Earnings Call Transcript
ManpowerGroup Inc. (MAN)
Earnings Call Transcript - MAN Q2 2022
Operator, Operator
Welcome to ManpowerGroup Second Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode until the Q&A session of today's conference. This call will be recorded. If you have any objections, please disconnect at this time. And now, I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.
Jonas Prising, CEO
Thank you. And welcome to the second quarter conference call for 2022. 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 second quarter results and guidance for the third quarter of 2022. And I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.
Jack McGinnis, CFO
Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of the COVID-19 pandemic and the Russia-Ukraine War, 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
Thanks Jack. I’m just back from extensive trips through Europe, which included the World Economic Forum’s Annual Meeting in Davos, VivaTech, which is one of the world’s largest technology and start-up events in Paris, and the Choose France Summit held just last week in Versailles, France. I will touch on these events as well as insights from clients during my business reviews later in the call. Turning to our financial results, in the second quarter revenue was $5.1 billion, up 6% year-over-year in constant currency, or 3% in organic constant currency. Our EBITDA for the quarter was $190 million. Adjusting for the U.S. acquisition integration costs, EBITDA was $193 million, reflecting growth of 22% in constant currency year-over-year. Reported EBITDA margin was 3.7%, and adjusted EBITDA margin was 3.8%. Earnings per diluted share was $2.29 on a reported basis and $2.33 on an adjusted basis. Adjusted earnings per share increased 28% year-over-year in constant currency. After recent meetings with clients, policymakers, and our teams across markets during my travels, I'm struck by the fact that despite the clouds weighing on the outlook of the global economy, the labor markets remain strong. Although there have been, and continue to be, disruptions from supply chain shortages in specific sectors such as automotive, construction, and to a lesser degree logistics, our clients continue to prioritize acquiring talent in this environment. As a result, demand for our services remains strong across many of our major markets. Our clients are particularly interested in permanent recruitment, both in our Talent Solutions RPO business as well as in our staffing businesses, in MSP within Talent Solutions, in Experis IT resourcing and solutions, and across our Manpower specializations. Our own quarterly, forward-looking hiring research across 40,000 employers in over 40 countries - the ManpowerGroup Employment Outlook Survey also showed that hiring confidence has remained strong in absolute measures, with organizations experiencing talent shortages at record highs. In our most recent survey, completed in May, 75% of companies globally predicted they would not be able to find the talent they need, which is the highest in 16 years. In summary, labor markets are very healthy, talent shortages are high, and demand for our services and solutions remains strong. Having said that, the combination of the continued war in Ukraine, increasing energy and food prices driving higher inflation rates, and continued supply chain issues creates a more uncertain economic outlook. This will likely create economic headwinds that may eventually spill into labor markets to a greater degree than what we have seen so far. Should that be the case, we are confident in our ability, as we have in the past, to manage changes in the market environment and adapt quickly, leveraging our diversified business mix and experienced leadership to position our company for continued success. We have made progress in diversifying our business into specialized higher value services and solutions, digitizing our business on common global platforms and creating talent at scale through our MyPath and Experis Academy initiatives. This should position us well, even in a more turbulent environment, and create competitive strength to our advantage. I will now turn it over to Jack to take you through the results.
Jack McGinnis, CFO
Thanks, Jonas. Revenues in the second quarter came in at the low end of our constant currency guidance range. Gross profit margin came in above our guidance range. As adjusted, EBITDA was $193 million, representing a 22% increase in constant currency from the prior year period, or an 11% increase on an organic constant currency basis. As adjusted, EBITDA margin was 3.8% and came in at the high end of our guidance, representing 50 basis points of year-over-year improvement, or 30 basis points organically. Due to the significant strengthening of the dollar, particularly against the euro, year-over-year foreign currency movements had a much bigger impact than usual on our results. This drove an almost 10% swing between the U.S. dollar reported revenue trend and the constant currency related growth rate. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue increased 6%. Due to the impact of net acquisitions increasing revenue by about 3% and slightly more billing days, the organic days-adjusted revenue increase was about 2.5% compared to our guidance of 5%. The softer revenue trend was the result of more modest growth than anticipated in the Manpower brand. Turning to the EPS bridge, reported earnings per share was $2.29, which included $0.04 related to the Experis U.S. acquisition integration costs. Excluding the integration costs, adjusted EPS was $2.33. Walking from our guidance midpoint, our results included improved operational performance of $0.02, slightly lower weighted average shares due to share repurchases in the quarter which had a positive impact of $0.03, a slightly better effective tax rate which had a positive $0.01 impact, and foreign currency impact was $0.06 more negative than anticipated in our guidance, particularly due to the euro weakness during the quarter, and other expenses had a