers Still looking very strong and frankly, we're having very good perm growth in the UK, France, Italy, Japan, Spain, Nordics amongst others.

Speaker 1

All participants are pulling back on contingent staffing demand because they are preparing for worsening economic time. So very similar to what we would expect and what we have seen, impressed economic slowdowns. And that's really the story. So the U. S.

Speaker 1

Are caught up to Europe at a faster pace, which is also something we would expect as the U. S. Is a much more dynamic labor market

Speaker 4

I'm sorry, please go ahead, Jeff.

Speaker 2

No. Jeff, since you specifically mentioned the U. K, I would just add from an Industry vertical perspective, public sector is big in the UK. That's about a third of the business. That's holding up fairly well.

Speaker 2

But as you know, U. K. Is a big enterprise market, a lot of enterprise clients in the U. K. And that's really the pressure we're seeing.

Speaker 2

We talked about Experis. It is the 2nd biggest Experis market and that's where the pressure has been more on the enterprise side And within the verticals, probably a bit more on the technology side in terms of technology enterprise clients. So I would just add that.

Speaker 4

That's helpful. And can we get that kind of color in the U. S. And Europe as well? That was actually my question.

Speaker 2

Yes. I'd say in the U. S, Similar. I think we're seeing the pressures on the enterprise side as we've talked. And I'd say very similar Story for Experis, I think on the technology enterprise clients, that's where there's more cautious behavior in terms of demand.

Speaker 2

I think, as we looked across Financial Services, we're seeing very strong trends, and that's in both Enterprise and Convenience. And I'd say, other verticals that are seeing strength would be on the manufacturing side, food continues to are going to be fairly stable. Auto, we're not big in auto in the U. S. Specifically, but auto Across Europe in the large markets there are France and Germany and the Nordics is actually coming back.

Speaker 2

So we're seeing improving trends in auto. And then I'd say more globally in terms of areas where we're seeing more pressure, Consistent with what we said last quarter, it's going to be logistics, transportation, construction and generally, I'd say enterprise are not auto and not food related are generally saying pressure and that correlates to what Jonas talked about in terms of the PMI trends As well.

Speaker 4

Okay. That's really helpful. Thanks so much, Jack.

Operator

Thank you. Our next question comes from Kartik Mehta of North Cost Research, your line is now open.

Speaker 5

Thank you. Hey, good morning. Jack, as you indicated, you've done a good job in maintaining the gross margin, Gross profit dollars especially. I'm thinking as we go forward and if the trends continue this way throughout the year, Your ability to kind of maintain gross margin and then just what you think might happen on the SG and A side as you Think about if you need to right size the business at all.

Speaker 2

Yes. Thanks, Kartik. I would say on the The good news is that staffing margins held up quite nicely despite the pullback in demand. And that trend is continuing and we talked a lot about that last quarter. You can see in the GP margin walk that, that continues to be the case.

Speaker 2

So we feel really good about that. And you can see that in the guidance Q2 from a GP margin. I think as we think about GP margin, all participants are going to be perm, right? So perm was still very as Jonas talked about was still very strong excited about the U. S.

Speaker 2

Trends. In the U. S, we're really just anniversarying exceptional growth, but very good. Perm continues to be very strong in a lot of our European and Asian markets, and we see that continuing. And that is the result of a lot of investment we've made in perm in those markets and that's paying off for us currently.

Speaker 2

So I think perm as part of the equation We'll continue to anniversary some record levels. We actually hit our peak record all time of Perm GP dollars in Q2 of last year. So it's natural to expect perm to continue to come off a bit in terms of year over year trends, Albert But I think it's still a pretty substantial part of the overall GP equation. So as we go forward through the year, I think when we look at the staffing margin, the mix of the clients are going to be part of Hi. And that's positive for staffing margin.

Speaker 2

So we'll have to continue to monitor it. But I think the good news is, Jonas talked about the labor market overall is still holding up quite well and that's helping in terms of are in the range of talent and pricing for talent. And so we feel pretty optimistic about staffing margin, even in an environment that is continuing to see more pressure going forward.

Speaker 5

And then on SG and A, I'll Just Jack, your thoughts on I know you talked about that that should continue to grow, decelerate. And I'm wondering as you look at the business And if you need to right size it or what you think the outflow there could be?

