We Remain Optimistic Around Manpower's Long-Term Growth

Senior Equity Analyst

Joshua Aguilar

Associate Equity Analyst

Yuyang Zhang

We expect Manpower to remain one of the largest, most diversified global recruitment providers, alongside Adecco and Randstad. Each global player possesses about 4%-5% market share, which is substantially larger than that of the large regional and local competitors. Nonetheless, the staffing industry is still highly cyclical and competitive. Fierce competition will likely constrain Manpower's ability to poach clients from competitors, and we expect the firm will concede some price to maintain volume. 

Despite pricing pressures, we believe Manpower's competitive positioning is stable. The firm's shift toward higher-margin businesses has steadily improved its mix. This shift is easier said than done, but Manpower has made evident improvements in recent years. Its high-margin brands, Experis and Talent Solutions, now add up to almost half of the firm's gross profits. They continue to grow at record levels as a percentage of the overall business. We expect Manpower to continue expanding into higher-value solutions and services. Growth in these areas will provide runway for Manpower to improve profitability while reducing its business' overall cyclicality. 

Currently, the core of the firm is still temporary staffing. This segment has low margins and is sensitive to the economy. Companies prefer to lay off contract workers during periods of slowed economic growth before forgoing permanent staff. Despite the cyclicality of demand, Manpower's business model enables the firm to cut costs efficiently during market troughs. The firm has constructed a streamlined process of sourcing and matching new employees with candidates who could be readily trained. In other words, Manpower operates on a nimble labor force that not only has the capacity to administer high volumes, but the firm can also stop hiring and conduct layoffs to reduce costs when volumes drop.

Business Strategy & Outlook

Manpower displays elements of intangible assets and network effect. However, those are not strong enough to warrant a moat. The firm struggles to consistently outearn its cost of capital through the economic cycle. 

We recognize two potential forms of intangibles in Manpower's business: brand and proprietary technology. Manpower's global presence, combined with its 75-year operating history, establish a brand clients trust. Furthermore, Manpower has developed AI-backed recruitment tools, a centralized and global recruiting repository, and a mobile app with improved user experience. These initiatives all enhance the firm's value proposition. However, Manpower's intangibles fail to create lasting pricing power that outpaces inflation. Manpower competes with the largest staffing firms, Randstad and Adecco, which share the same end markets and can also address clients' hiring needs for blue-collar and administrative positions. Further, clients typically sign nonexclusive contracts with multiple hiring agencies. This dynamic makes it hard for recruiters to become a client's preferred supplier of job candidates. Therefore, Manpower can't regularly command price premiums on commoditylike services, despite its well-known brand. 

Moreover, competitors could replicate Manpower's technology. Randstad and Adecco both built their own AI capabilities, from career-assistant chatbots that personalize the candidate job search experience to innovation funds dedicated toward AI-based research and development. Technological investments in the modern competitive landscape reflect the cost of entry, rather than a moat source that translates into pricing power. 

Manpower also displays elements of a network effect. The firm's well-known brand and global presence draws top employers and skilled candidates into its network. Over time, more candidates register on Manpower platforms, and the firm's global candidate pool attracts more employers as clients. Manpower's large resume database makes it more likely clients will identify ideal candidates and fill open roles more quickly. Promptly filling roles with quality candidates saves clients time and resources. From the candidate perspective, Manpower's large network of employers equals more employment opportunities, increasing the probability and speed of being hired. Moreover, user data accumulated over time helps Manpower improve its AI/ML matching algorithm to better match candidates and employers, which leads to higher service satisfaction among both new and existing employers and candidates. 

However, we do not see evidence of its network effect being successfully monetized. Over the past 10 years, Manpower's operating margins averaged only 3%, slightly below Randstad's 3.5% and Adecco's 4.2%. Global recruiting firms compete on razor-thin operating margins. Moreover, while Manpower continues to widen its user base, its candidate database isn't truly proprietary. Candidates can sign up with multiple recruiters to increase their probability of securing employment. Consequently, Manpower experiences diminished network value: It's highly likely that its candidates and clients also form part of a competitor's network. Randstad and Adecco both have sizable candidate databases capable of meeting demand and taking clients away from Manpower. Given the competitive nature of the industry and historically low margins, we lack confidence in the firm's network and its ability to generate excess returns on capital over time.

None

Economic Moat

ManpowerGroup

ManpowerGroup, Inc. engages in the provision of workforce solutions and services. It operates through the following segments: Americas, Southern Europe, Northern Europe, Asia Pacific Middle East, and Right Management. The Americas segment offers services as Manpower, Experis, and ManpowerGroup Solutions through both branch and franchise offices. The Southern Europe segment provides permanent, temporary and contract recruitment, assessment and selection, training and outsourcing services. Northern Europe includes a comprehensive suite of workforce solutions and services through Manpower, Experis, ManpowerGroup Solutions in the United Kingdom, the Nordics, Germany, and the Netherlands. The Asia Pacific Middle East segment operates in Japan, Australia, Korea, China, and India. The Right Management segment delivers talent and career management workforce solutions. The company was founded by Elmer Winter and Aaron Scheinfeld in 1948 and is headquartered in Milwaukee, WI.

Earnings data Q4 2023

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ManpowerGroup, Inc. engages in the provision of workforce solutions and services. It operates through the following segments: Americas, Southern Europe, Northern Europe, Asia Pacific Middle East, and Corporate. The Americas segment offers services as Manpower, Experis, and ManpowerGroup solutions through both branch and franchise offices. The Southern Europe segment provides permanent, temporary and contract recruitment, assessment and selection, training and outsourcing services. The Northern Europe segment includes a comprehensive suite of workforce solutions and services through Manpower, Experis, ManpowerGroup Solutions in the United Kingdom, the Nordics, Germany, and the Netherlands. The Asia Pacific Middle East segment operates in Japan, Australia, Korea, China, and India. The company was founded by Elmer Winter and Aaron Scheinfeld in 1948 and is headquartered in Milwaukee, WI.

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MILWAUKEE , Sept. 7, 2023 /PRNewswire/ -- Talent Solutions TAPFIN, a leading managed service provider (MSP) dedicated to the innovation and delivery of integrated workforce management solutions worldwide and part of the ManpowerGroup (NYSE: MAN) family of brands, today announced it has been named a Global Leader in Everest Group's Contingent Workforce Management (CWM)/Services Procurement (SOW) Solutions PEAK Matrix® Assessment 2023 for the 10th consecutive year.

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ManpowerGroup (MAN) Stock Declines 3% on Q2 Earnings Miss

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ManpowerGroup Inc. (MAN) Q2 2023 Earnings Call Transcript

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