negative $0.02 impact. Next, let’s review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand reported revenue growth of 1%, the Experis brand reported revenue growth of 10%, and the Talent Solutions brand reported revenue growth of 13%. Within Talent Solutions, we continue to see exceptional revenue growth in RPO and very strong revenue growth in MSP. As the outplacement environment continues to experience low levels of activity, Right Management saw double-digit percentage revenue decreases year-over-year. Looking at our gross profit margin in detail, our gross margin came in at 18.2%. Underlying staffing margin contributed a 30 basis point increase. The Experis U.S. acquisition added 30 basis points. Permanent recruitment contributed a 90 basis point GP margin improvement as hiring activity continued to be strong across our largest markets. Experis Solutions contributed a 30 basis point improvement which was driven by the U.S. business. This was offset by a lower mix of Right Management career transition business which resulted in 10 basis points of GP margin reduction, and other items represented a positive 20 basis points. Moving onto our gross profit by business line. During the quarter, the Manpower brand comprised 57% of gross profit, our Experis professional business comprised 27%, and Talent Solutions comprised 16%. During the quarter, our Manpower brand reported an organic constant currency gross profit increase of 6% year over year. Organic gross profit in our Experis brand increased 20% in constant currency year-over-year. This reflects strong growth in higher margin solutions as well as permanent recruitment. Organic gross profit in Talent Solutions increased 22% in constant currency year-over-year. This was driven by the performance in RPO and MSP discussed earlier, which was partially offset by the decreases in Right Management due to outplacement trends. Our SG&A expense in the quarter was $741 million. Excluding acquisition integration costs, SG&A was 16% higher on a constant currency basis and 11% higher on an organic constant currency basis. This reflects continued investment in the business, reflecting the addition of recruiters and sales personnel in Experis, RPO and in various growth opportunity markets in Manpower. The underlying increases consisted of operational costs of $78 million, incremental costs related to net acquired businesses of $29 million, offset by currency changes of $60 million. Adjusted SG&A expenses as a percentage of revenue represented 14.5% in the second quarter. The Americas segment comprised 25% of consolidated revenue. Revenue in the quarter was $1.3 billion, an increase of 23% in constant currency or 4% on an organic constant currency basis, or 6% after adjusting for days. OUP was $81 million. As adjusted, OUP was $84 million and OUP margin was 6.6%. The U.S. is the largest country in the Americas segment, comprising 72% of segment revenues. Revenue in the U.S. was $904 million, representing a 44% increase, or 12% organically, compared to the prior year. As adjusted to exclude acquisition integration costs, OUP for our U.S. business was $67 million in the quarter representing an organic increase of 22%. As adjusted, OUP margin was 7.5%. Within the U.S., the Manpower brand comprised 26% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 3% during the quarter, a slight deceleration from the 6% growth recorded in the first quarter. The Experis brand in the U.S. comprised 45% of gross profit in the quarter. Within Experis in the U.S., IT skills comprised approximately 90% of revenues. Experis U.S. had a very strong quarter with revenues growing 25% organically and we anticipate continued strong double-digit organic growth in the third quarter. The acquired U.S. Experis business had solid revenue growth during the quarter and the integration is proceeding on schedule. Talent Solutions in the U.S. contributed 29% of gross profit and experienced revenue growth of 17% in the quarter. This was driven by RPO, which continued to win new business and experienced another quarter of record revenue levels as hiring programs remained very strong. The U.S. MSP business continued to perform well with strong revenue growth in the quarter. Within Right Management, career transition activity remained low. In the third quarter, we expect ongoing strong revenue growth for the U.S. in the range of 34% to 38% year-over-year, or 6% to 10% organically. Our Mexico operation experienced a revenue decline of 61% in constant currency in the quarter, representing a stable trend since the commencement of the new labor regulation in 2021. We begin to anniversary the impact of the regulations in August and expect a revenue decrease of approximately 23% to 27% in the third quarter. Southern Europe revenue represented 43% of consolidated revenue in the quarter. Revenue in Southern Europe came in at $2.2 billion, growing 2% in constant currency. OUP equaled $112 million and OUP margin was 5.1%. France revenue comprised 56% of the Southern Europe segment in the quarter and increased 4% in constant currency. OUP was $62 million in the quarter and OUP margin was 5.0%. France experienced a decelerating revenue trend during the quarter as Russia-Ukraine related supply chain disruptions continued to impact the automotive sector and, to a lesser degree, construction and logistics. As we begin the third quarter, we are estimating a year-over-year constant currency revenue trend for France to be in the range of minus 1% to plus 3%. Our recent revenue trend in the month of June was plus 1%, which also represents the midpoint of our third quarter guidance range for France. Revenue in Italy equaled $454 million in the quarter reflecting an increase of 11% in days-adjusted constant currency. OUP equaled $35 million and OUP margin was 7.8%. We estimate that Italy will continue to have solid growth in the third quarter with a year-over-year constant currency revenue increase in the range of 1% to 5%, which represents mid-single-digit growth at the midpoint on a days-adjusted basis. Our Northern