Speaker 2

Yes. No, absolutely. I think Our track record and our playbook is if we do see significant declines in GP dollars, you should expect we're going to move in That means for the GP dollar declines, our goal is to offset half of the GP dollar declines with SG and A reductions. All participants Now with that being said, the context of the current environment is we still grew GP dollars in the first quarter, 1% as we disclosed on the GP chart. And even though we're moving in Q2 into a modest decrease, I'll It's still a pretty balanced environment overall in various parts of the business.

Speaker 2

So we're not in the dramatic broad based are not going to be in the market. However, if the environment moves in that direction, We will you should expect we'll do what we always do and we'll take appropriate actions to preserve margin to the greatest degree possible. So it's really going to depend on how the environment continues to unfold. We are doing it already in parts of the business that have seen more broad pullbacks. All participants But in other parts of the business that are holding up pretty well, we're still investing.

Speaker 2

So it's going to be a balance. And if we see broader changes, we'll react accordingly.

Speaker 5

And just one last question, Eunice. You talked about, I think, meeting with clients in Europe. And I'm wondering Albert. Your thoughts on France, considering some of the unrest that they've seen and how that might be impacting the business, if at all?

Speaker 1

Well, Kartik, The unrest in France and the debate around the pension reforms and all of that that you've seen has actually had very little impact so far on our business In France, the strikes have an impact in that it makes it difficult for the workers to get to their But since there haven't been broad based long term strikes, but rather day interruptions, The business has been able to manage it very well and the learnings that we had from the pandemic means that many of our workers Very encouraging to see as well that France is generally flattish in terms of its trend is following a slightly softening market demand as you've seen from other data points as well. So all participants are doing a good job and we've not really seen a major impact on those strikes in the past. And we hope that the debate now with the decision to increase the pension reform On its path, all but reasonably good growth, although pressured on PMI, but we feel with very good reforms in place and Conducive to good growth in the future.

Speaker 5

Thank you both. Appreciate it.

Operator

Thank you. Our next question comes from the line of Stephanie Yih from JPMorgan. Your line is now open.

Speaker 6

Hi, good morning. I'm stepping in for Andrew Steyrman. Just a question on France in particular. So in the first quarter seem like brands did better than what you were expecting coming into the quarter. And now we're kind of expecting a slight revenue decrease in the Q2.

Speaker 6

I was wondering if you can comment on maybe what the March or April trends were in France and Any impact or deceleration you're seeing on the wage pricing front?

Speaker 2

Stephanie, thanks for the question. Yes, I would say, France, based on the trends during the quarter, We exited the quarter close to flattish to slightly down on an overall basis and we take that into the Q2 guidance. Anticipating a little more pressure based on what we've been seeing in some of the weeklies here in April. I'd say the only caveat on the weeklies in April, we do have some mismatch with Easter timing year over year and so forth, which impacts Some of the weekly trends we've been seeing, but I would say it's a fair point and we're being a bit cautious based on the fact that Although France has held up okay versus our guidance in Q1, we have seen a progressive stepped down over the last couple of quarters. So that's a little bit in terms of what's happening.

Speaker 2

I think in terms of your second item related to getting at bill pay spreads and wage inflation. France is holding up quite well. So when we look at margin and staffing margin, France was part of that improvement year over year. So we feel good about pricing and the environment and we feel good, in terms of bill pay spreads on an overall basis in France.

Speaker 6

Okay. Okay, great. Thank you.

Operator

Thank you. Our next question comes from George Tong of Goldman Sachs. Your line is now open.

Speaker 7

Hi, thanks. Good morning. You mentioned that the pullback hiring and late hiring decisions in line with the dynamics you've seen in past economic will be conducting a question and answer session. From a macro perspective, can you just how this pullback compares with tax cycle and what macro assumptions in the U. S.

Speaker 7

EU you're embedding in

Speaker 1

Hey, George, we couldn't hear you perfectly, but I think you're asking How does this slowdown in demand and softening in the markets compared to prior Cycles that we've experienced in our now 75 year history. Is that correct?

Speaker 7

Yes, that's right.

Speaker 1

It's a great question because as we look at the last slowdowns and recessions, they were very strong. So the great financial recession and the recessions we saw related to the pandemic. Clearly, we don't know what the economic cycle is going to be. But if we do look at our past Garden Variety recession. By that, I mean a shallow economic slowdown Or recession and it harks back maybe it's a little bit of Back to the Future where employers aware of the need for talent, the tight labor markets hold on to their workforces to a greater degree than what we've seen in the last 2 big recessions.

