Strong job market boosts Manpower

(Fortune Magazine) -- Staffing and temporary-help companies generally do well when the economy is booming. For the past five years Manpower, the world's second largest, has been riding the global growth wave (international operations provide about 80 percent of its revenues).

In addition, CEO Jeff Joerres has been fortifying Manpower (Charts) by expanding overseas, moving into higher-margin businesses, and avoiding price cutting. Those factors have helped Manpower return 121 percent to investors since 2002 and win a spot on our 2006 Most Admired Companies list.

Manpower CEO Jeff Joerres

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Soon after Joerres took over in 1999, he set out to increase operating margins to 4 percent from 2.4 percent, but not by slashing and burning. "I knew we could get to that pretty quickly: Stop investing and cut costs," he says. Instead he emphasized more profitable businesses.

In 2001, Manpower acquired finance and accounting temp company Jefferson Wells, which fills higher-paid positions and thus gets fatter commissions. Jefferson Wells got a big bump from the passage of Sarbanes-Oxley in 2002. And Manpower is expanding its lucrative permanent job-placement operations, especially in India and China.

Joerres also refused to get into price wars with rivals. "A couple of years ago when employment growth started picking up, some firms were growing their revenues faster than Manpower," says Credit Suisse analyst Greg Cappelli. "[Manpower] was being more disciplined in the work they were taking, and in the long run it is the better way to manage the business." Joerres still hasn't reached his goal - margins lately have run above 3 percent - but he's making progress.

Manpower has long been a player outside the U.S. It set up shop almost 50 years ago in France, where labor laws made it difficult for companies to shed permanent workers. In 1998, when France was emerging from recession, most new jobs were contract and temporary positions, and Manpower reaped the benefits.

During that period Italy started allowing companies to hire temp workers. Manpower jumped in, eventually opening 400 offices, which generated more than $1 billion last year, according to one analyst's estimate.

The stock is up 35 percent in the past 12 months and the P/E is about 20 (based on 2006 earnings), so now may not be the right time to buy. Despite his efforts to diversify, Joerres concedes that Manpower's fortunes are tied to economic trends in the U.S. and Europe.

"To say that we would not be a cyclical company would be wishful thinking," he says. In late January, Goldman Sachs downgraded Manpower to sell, citing concerns about a slowdown in Europe. And sure enough, on Jan. 30 the company reported disappointing earnings. That didn't deter Credit Suisse analyst Cappelli, however. After the earnings report, he maintained his support for the stock, writing, "We continue to believe staffing and perm[anent] placement remains quite strong."

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America's Most Admired Companies 2006