Europe segment comprised 20% of consolidated revenue in the quarter. Revenue of $1 billion was flat in organic constant currency or represented 1% growth adjusted for billing days. OUP represented $11 million and OUP margin was 1.1%. Our largest market in the Northern Europe segment is the U.K., which represented 36% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 6% in constant currency, or 4% adjusted for billing days. This reflects the exit of certain low margin arrangements replaced with higher fee-based margin business. Considering this, our U.K. business is performing well, and we expect low to mid-single-digit constant currency revenue growth in the third quarter. In Germany, revenues decreased 9% in days-adjusted constant currency in the second quarter. As we have discussed in the past, Germany is one of the most difficult markets for our industry due to the regulations impacting management of the bench workforce, the outsized impact of the automotive sector, and, more recently, the impact from the Russia-Ukraine war. Although we have made some progress in improving the business, we are not satisfied with the rate of improvement and have more work to do in this challenging market. Overall, we are expecting a similar year-over-year revenue trend in the third quarter. The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenue grew 10% in constant currency to $604 million. OUP was $23 million and OUP margin was 3.7%. Our largest market in the APME segment is Japan, which represented 45% of segment revenues in the quarter. Revenue in Japan grew 13% in days-adjusted constant currency. We are very pleased with the performance of our Japan business, and we expect continued strong revenue growth in the third quarter. I’ll now turn to cash flow and balance sheet. In the six months year-to-date, free cash flow equaled a cash outflow of $20 million compared to positive free cash flow of $171 million in the prior year. In the second quarter, free cash flow represented a cash outflow of $72 million compared to positive free cash flow of $43 million in the prior year. The cash outflow during the second quarter was driven by strong growth in North America and timing of payables. We expect to resume strong free cash flow in the second half of the year. At quarter end, days sales outstanding was up about 2 days year-over-year at 58 days. Capital expenditures represented $23 million during the second quarter. During the second quarter we repurchased 1.14 million shares of stock for $100 million. As of June 30th, we have 3.5 million shares remaining for repurchase under the share program approved in August of 2021. Our balance sheet ended the quarter with cash of $886 million and total debt of $1.4 billion. On June 30th, we issued a new 400 million Euro note as part of our refinancing of the Euro note of the same amount scheduled to mature in September 2022. With the proceeds from the June 30th sale, we repaid the maturing Euro note during the first week of July. As a result, the balance sheet at June 30th reflects the temporary increase in our debt as a result of the refinancing activity. The adjusted amounts presented on the slide reflect the underlying debt and capitalization ratios without the additional Euro note for this brief period. Net debt equaled $537 million at quarter-end. Our debt ratios at quarter-end reflect total adjusted gross debt to trailing twelve months Adjusted EBITDA of 1.22 and total adjusted debt to total capitalization at 29%. Our debt and credit facilities summary reflects the new Euro Note issuance maturing in June of 2027 at an effective interest rate of 3.514%. As I noted, this issuance has now replaced the previous 400 million Euro note which was repaid shortly after quarter end. During the quarter, we also entered into a new $600 million revolving credit agreement for a new 5-year term maturing in May of 2027. These new credit arrangements further strengthen our debt duration and overall balance sheet position. We expect to repay the remaining 50 million related to the prior year U.S. Experis acquisition during the third quarter. Next, I'll review our outlook for the third quarter of 2022. Our guidance continues to assume no material additional COVID-19 or Russia-Ukraine war related impacts, including energy-related disruptions in Europe, beyond those that exist today. On that basis, we are forecasting underlying earnings per share for the third quarter to be in the range of $2.19 to $2.27, which includes an unfavorable foreign currency impact of $0.29 per share. This does not include the impact of projected acquisition integration costs of $4 million to $6 million which will continue to be broken out separately from ongoing operations. Our constant currency revenue guidance growth range is between 4% and 8%, and at the midpoint represents 6%. After adjusting for the acquisition of the U.S. Experis business, the disposition of Russia, and an almost equal number of billing days in the third quarter, our organic days-adjusted revenue growth represents 3% at the midpoint. This represents a stable to slightly improving trend from the second quarter revenue growth on this same basis. The third quarter revenue trend incorporates solid revenue growth across our industry verticals in our major markets with the exception of automotive, which we expect to continue to be sluggish predominantly in France and Germany and, to a lesser degree, construction in France. Our third quarter guidance assumes a stable economic environment throughout the full quarter and assumes the important September post-holiday period in Europe experiences no material trend change in demand. We expect our EBITDA margin during the third quarter to be up 60 basis points at the midpoint compared to the prior year with the acquired U.S. Experis business contributing 20 basis points of the improvement. We estimate that the effective tax rate for both the third quarter and the full year of 2022 to be 30%. As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 52.8 million. I will now turn it back to Jonas.