Speaker 1

And they are very careful in their hiring. They're delaying their hiring decisions, but they're really anticipating are in the range of $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000,000 to $1,000,000,000,000 to $1,000,000,000,000 to $1,000,000,000,000,000 So that's how I would characterize our view and it's exactly why you're hearing Jack discuss our position on our SG and A. We're very careful in terms of our own hiring. We're very focused on productivity, but we keep on investing in the opportunities that we see whether they be in perm and experience and talent solutions. So we want to make sure that we're positioned For good growth when the market comes back, but we're very cautious.

Speaker 1

We're cautious at this time because the economic uncertainty is getting higher and some of the headwinds are really coming through and the demand drops So hopefully that gives you a little bit of our view when we compare this environment to our Experience from past economic cycles.

Speaker 7

Yes. That's very helpful. Thank you. And on margin front, your guidance for EBITDA margin is are down 100 bps over the year in the second quarter. Which specific areas of the business are you scaling back spending?

Speaker 7

And which areas are you

Speaker 2

George, yes, I can talk to that. So I think on the EBITDA Down 100 basis points and maybe a little context for that is the other point to remember is we had dramatic growth a year ago in EBITDA margin from Q1 to Q2. So we went up 70 basis points from Q1 to Q2. Q2 actually was our high watermark and EBITDA margin on an overall basis at 3.8% last year. So we're anniversarying that as part of this and we have the opposite impact from a year ago where the environment was improving and all participants We were getting better operational leverage and we have the opposite now where it's declining In certain markets that we've talked about, offset by strength in others, but, a different dynamic on an overall basis, which is Why the EBITDA margin is coming off to the degree that we're forecasting.

Speaker 2

So in terms of Where we're taking actions on an overall basis, you could see I'd say our FTE continues to go down. FTE PE from year end to the end of Q1, our headcount is down about 2%. We did talk about in the 4th quarter about the fact that we took head count down sequentially from the Q3. We continued that again, to a greater degree. And you should expect that trend to continue based on the actions we've taken.

Speaker 2

If we look at our biggest markets where we're taking FTEs down based on the environment and the parts of the business that aren't seeing The correlated demand that's going to be the U. S, that's going to be the U. K, it's going to be various other markets in Europe. And as you would expect in this environment of negative revenues, you should expect that in the global functions and the corporate parts of the business, we have hiring going on, we're pulling back in discretionary spend. So those are the actions we're taking.

Speaker 2

And as I mentioned, if the environment continues to Decrease further, then you should expect we'll take further actions as well.

Speaker 7

Very helpful. Thank you.

Operator

Thank you. Our next question comes from Manav Patnaik of Barclays. Your line is now open.

Speaker 8

Operator. Hi, good morning. How are you? This is actually Roni Kennedy on for Manav. Thank you for taking my questions.

Speaker 8

If I may follow-up to the insight provided in response to George's question with macro and have a potential garden variety recession. Last quarter, you used a very helpful analogy of saying companies were beginning to tap the brakes, others had their foot hovering above the brake pedals. How would you categorize that now? And then also as a follow-up to the assessment of it being garden variety, how do you think the quarters will progress, will there be continual gradual declines? And do you have any thoughts as to when things could potentially turn around?

Speaker 8

Albert. And then lastly, in this weakened environment, how are industry competitive dynamics? Is it more intensely competitive, pricing pressures, etcetera.

Speaker 1

I'm glad you liked the analogy that we used last time. So I think I would More companies are tapping the brake. New companies are hitting the brakes are we don't really see that to the degree that we've seen in other economic slowdown. So you have as you can see outside of the U. S, you have Companies that are being more cautious based on their outlook, but there is still demand.

Speaker 1

There is So it's still a conducive environment in terms of opportunities and that's what we're very focused on to make sure that we have the And as Jack talked about, clearly we were thinking about our SG and A from a defensive perspective in the areas that don't impact the business where we see the participants are hiring recruiters and we're hiring salespeople because it's important that we maintain our strength in the market. So I think that's sort of our view. And in terms of the progression around the quarter, I'll let Jack talk about that, but I think overall, we're essentially adopting a cautious stance in terms of looking for a slight Further softening based on what we've seen at the beginning of the second quarter. Jack, maybe you'd like to provide some more color.

Speaker 2

Yes. I would just say briefly, that is Ronan what we are seeing in our projection. You're seeing a slight all participants are in constant currency revenues into the 2nd quarter. And as we look at if we go back another quarter, you see us going from that minus 2.5% to 4% on an organic ADR basis. So These movements are relatively modest in terms of the degree of revenue change And that's how we're that's reflecting the environment.

