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ManpowerGroup Inc. (NYSE:MAN)
Q3 2019 Earnings Call
Oct 18, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to ManpowerGroup Third Quarter Earnings Results Conference Call. [Operator Instructions]

And now I will turn the meeting over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.

Jonas Prising -- Chairman and Chief Executive Officer

Good morning. Welcome to the third quarter conference call for 2019. With me today is our Chief Financial Officer, Jack McGinnis. We will start our call today by going through some of the highlights of the second quarter, then Jack will go through the operating results and the segments, our balance sheet and cash flow as well as comment on our outlook for the fourth quarter. I will then follow with some concluding thoughts before we start our Q&A session. Before we proceed, Jack will now cover the safe harbor language.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Good morning, everyone. This conference call includes forward-looking statements, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results may 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 includes important information regarding previous SEC filings and reconciliation of non-GAAP measures.

Jonas Prising -- Chairman and Chief Executive Officer

Thanks, Jack. Our third quarter performance and earnings reflect the continuation of many of the same trends we experienced in the second quarter, against the backdrop of slowing economic growth globally and continued tight labor markets in many countries. Revenue in the third quarter came in at $5.2 billion, flat year-over-year in constant currency. On a same-day basis, our underlying organic constant currency revenue was also flat. This represents a very slight improvement from the 1% decrease on the same basis in the second quarter.

Overall, although many of our businesses experienced slightly improved trends from the second quarter, it was offset by incremental market slowing in some of the Northern European countries, particularly Germany, Netherlands and Sweden, as well as a slight decrease in France, which is now stabilized. We benefited from incremental growth in the US and the UK into lesser degree improved revenue trends in Spain and Italy. I would also like to call out the very strong continued performance of Japan, Norway and Canada for their strong revenue growth in the third quarter.

Since our last call, I spent time with our teams in Australia, Japan and Singapore. Last week, I was in Europe, where I had the opportunity to discuss the business environment and outlook with many of our clients. They are impacted by increased volatility and uncertainty with expectations of slowing economic growth, but at the same time struggling to find the required skills within healthy labor markets. In the UK, despite the pending Brexit, our clients continued to experience a shortage of talent and we have seen increased demand for our services there and I also heard this from clients in Poland and Japan. In countries like Germany and Sweden, we continue to experience reduced manufacturing-related demand, a trend also reflected in September's manufacturing PMI. According to our clients there caution around trade and tariff uncertainty is the main driver of the slowing environment. In discussing business trends with our US clients, we're still hearing of solid demand in many sectors, but US manufacturing clients have recently reduced demand driven by trade-related uncertainty.

Moving from the top line trends to the bottom line, operating profit for the quarter was $217 million, which includes a one-time $30 million net gain related to the accounting for the Greater China JV public offering that I announced on the previous quarterly earnings call. Excluding the special item, operating profit was $187 million, which is down 11% in constant currency. Operating profit margin came in at 4.1% and excluding the special item was 3.6%, down 40 basis points from the prior year and at the midpoint of our guidance range.

We managed SG&A well in the quarter and continue to actively manage costs in the businesses impacted by weakening demand. Earnings per share for the quarter was $2.42, excluding the special item, earnings per share was $1.92, a decrease of 18% in constant currency, which incorporates a significantly higher effective tax rate year-over-year. In this mixed economic environment, our teams have mitigated the lower revenue impact in Europe through strong pricing discipline and diligent cost control. Elsewhere, the environment remains stable with opportunities for growth and we are pleased with how several markets improve their performance in the third quarter.

I would now like to turn it over to Jack to provide additional financial information, a review of our segment results and our fourth quarter outlook.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Thanks, Jonas. Revenues in the third quarter came in between the low end and the midpoint of our constant currency guidance range. Our gross profit margin reflected recent acquisition and deconsolidation activity and was down 40 basis points year-over-year and came in at the midpoint of our guidance range. Excluding the special item consisting of a one-time non-cash accounting gain on the Greater China JV public offering, our third quarter performance resulted in an operating profit decline of 14%, or 11% on a constant currency basis on flat revenues. We continue to experience the impact of operational deleveraging in this lower revenue environment. This resulted in an operating profit margin at the midpoint of our guidance of 3.6% before the special item.

Breaking our revenue trend into a bit more detail, after adjusting for the negative impact of currency of about 3% in the quarter, our constant currency revenue was flat. The impact of acquisitions and dispositions and deconsolidations offset each other at the consolidated level.

Slightly more billing days this year, contributed to a slight revenue increase. Excluding the positive impact of slightly more billing days, the organic constant currency days adjusted revenue decline was about flat in the third quarter, which represented a very slight improvement from the 1% decline in the second quarter on a similar basis.