Jonas Prising, CEO
Thanks Jack. We continue to make progress in our strategy to Digitize, Diversify and Innovate, and in our investments to create talent at scale through MyPath and Experis Academy. On Diversification, our Experis business continues to grow very nicely globally, particularly here in the U.S., which is the largest market for IT resourcing and where our market share is strong, as well as in the U.K. and other key markets globally. We also expanded our higher value Talent Solutions offerings with a small acquisition in July in France which expands our capabilities in the public sector in France. Having just attended the Choose France event hosted by President Macron, I note that our industry is seen as an important contributor to achieve the French government’s ambitious labor market agenda for full employment, which is very encouraging. On Digitization, we continue to execute our global technology agenda at pace, including the completion of the large PowerSuite implementation final wave of the U.S. Manpower business, which followed the U.S. Experis implementation conducted in prior years. We also successfully transitioned the U.S. acquired Experis business onto our PowerSuite front office during the quarter, so our U.S. and Global IT teams have been quite busy executing these successful implementations in the past quarters. And on Innovation, we continue to make excellent progress. For the 6th consecutive year, we were the Gold HR partner at VivaTech. Attended by half a million people for four days, VivaTech serves as an excellent platform from which we can showcase human capital innovation through our Experis IT resourcing and project solutions offerings as well as our tech innovations across the Talent Solutions and Manpower brands. During the event we also launched our New Age of Tech Talent report on which tech skills are most in demand globally. The innovations we showcased at VivaTech included our move into the metaverse with our Virtual Reality SkillsInSight assessment, RightMap, our data-driven digital career management offering, as well as our Manpower MyPath and Experis Academy providing our clients with solutions that create, develop and retain talent, and use machine learning and AI to upskill and reskill in-demand tech workers at speed and scale, all of which is matching people to meaningful, sustainable jobs with better accuracy than either humans or machines could do on their own. We were proud to host more than 20 HR tech start-ups in our Working to Change the World Lab, using innovation to represent our ESG commitments around Planet, People & Prosperity and Principles of Governance. We also hosted many of our clients and other partners that demonstrate our community investment, including Junior Achievement, the world’s 6th largest NGO that reaches more than 14 million young people each year and whose global Board I am honored to chair, to showcase examples of creating entrepreneurial talent for the jobs of today and tomorrow. And finally, as further reinforcement and external recognition of our Diversification, Digitization, and Innovation capabilities, we are very pleased to be named Star Performer and Global Leader in Recruitment Process Outsourcing for the 12th year in the Everest Group PEAK Matrix Assessment recognized in both Global and EMEA categories. Everest especially recognizes our breadth of global service offerings, strong performance across a portfolio of buyers of all sizes, and continued investment in our PowerSuite technology stack, including our automated Rapid Recruit solution and IntelliReach, which is our data and analytics portal. This is recognition to all of our global Talent Solutions team, and I thank them and the rest of the Manpower Group team for another quarter of good results and for delivering on our purpose to find meaningful sustainable employment for millions of people every year. I’d now like to open the call for Q&A.
Operator, Operator
Thank you. Our first question is from Andrew Steinerman of JPMorgan. Your line is now open.
Andrew Steinerman, Analyst
Hi. Jonas, I wanted to just kind of go over the macro picture. I know you just gave third quarter guide that included an assumption of a stable economic environment here. Could you give us a sense of where you think we are in terms of the U.S. and European economic cycle as central banks are hiking interest rates to fight inflation? And have you seen wage inflation stabilized yet?
Jonas Prising, CEO
Good morning, Andrew. Yes, and that is the question on everyone’s mind, where is this going? I think as you heard us say in our prepared remarks, the first observation is that from a client behavior at this point we see no change in their desire to acquire more skilled workers of various kinds across industries with the exceptions we’ve talked about such as automotive in some markets and construction, as well as logistics to a lesser degree. What is equally clear is that many of our clients are quite concerned about the economic outlook on the one hand, but when we ask them how they are feeling about their own business, they are saying that they are still working through the pent-up demand from the pandemic; they are looking for more talent, they are looking for our help in more ways than we were able to provide them even before the pandemic. So their view is that talent is going to be immensely important for them as they navigate through this turbulent environment. And as we’ve discussed in the past, during turbulent times, during growth times but with greater uncertainty our clients are looking to us to provide operational and strategic flexibility and certainly that’s what we would expect also going forward. So based on what we were seeing across labor markets, across the demand structure that we have today, I think we’re feeling good about our outlook. If you then look at this from a U.S. versus Europe perspective, the U.S. economy is very strong. Labor markets are very strong, but as you will have noted as we discussed in our last earnings call, wage inflation appears to be sitting around 5% and not moving higher in any discernible way. Wage inflation in Europe is lower than what it is in the U.S., and I think they are a few months behind; you can still see some wage inflation in Europe to a greater extent than what we see in the U.S. But we would expect this to stabilize as well, and the rate of growth to come down slightly in the coming months, as well. So, so far, you can still see PMIs being positive, both in Europe and in the U.S. So we are in a slowing growth environment, Andrew, not, at this point, seeing any indications in terms of our client behavior in terms of a demand picture. And in terms of the strength of the labor markets, of anything that’s different to that.
