Earnings Call Transcript
ManpowerGroup Inc. (MAN)
Earnings Call Transcript - MAN Q3 2025
Operator, Operator
Welcome to Manpower Group's Third Quarter Earnings Results Conference Call. This call is being recorded. I would now like to turn the call over to ManpowerGroup's Chair and CEO, Mr. Jonas Prising. Sir, you may begin.
Jonas Prising, CEO
Welcome, and thank you for joining us for our third quarter 2025 conference call. 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 manpowergroup.com. I will start by going through some of the highlights of the quarter, then Jack will go through the third quarter results and guidance for the fourth quarter of 2025. I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the safe harbor language.
John McGinnis, CFO
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. Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures.
Jonas Prising, CEO
When we last reported earnings in July, we characterized the environment as one of continued uncertainty yet growing resilience. With employers hiring very cautiously and labor markets holding steady against the backdrop of geopolitical complexity and economic softening. Since then, these dynamics have largely persisted. Geopolitical tensions remain elevated. The race to invest in AI continues at pace, and employers are adapting to the fluctuating policy environment and cautious consumer sentiment in Europe and North America. Globally, conditions remain mixed. Strong momentum across Latin America and APME offset by softer trends in Europe and North America, where activity levels remain well below historical peaks, yet stable over recent quarters. While hiring remains cautious, we continue to see gradual broad-based signs of stabilization. Our most recent ManpowerGroup Employment Outlook Survey, covering over 40,000 employers across 42 countries, reinforces this view. Hiring outlooks remained relatively steady year-over-year with ongoing stabilization, and 45% of employers planning to maintain current workforce levels, the highest since early 2022, as organizations balance capturing growth opportunities with mitigating economic uncertainty. Turning to our results. After 11 consecutive quarters of organic constant currency revenue declines, we crossed back over to growth during the third quarter. The stabilization of demand in recent quarters in North America and Europe, despite ongoing tariff uncertainty, has been a key factor in the revenue trend improvements. We're encouraged by this progress, as well as a continuation of revenue growth in our largest brand, Manpower, with strength in North America, Latin America, Italy, Spain, Belgium, Poland, and APME to name a few. Within Experis, we're beginning to see early signs of stabilization in professional and IT hiring. Win rates have improved modestly, and we have secured new enterprise programs in sectors such as financial services and life sciences. Our ongoing modernization of the Experis offering, including enhanced consultant development and tighter integration of our PowerSuite AI tools, is supporting margin improvement and future growth as client demand recovers. The trends in talent solutions are also improving for our managed service provider offering, where win rates and demand stabilization is driving strong revenue growth, helping offset some weakness in recruitment process outsourcing and right management as labor markets remain somewhat frozen in terms of hiring and workforce reductions. Overall, for the quarter, reported revenue was $4.6 billion, down 2% year-over-year in constant currency. System-wide revenue, which includes our expanding franchise revenue base, was $4.9 billion. Our reported EBITDA for the quarter was $74 million. Adjusting for restructuring costs, EBITDA was $96 million, representing a decrease of 22% in constant currency year-over-year. Reported EBITDA margin was 1.6%, and adjusted EBITDA margin was 2.1%. Earnings per diluted share was $0.38 on a reported basis, while earnings per diluted share was $0.83 on an adjusted basis. Adjusted earnings per share decreased 39% year-over-year in constant currency. As we look to the fourth quarter, we're closely monitoring several leading indicators of demand, including activity among our largest enterprise clients, new assignment starts and priority verticals, such as logistics and manufacturing, and year-end seasonal patterns. These metrics are helping us assess the depth and breadth of stabilization across our markets and inform our expectations as we plan for 2026. Looking closely at these indicators, we believe our demand in Europe and North America is holding steady and are confident that we're well positioned for future growth. Our AI-enabled data insights are increasingly instrumental in tracking, anticipating, and predicting client demand. This real-time intelligence enables our teams to pivot quickly to sectors and regions where growth opportunities are emerging. Our enterprise pipeline continues to expand with most of the demand in this environment concentrated among global enterprise clients, although decision time lines across major markets remain extended. As a leadership team, we remain laser-focused on managing the current environment while positioning our business for future growth. We continue to take decisive actions to contain costs, drive efficiencies at scale, and simplify our organization while accelerating the strategic initiatives that will strengthen our capabilities, expand our margins, and deliver long-term shareholder value. I'll now hand it over to Jack for more details on the quarter's financial results.