On a reported basis, earnings per share was $2.42, which included the special item of $30 million, which had a $0.50 positive impact. Excluding this item, earnings per share was $1.92, which equaled the midpoint of our guidance range. Included within this result was a lower operational performance of $0.03 on Northern Europe, $0.03 on worse-than-expected foreign currency exchange rates, offset by a positive variance of $0.06 on the slightly better effective tax rate, and $0.01 on a lower weighted average share count due to the impact of repurchases during the quarter, and a loss of $0.01 from an additional foreign currency translation related to the hyperinflationary treatment of our Argentina operations.

Looking at our gross profit margin in detail, our gross margin came in at 16%. The staffing interim margin continues to reflect an underlying stable trend from the prior quarter of down 10 basis points. Many of our largest markets continue to see tight labor market conditions and this has contributed to stronger underlying staffing margins in many markets based on our ongoing initiatives, particularly in France, the US and Japan. Lower contribution from permanent recruitment contributed to 10 basis point reduction and a lower contribution from our Proservia and Talent Based Outsourcing businesses contributed to about 20 basis points of reduction.

Next, let's review our gross profit by business line. During the quarter, Manpower brand comprised 63% of gross profit, our Experis Professional business comprised 19%, ManpowerGroup Solutions comprised 14%, and Right Management 4%. During the quarter, our Manpower brand reported an organic constant currency gross profit decrease of 3%. This was equal to the rate of decline in the second quarter. Within our Manpower brand approximately 60% of the gross profit is derived from light industrial skills and 40% is derived from office and clerical skills.

Gross profit in our Experis brand increased 4% on an organic constant currency basis during the quarter, an improvement from the 3% decline experienced in the second quarter. This was driven primarily by the US and to a much lesser degree, the UK, and Japan.

ManpowerGroup Solutions includes our global market-leading RPO and MSP offerings, as well as Talent Based Outsourcing solutions, including Proservia, our IT infrastructure and end-user support business. Organic gross profit growth in the quarter was flat in constant currency, year-over-year, which is slightly less than the 1% growth in the second quarter driven by our Proservia business.

Right Management experienced an increase in gross profit of 2% on an organic constant currency basis during the quarter, which was a significant improvement from the 5% decline in the second quarter, driven by higher career management activity. I will also comment on Right Management in my segment review.

SG&A expense was $623 million and includes a gain of $30 million related to the Greater China JV public offering. Excluding this item, SG&A of $654 million represented a decrease of $20 million from the prior year. This decrease was driven by $21 million from currency changes, $8 million from net dispositions, which were offset by $9 million of operational costs. On an organic constant currency basis, excluding special items, SG&A expense increased 1% year-over-year. SG&A expenses as a percentage of revenue in the quarter represented 12.5%, which reflected strong cost management despite the impact of lower revenues year-over-year.

The Americas segment comprised 20% of consolidated revenue. Revenue in the quarter was $1.1 billion, an increase of 6% in constant currency. OUP equaled $55 million and represented an increase of 9% in constant currency from the prior year and OUP margin improvement of 20 basis points year-over-year driven by the US. The US is the largest country in the Americas segment comprising 60% of segment revenues. Revenue in the US was $646 million, representing growth of 2% compared to the prior year.

The US completed the acquisition of three small Manpower franchises, which slightly increased the revenue growth rate. Excluding the additional revenues from newly acquired franchises and adjusting for billing days, the US had an underlying growth rate of 1% in the third quarter, which was an improvement from the 1% decline on a similar basis in the second quarter. This marks the third consecutive quarter of revenue improvement in the US and a crossover back to growth during the quarter. During the quarter OUP for our US business increased 8% to $36 million. OUP margin was 5.5%, an increase of 30 basis points from the prior year. Gross profit margin increased year-over-year as the pricing environment reflects the scarcity of talent in the US.

Within the US, the Manpower brand comprised 41% of gross profit during the quarter. Revenue for the Manpower brand in the US was flat in the quarter or down 1% when adjusting for billing days and franchise acquisitions, reflecting a slight decrease on the days adjusted flat growth in the second quarter. The slight decrease in the US Manpower business was driven by reduced manufacturing activity, which was more than offset by increased Experis activity. The Experis brand in the US comprised 36% of gross profit in the quarter. During the quarter, our Experis revenues grew 3% from the prior year, which was the same after adjusting for billing days. This represents a significant improvement from the 3% decline experienced in the second quarter, as we experienced increased activity driven by our convenience clients.