Andrew Steinerman, Analyst
Excellent. That was well said. Thank you so much.
Jonas Prising, CEO
Thanks, Andrew.
Operator, Operator
Thank you, Mr. Steinerman. Our next question is from the line of Kevin McVeigh of Credit Suisse. Your line is now open.
Kevin McVeigh, Analyst
Great, thanks so much. And thanks for all the good color. And Jack or Jonas, can you give us a sense, it seems like the EBITDA was at the higher end of the range versus the revenue with the lower? Any puts and takes on profitability? Was that primarily mix or anything else that drove the EBITDA performance?
Jack McGinnis, CFO
Yes, no, I'd be happy to talk to that, Kevin. Yes, I'd say the higher end of the range that, as you look at the GP Bridge you can see the higher margin offerings and businesses had higher growth across the board. So that's really the impact of Experis coming through. That's the impact of Talent Solutions coming through both of them at double digit growth. And when those businesses are growing faster, then that's going to drop down to both our GP margin, but importantly, our EBITDA margin. And so that's part of our ongoing strategy to continue that trend. Certainly permanent recruitment had had an impact as well. And so we've been seeing consistent, strong, firm hiring trends across our largest markets. And that's the biggest item in the GP bridge, and that that actually was a driver as well, in that top of the end range on the EBITDA margin. But other than that, Kevin, I'd say it was a pretty clean quarter. I know a year ago, we had pretty big direct cost adjustments that impacted earnings that we didn't really have that this year. So considering that, the up 50 basis year-over-year, if you consider the fact that last year was flatter 20 basis points, it's actually on an underlying basis in a bit better on an overall basis. So that's what I'd say in terms of the EBITDA trend.
Kevin McVeigh, Analyst
That's helpful. And then just real quick, given the dramatic shift in currency, and just obviously the war in Ukraine and energy, are you seeing any shift from a client perspective in terms of outsized impact in different industries that you'd call out one way or the other? Again, just obviously, the currency seems like it's a big driver of where the guidance is at. But just any shift in behavior from an FX or just energy perspective within the client context?
Jack McGinnis, CFO
Yes, no, no, I'd say from an FX perspective, we operate largely in the local currency in our market. So as a result, FX doesn't really impact client demand in our major markets, so we're not seeing an impact from FX. I think, from an energy standpoint, I think, similar to Jonas's comments, energy certainly has been a contributor to year-over-year inflation on a general standpoint, and certainly in Europe, it's been more severe. But so far that has not impacted demand for our services. So we have not seen a significant impact on certainly we've talked about the sectors that have been disrupted by supply chain issues. And some of that could be energy related, but on an overall basis, putting supply chain disruptions to the side, we really haven't seen a significant impact on demand for those reasons.
Kevin McVeigh, Analyst
Awesome, thank you so much.
Operator, Operator
Thank you. Our next question is coming from Jeff Silber of BMO Capital Markets. Your line is now open.
Jeff Silber, Analyst
Thanks so much. Jonas, you briefly alluded to President Macron in France. I know he won his election but his party did not win. Do you see any changes either positive or negative because of this, governmental structure going forward in France?
Jonas Prising, CEO
I spent a significant amount of time last week engaging with all the relevant ministries and listening to President Macron discuss their plans for advancing structural reforms. They don't seem to be particularly worried about our capacity to implement the key components of their programs. From our viewpoint, the change in business tax they mentioned is crucial. In my conversation with Bruno Le Maire, he reaffirmed his commitment to the business tax change in the 2023 budget, which we view as very positive. I also spoke with the labor minister regarding our role, as Manpower Group in France, in assisting them in achieving their employment goals, specifically their aim for full employment, and they recognize the importance of our contributions. We feel optimistic about France under the Macron administration and are confident in their ability to execute the structural reform programs they outlined during the election. It's important to note that Macron's party is the predominant force in parliament, while various smaller parties have differing views on many issues. Therefore, it's unlikely that these factions will come together to vote against the Macron administration, especially concerning broader economic and labor market initiatives that interest us. We believe the Macron administration will successfully push these initiatives forward. For these reasons, I feel positive about the French market and the policies aimed at enhancing France's competitiveness, making it a vital market for us to succeed in.
Jeff Silber, Analyst
Okay, that's really helpful. And then shifting gears a little bit more broadly, you've mentioned energy related disruptions a number of times; we've been reading potentially things get worse as we head into the winter. And if they cut off Russian supplies, especially in Germany, they're talking about rationing. I know it's still maybe early, but are you hearing any discussions along those lines from any of your clients, either in Germany or anywhere else in Europe? Thanks.