John McGinnis, CFO
Thanks, Jonas. U.S. dollar reported revenues in the third quarter were impacted by foreign currency translation. And after adjusting for currency impacts, came in at the midpoint of our constant currency guidance range. Our revenue trends demonstrate the continuation of largely stable activity levels across North America and Europe. Our revenue from franchise offices are significant and are included within system-wide revenues, which equaled $4.9 billion for the quarter. Gross profit margin came in below our guidance range, driven by shifts within staffing, reflecting an increased mix of enterprise accounts, lower permanent recruitment, and lower outplacement. As adjusted, EBITDA was $96 million, representing a 22% decrease in constant currency compared to the prior year period. As adjusted, EBITDA margin was 2.1% and came in at the midpoint of our guidance range, representing a 50 basis points decline year-over-year. Foreign currency translation drove a favorable impact to the 2% U.S. dollar reported revenue increase from the constant currency decrease of 2%. Organic days adjusted constant currency revenue increased 0.5% in the quarter, which was slightly favorable to the midpoint guidance of flat. Turning to the EPS bridge, reported earnings per share was $0.38. Adjusted EPS was $0.83 and came in $0.01 above our guidance midpoint. Walking from our guidance midpoint of $0.82, our results included improved operational performance, representing a positive impact of $0.02 and a slightly higher tax rate, which had a negative impact of $0.01. Restructuring costs and other represented $0.45 bringing reported earnings per share to $0.38. Next, let's review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand had growth of 3% in the quarter. The Experis brand declined by 7%, and the Talent Solutions brand declined by 8%. Within Talent Solutions, our RPO business experienced lower demand in select ongoing client programs year-over-year. Our MSP business continued the strong revenue growth performance while Right Management experienced declining year-over-year revenues as outplacement activity continued to slow. Looking at our gross profit margin in detail, our gross margin came in at 16.6% for the quarter. Staffing margin contributed a 40 basis point reduction due to mix shifts towards enterprise accounts. Permanent recruitment activity was softer than expected, and the lower contribution resulted in a 20 basis point decline. Lower career transition outplacement activity within Right Management resulted in a 10 basis point margin decrease. Moving on to our gross profit by business line. During the quarter, the Manpower brand comprised 63% of gross profit, our Experis Professional business comprised 21%, and Talent Solutions comprised 16%. During the quarter, our consolidated gross profit decreased by 4% on an organic constant currency basis year-over-year, representing a slight improvement from the 5% decline in the second quarter. Our Manpower brand reported flat organic constant currency gross profit year-over-year, equal to the second quarter year-over-year trend. Gross profit in our Experis brand decreased 10% in organic constant currency year-over-year, an improvement from the 14% decrease in the second quarter. Gross profit in Talent Solutions declined 13% in organic constant currency year-over-year, a decline from the flat result in the second quarter. MSP and RPO experienced similar activity levels from the second quarter, but RPO declined year-over-year as they anniversaried large growth in the third quarter a year ago in select client programs. Right Management gross profit decreased on lower outplacement activity. Reported SG&A expense in the quarter was $702 million. SG&A as adjusted was down 2% on a constant currency basis and 1% on an organic constant currency basis. The year-over-year organic constant currency SG&A decreases largely consisted of reductions in operational costs of $5 million, partly driven by previous restructuring actions. Corporate costs continue to include our back-office transformation spend, and these programs are progressing well with expected medium-term efficiencies. Dispositions represented a decrease of $8 million while currency changes contributed to a $20 million increase. Adjusted SG&A expenses as a percentage of revenue represented 14.8% in constant currency in the third quarter. Adjustments represented restructuring of $21 million. Balancing gross profit trends with strong cost actions to enhance EBITDA margin is one of our highest priorities, and we continue to analyze all aspects of our cost base for additional ongoing efficiency improvements. The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing an increase of 6% year-over-year on a constant currency basis. As adjusted, OUP was $43 million, and OUP margin was 3.9%. Restructuring charges of $5 million primarily represented actions in the U.S. The U.S. is the largest country in the Americas segment, comprising 63% of segment revenues. Revenue in the U.S. was $691 million during the quarter, representing a 1% days adjusted decrease compared to the prior year. This represents an improvement from the 3% decrease in the second quarter. OUP as adjusted for our U.S. business was $24 million in the quarter. OUP margin as adjusted was 3.5%. Within the U.S., the Manpower brand comprised 28% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 8% on a days adjusted basis during the quarter, which represented strong market performance and a slight decrease from the 9% increase in the second quarter. The Experis brand in the U.S. comprised 39% of gross profit in the quarter. Within Experis in the U.S., IT skills comprise approximately 90% of revenues. Experis U.S. revenue decreased 9% on a days adjusted basis during the quarter, an improvement from the 14% decline in the second quarter. Talent Solutions in the U.S. contributed 33% of gross profit and saw a flat revenue trend year-over-year in the quarter, a decrease from the 13% increase in the second quarter driven by lower RPO activity from select ongoing client programs and lower right management outplacement activity. The MSP business executed well during the quarter, again, posting strong double-digit revenue increases year-over-year. In the fourth quarter of 2025, we expect the overall U.S. business to have a similar to slightly further revenue decline compared to the third quarter, largely due to higher seasonal Experis health care projects in the prior year period. Southern Europe revenue comprised 47% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.2 billion, representing a 1% decrease in organic constant currency. As adjusted, OUP for our Southern Europe business was $70 million in the quarter, and OUP margin was 3.2%. Restructuring charges of $4 million represented actions in Spain and France. France revenue equaled $1.2 billion and comprised 53% of the Southern Europe segment in the quarter and decreased 5% on a days adjusted constant currency basis. As adjusted, OUP for our France business was $31 million in the quarter. Adjusted OUP margin was 2.7%. France revenue trends improved slightly during the course of the third quarter despite the government uncertainty in September, and we expect a slightly improved rate of revenue decline into the fourth quarter, reflecting the third quarter exit rate. Revenue in Italy equaled $463 million in the third quarter reflecting an increase of 4% on a days adjusted constant currency basis. OUP as adjusted equaled $27 million and OUP margin was 5.8%. Our Italy business is performing well, and we