Speaker 2

So parts of the environment are moving more significantly than others. We're We're seeing that as we talked about at length on the enterprise side, but other parts are holding up nicely and we do have the balance of some of our European businesses actually continuing to perform quite nicely and I'd definitely put Italy in that camp Despite some modest revenue decline in the quarter. So, and we would expect based on everything we're seeing now, we would expect that trend that Kind of lighter decrease to continue.

Speaker 8

Thank you. May I confirm the Competitive dynamics within the industry and if you know any particular insights by brand and kind of a weaker macro environment?

Speaker 1

Generally, I'd say that competitive dynamics remain competitive, but rational. Albert? So we know that demand for talent that companies are hiring remains strong and labor markets are tight. So the pricing environment for us is still healthy. We're seeing good pay bill spreads.

Speaker 1

And Whilst we're seeing some softening in some skill sets, this is still in the context of a tight labor market where there are many open jobs here in the U. S. As well as in Europe and frankly globally as well, and we saw this as well in the employer ManpowerGroup employment outlook survey looking into the 2nd quarter, so employers are still intent on hiring talent And that's why we feel that the environment is still solid and the competitive environment is always competitive, but rational at the same time.

Speaker 8

Thank you very much. And if I may, as a quick follow-up, can you just cover kind of working capital management, capital allocation and even business review such I'll participate in this weakened environment and as the cycle as we progress through the cycle, how we should think about that?

Speaker 1

I'll let Jack talk about the capital allocation you mentioned for Servia. On this note, you've seen in our prepared remarks, we're pleased to see that our German business is making progress in a number of our brands, but we are working on solving our Preservia business as well, and that's really where we're focused. We still have some work to do in Germany to perform the way we would like and in particular in Preservia, and that's where our focus is right now. But Jack, maybe you'd like to go on to the capital allocation question.

Speaker 2

Yes. And I'll be brief. I know we have a couple other callers that are trying to get in before we end the call. So capital allocation is fairly straightforward, all participants Ronan, I'd say, it continues. No change in strategy.

Speaker 2

You saw us do the share repurchases during the course of the quarter. Remember, we are opportunistic. So, you'll see us do higher volumes when we perceive there to be a very good value. And we'll continue along those lines. The dividend continues to be our top priority And a progressive dividend is our strategy.

Speaker 2

In a decent environment, we would consider this an environment where we would have a progressive dividend. And then in terms of M and A and so forth, really no change. I think, Albert? As we said, we prefer organic growth, but as we've shown in the past, there is room for strategic and A, particularly in the higher margin parts of our business, and you saw us do that with the AteaN acquisition back in 'twenty one. So Continue to keep our eyes open, and that's really what I'd say on capital allocation.

Speaker 2

Thanks.

Speaker 8

Thank you very much. Appreciate it.

Speaker 1

Are ready.

Operator

Thank you. Our last question comes from Tobey Sommer of Truist Securities. Your line is now open.

Speaker 3

Hey, good morning. This is Jasper Bibb on for Toby. Just one question for me because I know we're short on time. All participants So on the tax rate, the first half looks a little bit higher than the prior full year expectation at 29%. I know in some of your markets, the tax rate actually might go higher when your OUP margins are under pressure.

Speaker 3

So should we be modeling a slightly higher tax rate in the second half of

Speaker 2

Yes. Thanks, Jasper, for that question. No, I would say all participants The guidance for the Q2 is 30%, which is a tad higher than the full year guidance. And we came in a little bit better in the Q1 than we anticipated. Participants are participating.

Speaker 2

I would say you're exactly right. One of the components of the tax rate is the country mix and with the volatility we've been seeing, Let's add a little bit more volatility to the rate and the forecast for the rate. But with all that being said, we still feel pretty good about the 29% for the full year. So although Q2 is a little bit higher, there's some timing considerations and things like that. I would continue to use 29% for the back half of the year.

Speaker 3

That makes sense. Thanks for taking my question.

Speaker 1

Okay. That brings us are listening to the end of our Q1 earnings call. Thanks everyone for your participation and we look forward to speaking with you again when we announce our 2nd quarter earnings. Thanks everyone. Have a good rest of the week.

Operator

Thank you. And that concludes today's conference. Thank you for participating. You may now disconnect.

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