Jonas Prising, CEO
Overall, just as, as you are, I'm reading in the papers around the preparations that Europe is making for that very eventuality. And then the sessions with the French government last week, for instance, a lot of their hypothesis, and their planning is around the zero supply of gas into Europe and what that would mean. So Europe is preparing, I think, for all alternatives. And the outlook, and they, they appear to feel that there are options and ways of working around that, no doubt, it appears that it could become quite difficult. Also, depending on the severity of the winter, if it's a mild winter, it would be less severe. If it's a more severe winter, it would be more difficult. But as you can tell, these are things that are entirely out of our control. And coming back to what this means to us, at this point, we don't see any of our clients changing their behavior or asking us to do anything different than trying to find them the talent that they need to execute on their business strategies. And that's, for now, that's what we're seeing. We of course, are fully aware of what could happen, but how it would be resolved and whether it actually happens, that’s something we just have to be ready to react to. And as you well know, we are very used to reacting quickly to changes in market and we would do that in this case as well.
Jeff Silber, Analyst
Okay, really appreciate the color. Thanks so much.
Jonas Prising, CEO
Thanks, Jeff.
Operator, Operator
Our next question is from the line of Mark Marcon of Baird. Your line is now open.
Mark Marcon, Analyst
Good morning, Jonas and Jack. Wondering, can you talk a little bit about what your expectations are, in terms of cyclical sensitivity for the Talent Solutions business as well as Experis? Obviously, you've had a fairly significant shift in terms of the business mix. And I'm wondering, particularly Talent Solutions, how you think that and perm within operating if things slow down a little bit further.
Jonas Prising, CEO
Well, we have a positive view on the diversification, as you heard me say, in the prepared remarks and Jack talked about the shift in our business mix and what that is doing to our operating and EBITDA margins. And we think that this increase, the diversification will serve us well, during a cyclical downturn. Permanent recruitment tends to be more cyclical, sometimes than temporary staffing or resourcing solutions. But at the same time, I would say that the environment that we're looking at from a labor market perspective would make us think that then the proximity to the pandemic, how clients react in a downturn today, especially if it's of a lighter variety, so maybe more of a technical recession or a shallow recession, if that's what were to happen, companies will remember what it was like to find talent after the pandemic. And they've worked very hard and are frankly, still working very hard at finding the talent they need to execute on their plans. So we think that the position that we have obtained across Manpower, Experis, and Talent Solutions, both from a resourcing on the temporary or contingent side as well as on the perm side, will be very good for us as we go into a time of a need for greater flexibility from a company perspective, because we can ramp up and down quickly on their behalf. So I think the position that we have both from a business mix, diversification and the proximity to the pandemic, and the memories of what that kind of talent shortage market looks like, could give us actually an opportunity to experience more resilience in our business model than we what we have seen in the past.
Mark Marcon, Analyst
That's great. And then, obviously, the U.S. business has diversified the most. And clearly we're seeing the benefit with regards to the margins. To what extent do you think of the U.S. as basically being a template that could be exported to a greater extent across your international operations?
Jonas Prising, CEO
Well, clearly, we are driving that time, the diversification that you're seeing is due in the U.S. and many other in many other geographies as well. I would note, though, Mark, that the composition of the market itself in the U.S. is quite different from what business in Asia Pac, in Latin America, and especially in Europe. So I think we're going to be pushing the market, the market composition, in terms of our own diversification harder. But it's important to remember that the market composition in the U.S. is also much bigger diversification than what you see in Europe and in Latin America and in Asia Pacific. But having said that, our strategy is the same. We're diversifying our business to higher margin, faster growing businesses within between the brands, Experis, Talent Solutions, and Manpower and also within the brands. In Manpower, we see some good growth in higher levels, skilled specializations, both from a contingent side and especially from a perm side. And that is something that we will continue to drive across all of our geographies, Mark.
Mark Marcon, Analyst
Great, thank you.
Operator, Operator
Thank you. Our next question is from the line of Kartik Mehta of North Coast Research. Your line is now open.
Kartik Mehta, Analyst
Good morning, Jonas, you've talked about your clients are a little bit concerned about the economy, but haven't made any changes. Is that surprising at all that clients are reading and a little bit concerned about the economy, but they're not making any behavioral changes or demand changes?
Jonas Prising, CEO
I think Kartik what we're seeing is the individual business doing well, having a great order stock and still working through the pent-up demand and the supply chain issues that may have they may have experienced and that's what their staffing and recruitment activities in their businesses are indicating, but at the same time, they're looking out, they are reading and they are clearly understanding that the central banks across the world are trying to bring down inflation, which means cooling down the economy. So they are seeing what is the intent, but they are living a reality of a continued strong business environment for them. So this is a bit a bit of a time where it's all going to be a question of the economy bending. So economic growth, slowing labor markets, may be cooling off a little bit, but remaining very strong, and then coming back to improved growth or economies coming down into a recessionary environment of some kind. And I think that's what they are debating. But at this point, as we mentioned, in our prepared remarks, none of them most of the clients that we're working with are not experiencing drops in demand that are changing behavior. They continue to express difficulties due to supply chain, which is impacting their ability to produce or manufacture and deliver certain services. So that's what they're still dealing with at this stage.