estimate a slightly improved constant currency revenue growth trend in the fourth quarter compared to the third quarter. Our Northern Europe segment comprised 18% of consolidated revenue in the quarter. Revenue of $817 million represented a 6% decline in constant currency. As adjusted, OUP equaled a $1 million loss. This represents an improvement from the $6 million loss in the second quarter and reflects the impact of cost reduction actions. The restructuring charges of $14 million primarily represented actions in Germany and the U.K. Our largest market in the Northern Europe segment is the U.K. which represented 32% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 13% on a days adjusted constant currency basis. We expect the rate of revenue decline in the U.K. to improve into the fourth quarter compared to the third quarter. In Germany, revenues decreased 23% on a days adjusted constant currency basis in the quarter. Germany automotive manufacturing trends continue to be weak. In the fourth quarter, we are expecting a similar year-over-year revenue decline compared to the third quarter trend. The Nordics continue to experience difficult market conditions with revenues decreasing 4% in days adjusted constant currency in the quarter. The Asia Pacific Middle East segment comprises 11% of total company revenue. In the quarter, revenues equaled $521 million, representing an increase of 8% in organic constant currency. OUP was $27 million and OUP margin was 5.1%. Our largest market in the APME segment is Japan, which represented 60% of segment revenues in the quarter. Revenue in Japan grew 6% on a days adjusted constant currency basis. We remain very pleased with the consistent performance of our Japan business, and we expect continued strong revenue growth in the fourth quarter. I'll now turn to cash flow and balance sheet. In the third quarter, free cash flow was $45 million compared to $67 million in the prior year. Following a trend of declining earnings and large outflows for tax and technology license payments through the first half of the year, free cash flow was positive during the third quarter. Earnings have also been stabilizing in recent quarters which will improve the trend of free cash flow going forward. The fourth quarter is typically a strong quarter for free cash flow as we look ahead. At quarter end, days sales outstanding increased 1.5 days to 59 days as enterprise client mix has increased. During the third quarter, capital expenditures represented $15 million. During the third quarter, we did not repurchase any shares. And at September 30, we have 2 million shares remaining for repurchase under the share program approved in August of 2023. Our balance sheet ended the quarter with cash of $275 million and total debt of $1.2 billion. Net debt equaled $941 million at September 30, reflecting an improvement from June 30. Our debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of $3.1 million and a total debt to total capitalization at 38%. Detail of our debt and credit facility arrangements are included in the appendix of the presentation. Next, I'll review our outlook for the fourth quarter of 2025. Based on trends in the third quarter and October activity to date, our forecast anticipates ongoing stability in the majority of our markets and a continuation of existing trends. With that said, we are forecasting earnings per share for the fourth quarter to be in the range of $0.78 to $0.88. The guidance range also includes a favorable foreign currency impact of $0.08 per share and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide. Our constant currency revenue guidance range is between a 2% decrease and a 2% increase and at the midpoint is a flat revenue trend. Business days are stable year-over-year and considering the impact of dispositions, our organic days adjusted constant currency revenue increase represents slight growth, which rounds down to a flat revenue trend at the midpoint. EBITDA margin for the fourth quarter is projected to be flat at the midpoint compared to the prior year. We estimate that the effective tax rate for the fourth quarter will be 46.5%. In addition, as usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be $47.1 million. I will now turn it back to Jonas.
Jonas Prising, CEO
Thanks, Jack. In parallel with our disciplined cost control, we continue to advance our digitization and standardization agenda across both the back and front office. We are pleased with the strong progress of our global business services initiatives, which are streamlining operations, aligning processes and improving speed and quality while reducing costs. I recently visited our new hub in Porto, Portugal, where our finance and technology team standardized and centralized back-office functions across Europe. These advancements are providing a blueprint for how we will continue to evolve our operating model, standardizing our processes, and leveraging our scale advantage across countries and regions. We're now preparing to apply the same disciplined approach to the front office, optimizing recruitment and sales processes on our global PowerSuite front office platform to identify similar opportunities for client and candidate service excellence, process standardization, and productivity gains. By simplifying workflows and integrating technology, we're empowering our teams and building a business that will be leaner, more agile, and well positioned for long-term growth. We are confident that our combination of operational rigor, strategic investment, and disciplined execution will ensure Manpower Group continues to strengthen our value to clients and candidates in a fast-changing external environment. This confidence in our value reinforced by the consistent recognition of our strong and distinct brands received for their market leadership and capabilities. Last quarter, Everest Group recognized Manpower, Experis, and Talent Solutions as industry leaders across multiple categories, reflecting the strength of our strategy, technology, and people. Each recognition highlights Sophie AI, our enterprise-wide AI platform we introduced last quarter, where our AI solutions are being developed, refined, and incorporated into our operational workflows to further enhance our capabilities and help clients make smarter, faster talent decisions. We are now increasingly moving from AI use cases to scaled commercial impact. In our largest market, Sophie AI is now driving measurable gains with approximately 30% of new client revenue derived from AI-related probability. We also see that when prospects are identified as high probability by AI, the potential value is notably higher than prospects identified by human insight alone. With this new technology deployed across 14 key markets and scaling further, we expect to see significant value realization across our global footprint. The RPO and MSP, several recent client wins directly cite our AI-powered insights as differentiators in their selection process. These proof points reinforce how our technology investments are enhancing client outcomes. And as we look ahead, we do so with cautious optimism. While near-term conditions remain challenging in North America and Europe, our teams continue to execute our current priorities with discipline, serving our clients, supporting millions of associates, and building the foundation for future profitable growth. I want to close by thanking our people around the world for their unwavering dedication and commitment to helping our clients win and our associates succeed. Operator, please open the line for our Q&A.
Operator, Operator
Our first question comes from Andrew Steinerman with JPMorgan.
Andrew Steinerman, Analyst
My first question is about when business confidence improves. So this is like beyond what you just guided for fourth quarter '25, would you expect kind of more of an early cycle pickup in flexible staffing volumes? And then also, Jack, if you could just comment on the gross margins that you talked about in the prepared remarks. Like is it this kind of an odd time where we're seeing softer outplacement and softer perm at the same time?
Jonas Prising, CEO
Andrew, and yes, no, it is a bit of a strange time in many labor markets in Europe and North America. As you heard me characterize it in our call, it's like a frozen labor market. There's very little hiring going on, and there's very little workforce reductions going on. And we see that, of course, reflected in both our perm and RPO numbers as well as in the Right Management business also. But what's been very encouraging to us, though, is that despite this, and despite PMI still being below 50 in many of our major markets, we're starting to see a distinct stabilization and growth in Manpower, which is what we would hope to see when the markets bottom out. And to your question, if employer confidence returns, we are hopeful that, that then would mean that we see a return to industry dynamics where we expect to see better Manpower growth and the rest of the brands also benefiting from that improved environment.
Operator, Operator
Our next question comes from Kartik Mehta with Northcoast Research.
Kartik Mehta, Analyst
Maybe Jack, if you just talk about the trends you saw in the quarter. And I guess I'm wondering if the quarter was even throughout or if you saw any volatility because of kind of what's happening in the economy.
John McGinnis, CFO
Sure, Kartik, I'd be happy to address that. If we examine our major markets, starting with France, we observed an improvement in the trend during the third quarter. Overall, revenue in France was down 5%, but by the end of the quarter, it had improved to a decrease of 4%. We began to see this improvement in September, which was also reflected in industry data, signaling a positive trend. Looking at October data, this trend appears to be maintaining. Similarly, Italy demonstrated an improving trend in September, and we anticipate a continued increase in revenue growth going into the fourth quarter. In the U.S., the situation was relatively stable, although there was some volatility due to year-over-year comparisons. Last year, we had significant RPO volumes from specific projects that created this volatility. Overall, the Manpower business in the U.S. grew steadily throughout the quarter, while the Experis business remained stable in terms of activity levels. These observations align with the broader revenue trends we experienced.
Kartik Mehta, Analyst
And if we could just go back to the gross margin issue. As you look at the fourth quarter and kind of look at gross margin, are you seeing any price pressure? Or is there any mix issue that is impacting gross profit. And beyond the mix of I realized perm is still kind of in a recessionary standpoint. But just beyond there, is there anything else that you'd say is impacting the gross profit margin?
John McGinnis, CFO
No. I'd say, Kartik, when we look at the staffing margin, it's primarily mix shift towards enterprise clients. And in this environment, enterprise clients continue to be the bigger part of the spend and the demand, and that's averaging in. And that's been a trend we've been seeing over the course of the year. So what that means is the larger enterprise mix is putting pressure on the consolidated margin as they continue to average in. We would expect that to start to reverse when convenience comes back and that market starts to come back. But in the current environment, it's the enterprise clients that are spending the most and have the greatest demand. And that's the main driver of what's happening on the staffing side. Pricing is always competitive, but we have not seen any dramatic changes in pricing on an overall basis. And to your point, in terms of the rest of the GP margin, yes, we did acknowledge that perm came in a bit softer than we expected that put a little more pressure on the GP margin this quarter. And our placement volumes, as we talked about previously was a bit lower as well, which was the other piece of the GP margin bridge year-over-year. But I would say it's primarily driven by mix shift.
Kartik Mehta, Analyst
And just one last question, Jonas. As you talk to customers, and I'm not sure how you measure this, but are you sensing any more or less amount of uncertainty? Because it seems like uncertainty has been kind of the word for the whole year. And I'm wondering, as you speak with them, if there's any level of difference in your opinion?
Jonas Prising, CEO
I would say that the clients we communicate with are becoming more resilient to the changing policy environment. They see this not as a hindrance but as something advantageous. As they plan for their business success, they are actively moving forward and considering necessary investments. Throughout the year, despite numerous fluctuations, the tariff environment seems to be gradually stabilizing. While I acknowledge that this may change shortly, many major countries and regions now have trade agreements that businesses can rely on until 2026. We anticipate this trend will continue into the end of this year and the beginning of the next. Consequently, employers should see an improved operating environment with greater visibility leading into 2026. Additionally, from an economic standpoint, projections for 2026 suggest a more favorable economic landscape in both Europe and North America, while Asia Pacific and Latin America maintain their current positive trajectory. There are reasons to remain optimistic; however, we are managing the business based on current conditions to provide guidance for the upcoming quarter. Employers seem to be increasingly resilient to external noise and are focused on understanding the underlying trends of where things are heading. I believe that as the year progresses, we will see more stability in that outlook.
Operator, Operator
Our next question comes from Manav Patnaik Barclays.