Kartik Mehta, Analyst
And then just one last question, you talked a little bit about wage inflation and the rate of growth slowing? Is that translating into greater talent availability, or how does talent availability look for you?
Jonas Prising, CEO
Well, so first, talking about inflation specific to our business model, as we've talked about in the past, generally, wage inflation benefits us, as the majority of arrangements pass those wage inflation on to our clients. And that's what we need to do to be able to find and recruit the talent. But, in terms of impact on the global economy, clearly, there is going to be something to watch on the inflation and the recovery. And we know this is the top priorities. So although we can see the risk on inflation, generally speaking, as a cooling effect on the economy from our business model, it is still something that is working well.
Jack McGinnis, CFO
And I would just add to that Kartik is, as Jonas has talked about in the past in terms of the availability of supply, the one market where we have been very vocal in the past where it was very difficult was the U.S.; we talked a lot about that last summer. And what we saw starting in the fourth quarter and continuing into the first quarter was supply improved. So particularly in the Manpower brand and the commercial staffing side of things. And the update on that through the second quarter is those trends are generally holding up. So supply has improved in the U.S., which used to be the extreme. And generally, I would say that that is going to be an opportunity for us based on these current trends that we've been talking about. So although there could be some impacts for all the reasons we've been talking about on this call, in terms of so many economic clouds that are out there, that should be favorable for supply. And so that will be an offsetting factor for us, but really on the commercial staffing side.
Kartik Mehta, Analyst
Perfect. Thank you very much. I really appreciate it.
Operator, Operator
Thank you. Next one in queue is Mr. Tobey Sommer of Truist. Your line is now open.
Tobey Sommer, Analyst
Thank you. In the context of the macro uncertainty, but still an unwavering demand. How are you managing your growth in your own sales related staff across geographies and lines of business?
Jonas Prising, CEO
As you might have heard on the call, Toby, we are continuing to invest in talent in the areas where we see great opportunities and notably, in the past quarter that's been in RPO in our perm offerings in Experis in Manpower specializations in the number of markets. So we still have had a forward-leaning posture as it comes to investing in talent. And by now we are well above our pre-pandemic levels of talent within Manpower Group and that we feel good about that also coming into the third quarter. Having said that, of course we monitor the evolution very closely and we're able to adapt that but at this point, we still think that there is opportunity for growth and where those opportunities exist we’re investing and hiring recruiters as well as salespeople across the three brands.
Tobey Sommer, Analyst
And conversely, are there any pockets or geographies or lines of business where you slowed or halted investment in sales related stuff?
Jonas Prising, CEO
Well, you could see that, we're in the countries where we've had more difficulties, notably in Germany due to the automotive sector, that's clearly an area where we're pulling back and we're being more cautious. Also, with an outlook that looks could look more challenging. But even there within pockets, such as in Talent Solutions, and in permanent recruitment, we still feel good about adding resources in specific areas of Germany. So we make that assessment on a country-by-country on an a brand-by-brand basis, on an ongoing and continuing basis as well.
Jack McGinnis, CFO
And I’ll add to that, Toby. So to Jonas's point, it's really in those sectors where they've been impacted by supply chain that as you would expect, we are not adding salespeople in those parts of the businesses, and that's primarily Manpower. But when I look across our largest businesses, Japan, is probably near the top of the list. And again, Japan has been a very special market that grew during the entire pandemic and continues to have very strong double-digit growth. I would also add the U.S. in there, as we've talked about, we've been investing very heavily in the Experis and Talent Solutions businesses; you clearly see that coming through in the results. And I would include Italy in there as well. So Italy has been growing very nicely. And Italy's had some very, very strong permanent recruitment coming through as well. So just a little bit of color. I think, I would add the Nordics to the list as well, seeing very good positive growth trends there. And we're seeing good opportunities for continued growth as well.
Tobey Sommer, Analyst
Thank you very much.
Operator, Operator
Our next question is from George Tong of Goldman Sachs. Your line is now open.
George Tong, Analyst
Hi, thanks. Good morning. Taking a step back, you mentioned that you're seeing softer than expected organic revenue growth trends in the Manpower brand business. How do you reconcile that with your observation that labor markets remain strong? And I guess where are you seeing the pockets of weakness?
Jonas Prising, CEO
The areas of weakness are limited when examining the labor markets. Participation rates in Europe have exceeded pre-pandemic levels, while European unemployment is at its highest in decades. In the U.S., employment levels are high and unemployment is very low. As Jack noted, the main weaknesses are found in sectors affected by supply chain issues. In the U.S., some of this weakness is seen in sectors where consumers are reducing spending. Many tech companies that experienced significant growth during the pandemic, particularly in streaming and technology products, are now seeing a slowdown. Consumers are shifting their spending from retail goods to travel and leisure experiences. However, when you take a broader view of the labor market, it remains very healthy overall. Current weaknesses are being offset by strong demand and resilience in other sectors of the economy, which is true for both the U.S. and Europe.