Jonas Prising, CEO
This is Ronan Kennedy speaking on behalf of Manav. We briefly discussed this in response to the questions from Andrew and Kartik. However, could you please reconfirm the leading indicators of demand you are observing that inform your assessment of stabilization? Specifically, are there any notable insights regarding the largest enterprise clients, the new assignment starts, or anything relevant in specific regions or brands? Well, as we mentioned in our prepared remarks, if you look at APME in Latin America, we continue to see good growth. So the notion of stabilization really mostly applies to some of the markets in Europe as well as the U.S. and Canada. And yes, those are the indicators, amongst others that we look at. We also look at the trends that we've now seen over a number of quarters with markets firming up. And despite a labor market that in some sense is a bit frozen between permanent hiring and workforce reductions. What is clear if you look at our performance from a Manpower brand perspective that we're starting to see demand coming through and giving us growth opportunities. And over time, as the market and the demand improves, we would expect to see the same trends play out also in our other brands.
John McGinnis, CFO
I think it's really around the pipeline management that Jonas was referring to, where we've seen significant impact in terms of probability-weighted assessment of our revenue opportunities, Ronan. And so when we look at that, that impacts across all industries. I wouldn't say it's one specific vertical that has benefited from AI. I'd say it's multiple verticals, verticals that we deliver into. And it's been a big benefit to the way we focus our sales teams on opportunities. I think in this environment, we've talked a lot about in the past about delayed decisions by clients. So having that type of technology has been a big improvement for us to make sure we're focusing our time on the best opportunities, and that's been working quite well. But I wouldn't say it's a specific industry. It's very broad across all of our industries.
Jonas Prising, CEO
Well, first of all, let me say that we believe that AI could have a really positive impact on our business. And as you know, we've spoken over quite some time now regarding our significant investment into our digital core. So by the end of this year, 90% of our revenues will be covered by a common global front office platform. 60% of our back-office transactions will be handled by a global platform moving to 80% or 90% towards the end of the year. So all of that says that we now have a global digital core that gives us the opportunity to leverage our scale by standardizing processes, centralizing across countries and regions in completely different ways. It also gives us the opportunity, of course, to deploy AI in a scalable way as we have been doing in a number of instances. Like many companies, we've been working with use cases and really trying to understand where the opportunities lie. And I'd say we are still in the early innings of exploring what it can be, but the example that I cited in our prepared remarks really shows the strength of what can happen when you apply AI into your lead generation and prospecting database. Now we have the opportunity to really combine human insight with AI-generated insights, and the results that we're seeing in terms of the improvement in win rates as well as in value generation are very, very promising. So whilst I can't give you a timeline for a global rollout on AI, I would say that we feel very good about our digital core and being able to deploy AI and more efficient processes enabled by AI across our network and across our global operations.
Operator, Operator
Our next question comes from Mark Marcon with Robert W. Baird.
Mark Marcon, Analyst
I don't want to focus too much on the gross margin, but I want to understand it better. Are the gross margins stable on a like-for-like basis in the enterprise sector across countries, particularly in key markets like France, Italy, the U.K., and the U.S.?
Jonas Prising, CEO
Mark, as Jack mentioned, the changes we observe at the country level are largely consistent with what we see on a consolidated basis, and they relate to the business mix. In markets where the enterprise segment is growing, it outpaces the convenience segment, leading to a shift in business mix. This trend is not unusual for markets facing challenges. Additionally, while pricing remains competitive, we aren't witnessing significant changes in any major markets. Currently, the primary factor affecting our staffing margin is the business mix rather than price competition. It's also worth noting that despite some softening in the U.S. labor market, unemployment remains at historically low levels, similar to Europe. Although it may be somewhat easier to find talent now, there are still challenges, particularly for specific and specialized skill sets.
John McGinnis, CFO
Yes. And I would just add, Mark, it's not broad brush in every market. We improved staffing margin in Japan in the third quarter year-over-year. As we anniversary a very difficult environment in the Nordics from a year ago, we improved staffing margin there as well. We improved staffing margin in Canada. But as Jonas said, in the markets where we have very large enterprise client bases, we have seen a shift on the mix. So as enterprise becomes a bigger part of the pie, that's averaging in and putting pressure on in those other large markets. And of course, that would include France and the U.S. and Italy.
Mark Marcon, Analyst
Are there things that you could do to stimulate the convenience side of the market? I mean, like within the U.S., when we take a look at small business employment relative to large enterprise employment, on a macro scale, it doesn't seem like there's a huge difference, although I imagine that small businesses are a little bit more concerned about managing costs. But I'm wondering, are there things that you can do in order to tilt things a little bit on the convenience side.
Jonas Prising, CEO
Well, our efforts around building stronger pipelines enabled by technology, and I mentioned earlier, help getting AI to target prospect lists, both for enterprise as well for convenience clients should help us get some traction, but what's not unusual at times like this is that enterprise demand is just higher because they have greater ability to absorb the uncertainty, and their caution is balanced across multiple geographies and multiple businesses as well. So we continue to believe that the convenience market is strong. We believe we have great opportunities to continue to improve our positioning and market share also in that market. But what we're seeing right now at this point in the cycle in Europe and in North America, is that enterprise demand is slightly higher than what we're seeing from the convenience. But those things, once employer confidence shifts, can change quite quickly. So we expect to see the margin business mix to rebalance the way it has done in the past.
John McGinnis, CFO
I would just add that we have significant convenience initiatives underway in markets like Italy and France. This is one of the reasons we believe Italy is currently leading our business. Our growth is driven by a lot of enterprise growth, but we are also seeing strong convenience growth in our Italy operations. This is a key initiative for us in the U.S. with Manpower and Experis as well. We are witnessing notable growth in convenience in markets like Italy, and these initiatives are taking place in all of our largest markets, with a more pronounced impact in Italy at this time.
Mark Marcon, Analyst
Great. And then can I just ask about RPO. It sounds like you're starting to see some wins from Sophie. Are those new wins, those new RPO wins enough to offset the frozen market? Or would you expect RPO to continue to primarily be driven by the macro?
Jonas Prising, CEO
I think it can help us drive better win rates, but what's clear is that both the size of the deals in the market today and the extended time of implementation means that we are anticipating RPO to still be feeling the headwinds at least looking towards the near term. The fact that companies are less interested in hiring permanently means that from RPO, which is a recruitment process outsourcing offering, essentially an outsourced perm hiring engine to bring in lots of talent into organizations. The companies are slower to act on those kinds of initiatives. And when they're planning for those initiatives, the timeline for implementation tends to be longer and the initial volumes tend to be lower. So we think the RPO business model as well as the value that it presents for clients remains extremely strong. And especially if you think about the future where we are going to be demographically constrained, taking our RPO operations into any company looking to find talent at scale across geographies and nations is going to be extremely valuable. But right now, what we're seeing is that companies are less focused on that, so that's why we're expecting it to continue to face some headwinds in the near term.
Mark Marcon, Analyst
Okay. Can I ask one more question, please? Jonas, I want to hear your thoughts on the international situation, especially in Europe. We're all aware of the political situation in France. How is this affecting decision-makers on the ground? Are businesses feeling less certain about stability given the political turmoil we are witnessing there?
Jonas Prising, CEO
Yes. Thanks, Mark. I just came back from France last week and spent quite some time with our teams and being in various markets as well. And clearly, the political turmoil in France is not helpful to the sentiment of employers. Having said that though, if you look at the various elements of the political factions, no one disagrees that France needs to go through a budget process that helps reduce the deficit. So the degrees of how much that would relate to. So that's where the tensions lie. As you might have seen this morning, the government has survived two no-confidence votes, and we would expect that to continue. But what's coming next is the discussion around the actual budget, which needs to be concluded before the end of the year. And so there's still a lot of uncertainty in terms of what's going to happen. But from a company perspective, what our clients are doing is looking at their business and navigating through this environment, responding to the demand that they're seeing in various markets. And as Jack alluded to, and as you've seen from our numbers, French PMI has improved. The outlook for Europe has improved somewhat into 2026 as well. So companies are preparing and that's what we're also seeing in our business that we're navigating this and companies are resilient, and they need to take care of their business first and what's very important to their business is to find the right talent to execute their plans. And in a labor market that is regulated as France, our offerings are extremely attractive to fuel those talent investments in environments like these. So to conclude, the environment in France right now with the political uncertainty is not helpful for sure. But at the same time, most of our clients are very pragmatic, and they're responding to the demand that they are seeing. And in turn, that gives us the opportunity to provide talent into their operations and make sure that they are successful.
Operator, Operator
Our next question comes from Trevor Romeo with William Blair.
Trevor Romeo, Analyst
If I could maybe just follow up very quickly on that last question with France. Just quickly, is there any change to your expectations or your confidence level at this point that the additional business tax from this year won't recur beyond 2025 at this point based on everything that's going on there?
John McGinnis, CFO
Trevor, this is Jack. I'd say it's too early to tell, candidly, at this stage. There were some discussions just this week on that. But we're monitoring the situation. I'll give a better update on that at year-end, as Jonas said, once the budget is presented and passed. I think at this stage, there has been some discussion within the French budget of perhaps continuing the surcharge, but at a lower level than the current year into one additional year into 2026. But as I said, it's too early to tell. So I think from this perspective, we would expect our effective tax rate to decrease next year as the surcharge comes down. We'll see where it ends up as the budget continues to be debated and discussed within Parliament. But I'd say at this stage, it's a bit too early to give any firm guidance on that, Trevor.
Trevor Romeo, Analyst
Okay, Jack, that is helpful. And then I guess maybe kind of a broader question. I think for several quarters now of the Manpower brand outperforming Experis. So from kind of a macro perspective, I guess, what do you think are the drivers of blue-collar staffing outperforming white-collar staffing? Is AI playing a role there? Is it kind of more labor hoarding in those white-collar areas in the frozen labor markets you talked about, Jonas? Anything you could say on that topic?
Jonas Prising, CEO
Well, we've been very pleased to see how Manpower has rebounded into growth for a number of quarters now and projected to do so again into the fourth quarter. But that evolution, of course, is tied to a number of different things. You've seen PMI start to improve. I talked about the resilience of employers that are getting used to a more fluctuating environment and have to run their business and make the talent investments going forward. So I think those are things that we are looking at. And of course, we've also been able to pivot to areas that are growing faster and targeting industry verticals that we feel are going to give us more opportunity for growth. If you think about Experis, clearly, it's unusual from an industry perspective, our own industry perspective to see that there is that disconnect. But really, there's been a lot of things that have been different in this post-pandemic era. And what we believe is happening from our Experis perspective is that companies are really focused on investing into the AI boom, and they are really moving much lower on the traditional IT project. And that's what we think is happening and impacting the demand for many of our big clients. They have shifted their priorities into AI investments, and whilst we are participating in those skill sets as well, the volumes that we have in different areas is really something that is being impacted at this point in time. Now we believe demand for more traditional digital project is going to come back with many of those same clients, but we think it's a moment in time, and that's why you're seeing this difference between white-collar staffing. In our case, our Experis business as well as our Manpower business that is moving forward and is doing very well.