George Tong, Analyst
Got it. Based on the latest PRISM data in France, we're seeing a slowdown in French temp staffing growth. Can you elaborate on the labor market conditions there and the key drivers?
Jonas Prising, CEO
Yes, the PRISM data accurately reflects our business reality, and we've noticed a decline in the French market, particularly in construction and automotive, which are significant sectors of the French economy. However, after speaking with the labor minister last week, his outlook for the French labor market remains very positive through the end of the year. Despite an increase in retirements, which are mandated and age-based in Europe, he anticipates that job creation will compensate for this decline. He expects participation rates to keep rising and the labor market to remain in great condition. While there are some weaknesses in specific sectors, mostly related to supply chain issues that many companies believe will improve in the next 12 months, the overall labor market outlook in France still appears strong.
Operator, Operator
Our last question in queue is Mr. David Silver from C.L. King. Your line is now open.
David Silver, Analyst
Thank you for taking my question. I'd like to inquire about customer attitudes towards using Manpower's outsourcing services. Understanding that conditions vary by region, in a slowing economic environment, particularly with the uncertainty in Europe due to geopolitical events, could you address how customers view outsourcing? Specifically, do they see a slowing economy as a chance to lower fixed costs by utilizing Manpower for certain functions, or do they prefer to bring more operations in-house during economic downturns? How do you anticipate demand for outsourcing evolving in the U.S. and Europe amid a slowing global economy? Thank you.
Jonas Prising, CEO
The two scenarios we think about, as you consider a slowing scenario, are really twofold. The gradual slowing and the knowledge of a slowing economy means that companies tend to want to become more flexible, more adaptable, able to pivot quicker should the market take a further downturn, and that can be very beneficial for Manpower, frankly, Experis as well as Talent Solutions because companies in the U.S. and frankly, even to a greater degree in Europe then resort to our services to provide them that strategic and operational flexibility. And in an environment where the labor markets are tight, and you have slowing growth rates, which improved the supply of available labor, we could have some good opportunities, not only in terms of improving the penetration rates as in the use of our services, but also benefiting from an increased supply of labor. Of course, in a more severe downturn, such as the one we experienced in 2008 and 2009, and to its extreme for the brief period of time during the pandemic, you get a very quick reduction in the provision of our services, and that comes mainly from a very big surprising downward trend or event that reduces the need for labor overall. So I guess those are the two scenarios you can think about and what we believe that what we're seeing at least now is knowledge of an economic headwind, slowing growth, but PMI is still being expansion in about 50 both in Europe as well as in the U.S. and elsewhere. So we still think, based on the outlook we have for the third quarter, that there are some good opportunities for us to continue growth, and that's why we guided the way we did into the third quarter.
David Silver, Analyst
Thank you very much. Can I ask a quick question regarding your cash deployment strategies and their relation to the overall economy and economic outlook? Year-to-date, it seems your working capital needs have increased by about $300 million. Additionally, you've opted to accelerate share buybacks significantly. Considering the overall economic outlook you perceive, should I view your cash deployment programs as a sign of increased confidence in the company's ability to navigate changes in economic and demand conditions? Are there other factors I should consider? Specifically, what is influencing the confidence or cash deployment strategies for the first half, which appear to suggest a strong management confidence in handling any scenarios that arise? Thank you.
Jack McGinnis, CFO
Thanks, David, for that question. And I'll talk to that briefly. I think what I'd start with is our capital allocation strategy really remains unchanged. I think we have a pretty consistent track record. I would agree with your statement that we are confident. I think we are quite confident with the profile of the balance sheet, with our free cash flow opportunity and our cash collection efforts overall. So I think what you're referring to is we've been very open on our share repurchase element of our capital allocation plan that we're opportunistic. And what you're really reflecting is that we were opportunistic in the second quarter. You saw a higher level of share repurchases. So we were in the market in June, and we're able to average in some pretty good purchases at some pretty favorable price levels. So I would say you should expect that, that's going to continue to be an important element of the way we look at capital allocation overall. We've always said that the dividend is a priority. You saw the nice dividend increase that our Board approved in May. And so in a good, stable economic environment, you should expect progressive increases. And we were very proud of the fact that we held the dividend stable and the depth of the pandemic as well. But beyond that, if there is additional cash, the first thing is if there is an acquisition that will be devoted to the resources for the acquisition. You saw that with the Attain Group purchase. And if there isn't an acquisition, then you should expect that share repurchases will continue to be an important part of our overall capital allocation program. So I would say that. So thank you for the comments. And I'll turn it over to Jonas.
Jonas Prising, CEO
Thank you, Jack, and that brings us to the end of our second quarter earnings call. Thank you very much for attending. Thank you for your questions, and we look forward to speaking with you on our next earnings call. Thanks, everyone. Have a good rest of the summer.
Operator, Operator
Thank you, speakers, and that concludes today's call. Thank you all for joining. You may now disconnect.