Operator, Operator
Our next question comes from George Tong with Goldman Sachs.
Keen Fai Tong, Analyst
Going back to your comments on labor markets being frozen in terms of hiring and more ports reductions, can you parse out which markets are more frozen than others? And in which markets you're starting to see some volume?
Jonas Prising, CEO
I would say the industry verticals, George, that we see are starting to pick up a bit are related to financial services in some markets, logistics, some of that is seasonality. That's coming back. There's a lot of activity also in the defense sector, especially in Europe that we feel could be very beneficial to us. On the flip side, we are still seeing sluggishness around auto that we've talked about. Construction is still sluggish in many parts of Europe as well, where we are in that business. So we can see a number of sectors that are more sluggish than others. But I would say that the nature of how employers are holding on to their workforce, we believe, is really the memory of the post-pandemic surge in demand for talent that had been dislocated in various countries. And employers are very keen not to relive their experience. They believe the workforces they have in place today are largely the workforces they will need going forward, and they're holding on to their workforce to a greater degree today than we have experienced in past economic slowdowns and periods of uncertainty of this kind because we think employers are informed and cautious by that experience. And as long as they believe in a recovery, they will hold on to their workforces longer. And I think that's what we're seeing, especially here in the U.S. That's what the mindset is. Now the good news on that part is, of course, that once they are seeing tangible signs of an improvement in economic outlook and maybe also greater certainty from a policy perspective, they're ready to move forward bringing talent back on so that they can meet the growing demand. And of course, that's what we are preparing for and working with them on being ready to capture the future growth opportunities as things improve for them.
Keen Fai Tong, Analyst
Got it. That's helpful. You talked about accelerated initiatives to remove structural costs from the organization. Which regions are seeing the most amount of restructuring and headcount reductions?
John McGinnis, CFO
In the third quarter, we maintained a strong focus on Northern Europe, particularly in Germany, which led the restructuring efforts amounting to $11 million. We also conducted initiatives in Spain, the U.K., and the U.S. Overall, when I look at 2025, the majority of our impactful actions have taken place in Northern Europe. This is reflected in the improvement of our financial trend from Q2 to Q3, where the loss decreased from $6 million to $1 million, demonstrating the results of our hard work in that region. There's still more to be done, but we are making progress. Looking ahead, as mentioned in the prepared remarks, we are evaluating structural costs across the entire organization. Our global business service center in Europe is working to lower costs, and we are closely examining the front office and key areas of our largest businesses for potential opportunities in standardization and centralization. This remains an ongoing opportunity that we will continue to discuss in the future.
Operator, Operator
Our next question comes from Stephanie Moore with Jefferies.
Stephanie Moore, Analyst
Just some follow-up questions. You talked a lot this morning about just the technology advancements and investments, whether it's AI or others that you've made over really the last several years here. When the underlying environment unfreezes or starts to be a bit more constructive? Do you believe that your technology advancements will enable you to capture some of that market growth or just that recovery with effectively less people and ultimately kind of seeing greater operating leverage and greater torque to the model than impact upswing?
Jonas Prising, CEO
Thanks, Stephanie. Yes, and the investments we are making, first of all, I believe, position us very uniquely in our industry with our scale, having 90% of our revenues flow through a common global front office platform mobile apps that are being deployed across many of our countries addressing both our associates, so the people that are working for us and are candidates, people that are applying for jobs. And then combining that with our back-office technologies also at a global level, gives us an opportunity to standardize, centralize and reimagine our processes in a completely different way. And clearly, what we're aiming to do is to leverage our scale not only across countries but across regions as well. And when we look at our operations in Latin America, all 15 countries in which we operate and lead the market in across that region are handled from a back-office perspective centrally. Our payrolling is handled centrally. And you've seen the progress that we have made across Latin America over time. We're very pleased with that performance and the improved productivity that we're seeing there. And we aim to drive similar kinds of effects, both from a growth perspective, being able to deliver faster to our clients at a higher quality, but also working on streamlining our processes in the back office and in the middle office so that we can gain productivity and efficiency there as well. And on top of all of that, of course, the impact of AI and what we can do through further automation, enabled by AI or just automation, is, of course, another aspect that we're looking at very, very closely.
Operator, Operator
Our next question comes from Josh Chan with UBS.
Joshua Chan, Analyst
Just 2 quick ones here. So I wanted to ask about SG&A leverage because in Q4, you're guiding to some margin compression on the gross margin line, but not much EBIT margin compression. So that obviously implies improving SG&A leverage. And I was just wondering what's driving that and whether you think you're at a point where SG&A can start potentially levering positively?
John McGinnis, CFO
Thanks, Josh. No, you're absolutely right. The guide does anticipate that SG&A will be a big part of the equation in terms of falling gross profit dollars down to the EBITDA line. So with that guide, you basically see a relatively stable level of EBITDA from Q3 into Q4. And we talked about crossing over to organic growth. Well, that's a big step to hold our margin flat year-over-year. It's been a while since we were able to do that. And with all the actions we've taken, we're starting to bend the curve on SG&A as well, and that's going to have a meaningful impact in the fourth quarter, and you can see that incorporated into the guide. So you're absolutely right that that is going to be a bigger impact in the overall equation in terms of holding that EBITDA. But I would say in terms of the GP, with that guide, it is just a modest change from Q3. So it's really just that effect that we've talked about with perm being a little bit softer, while we have a bit more enterprise in the mix. So just about 10 basis points sequentially as that continues to average in. But that's really the main impact there. But you're right. On SG&A, that is going to start to have a big impact on the EBITDA line. And that really is a reflection of all the work that we've talked about over the course of the year with the actions we've taken. And I talked about Northern Europe. That's one example of it, but we're seeing it in other markets as well in terms of improvement in bottom-line profitability.
Joshua Chan, Analyst
Great to see the progress. Jack, could you give us an estimate of what free cash flow might look like in Q4? Additionally, can you address the negative free cash flow we saw in the first half and how unusual that situation is as we consider what normal cash flow should be moving forward?
John McGinnis, CFO
Yes, sure, Josh. As I talked about last call, we had a big outflow in the first half of the year. And part of that was due to our very large market-leading MSP program. That does create some timing issues. We saw that at the end of last year into the first quarter of this year, where we had some very significant prepayments from some very large MSP clients at the very end of the quarter, and those payables went out at the very beginning of the following quarter. Usually, it's neutral, but sometimes if there's large prepayments that could create a little bit of volatility from a quarter-over-quarter. And we did see that flatter in the fourth quarter. We had a very strong free cash flow in the fourth quarter last year. It was flattered somewhat by that. But even putting that aside, it was still a very, very strong free cash flow for us in the fourth quarter of last year, but that did depress the first quarter outflow. We typically, as I've mentioned, over the last four years, we've had negative outflows in the first half of the year and very strong positive free cash flows in the second half of the year. And we started that here in the third quarter. The fourth quarter typically is a very strong free cash flow, and we would expect that to be the case again this year where the fourth quarter will be a strong free cash flow at this stage. So that's what I would add a little more color. The other item in the first quarter outside of the MSP program was we did have some very large one-time payments. We had the Tax Act from 2017 that had multiyear transition payments go out. We had the last one of those in the first quarter, which is one of the biggest payments, so that goes away going forward. And as I mentioned, a lot of our technology license costs are all loaded into the first half of the year, and we don't have that in the second half of the year. So that's why typically the second half is much stronger, and that would be the outlook. The last point I'd make is now here we are about 3/4 of stabilized EBITDA that is going to work into more favorable free cash flow trends as we go forward. Now that trailing 12 months EBITDA is stabilizing here with the guide for 9 months as we finish and that will be a positive impact because one of the other factors, of course, is trailing 12 months EBITDA had been decreasing with the downturn that we talked about that 11 quarters. And now that's shifting, and we stabilized, so that will be a positive factor in terms of free cash flow as we go forward as well.
Operator, Operator
Our next question comes from Tobey Sommer with Truist.
Tobey Sommer, Analyst
I wanted to ask a question about gross margin. If we do see employers sort of become a little bit more forward-leaning and optimistic, how would the social costs that typically reinflate gross margin after a period of decline perform in this context where unemployment rates didn't really rise a ton?
Jonas Prising, CEO
The changes that we've seen in the gross margin so far, Tobey, are all related to business mix. And to your point, there hasn't been a real decline in employment that's significant. And so whatever social burdens are carried today, and I'm sure that you're referring mostly here to the U.S., we would expect to carry on and be stable into the future because there's no need to re-up those burdens to a level that had been depleted, and that's what we would expect to see. So from that perspective, we don't think that social costs will have a major impact, barring changing legislations, of course, but just from an employment perspective, driving changes in social costs, and aside from any pension-related costs in other countries that might go up or not, we don't really expect that to be a main factor in driving our gross profit margin differences. But of course, what we are very keenly focused on is when employers feel more confident in the economy that we will see permanent recruitment go up to more normalized levels, and that will have an overall very positive effect on our gross profit overall.
Tobey Sommer, Analyst
Understood. And from an IT perspective internally within the firm, you've been pushing process improvement, global standardization, etc. Where do you think you sit from a competitive perspective? Because globally for the largest enterprise customers, you compete with a relatively narrow set of firms, are you ahead, on par, trailing? Where do you see yourself competitively from that perspective?
Jonas Prising, CEO
Well, of course, it's hard to say, Tobey. But I don't know that many of our competitors, national or global certainly, have 90% of their revenues flowing through one common office platform. We also have an extensive data lake that captures all of the data of our actions through our various digital channels. So I think we're very, very well positioned from a competitive perspective. But we're also clear that this is a race and that it's all about enabling the company to shift the value to where it matters most, which is the human interactions with our clients, our candidates, and our associates and render all the transactional activity as efficient as possible through automation, leveraging AI when appropriate and making our processes as efficient as possible. The true value that we create is in the last mile delivery with our clients and our associates, and that's what we're aiming firmly towards making sure that, that moment of truth is where we spend most of our time and that we enable our organization to be as efficient and as productive as we can, leveraging this global platform to the greatest degree possible.
Operator, Operator
Thank you. That concludes our earnings call. And I'll hand it over to Jonas to end the call.
Jonas Prising, CEO
Thank you very much, Michel, and thanks, everyone, for participating in today's earnings call. We look forward to speaking with you again on our Q4 call in January. Thanks, everyone. Have a great rest of the week.
Operator, Operator
Thank you for your participation. You may now disconnect. Good day.