Crossing over to positive growth is the major milestone for our US Experis business and reflect significant progress. ManpowerGroup Solutions in the US contributed 23% of gross profit and experienced 4% revenue growth in the quarter, slightly lower than the 5% growth rate in the second quarter. We continue to see strong demand by our clients for our higher value RPO and MSP Solutions and recent large RPO wins are expected to flow through in future quarters.

As I mentioned, over the course of the third quarter, our Manpower business experienced decreasing activity for manufacturing clients. We expect this current trend to continue into the fourth quarter resulting in slightly weaker revenue trend for the US Manpower business in the fourth quarter. Conversely, our US Experis business is experiencing steady revenue trends into the fourth quarter, which should partially offset the Manpower decline for an overall US flat revenue trend year-over-year in the fourth quarter.

Our Mexico operation had revenue growth in the quarter of 1% in constant currency or flat after adjusting for billing days. Revenue in Canada was up 21% in constant currency, or 19% after adjusting for billing days. We are very pleased with the performance of our Canada business as they continue to generate market-leading growth. We expect Canada to have a very strong performance again in the fourth quarter. Revenue growth in the other countries within Americas was up 15% in constant currency. This growth was driven primarily by strong revenue growth in Central America, Peru, Colombia and Chile.

Southern Europe revenue comprised 45% of consolidated revenue in the quarter. Revenue in Southern Europe came in at $2.4 billion, an increase of 5% in constant currency. Adjusting for the Manpower Switzerland acquisition and billing days, this represented a revenue decrease of 1% year-over-year, a slight decrease from the flat trend experienced in the second quarter on the same basis driven by France. OUP equaled $117 million and was flat to the prior year in constant currency or a decrease of 4% in organic constant currency after accounting for Manpower Switzerland. OUP margin of 5% represented a decrease of 20 basis points year-over-year. Permanent recruitment growth was 9% in constant currency, or 4% on an organic constant currency basis.

France revenue comprised 59% of the Southern Europe segment in the quarter and was down 1% from the prior year in constant currency and after adjusting for billing days represented a 2% decrease from the prior year. This represented a decrease from the flat days adjusted revenue result in the second quarter on lower activity levels in August and September. OUP was $70 million, a decrease of 6% in constant currency and OUP margin was down 30 basis points in constant currency at 5.1%. France continued to execute well on GP margin initiatives, which serve to offset a significant portion of the lower year-over-year subsidies that replaced the CICE.

With the scheduled introduction of the additional Fillon [Phonetic] subsidies beginning in October, the year-over-year impact on gross profit margin improves from a decrease of 50 basis points in the third quarter to a decrease of 15 basis points in the fourth quarter. Activity levels in France, continue to be uneven. The month of September trend was slightly weaker than the beginning of the quarter trend. We expect the fourth quarter revenue decrease similar to the rate of decrease for the third quarter.

Revenue in Italy equaled $377 million, representing a decrease of 4% in constant currency. This was in line with our expectations and represented a 5% decline on a billing days adjusted basis. This represents a slight improvement from the 6% decrease on the same basis in the second quarter. OUP decreased by 5% in constant currency, while OUP margin was flat at 6.2% as the business executed strong management of costs. Our Italy business is performing well in a difficult environment and we expect an improved revenue trend in the fourth quarter, which should result in a slight year-over-year growth.

Revenue in Spain increased 13% in constant currency from the prior year and represented a 10% increase on a days adjusted basis. This reflects the significant improvement from the 4% days adjusted constant currency growth in the second quarter. We expect Spain to have another strong revenue result in the fourth quarter. As previously mentioned, we acquired the remaining interest in our Manpower Switzerland franchise in early April. This business represented 5% of Southern Europe's revenues and performed well in the quarter.

Our Northern Europe segment comprised 22% of consolidated revenue in the quarter. Revenue declined 5% in constant currency to $1.2 billion. On an organic days adjusted basis, this represented a 6% decline which was an improvement from the 8% decline in the second quarter on the same basis. OUP equaled 21 million, OUP declined 44% in constant currency and OUP margin was down 130 basis points. The decline was driven by Germany, the Netherlands and Sweden.

Our largest market in Northern Europe segment is the UK, which represented 33% of segment revenue in the quarter. UK revenues were up 4% in constant currency, or up 3% after adjusting for billing days. This represents a significant improvement from the 1% decline on a billing days adjusted basis in the second quarter. This was a better-than-expected result.

In Germany, revenues declined 17% on a constant currency basis in the third quarter, or a decline of 19% on a days adjusted basis, which represented an improvement from the days adjusted decline of 24% in the second quarter. Germany remains a very challenging market driven by lower manufacturing activity as evidenced by the further decline in manufacturing PMI in September. Although the market has continued to weaken in Germany, we anticipate further improvement in the revenue trend during the fourth quarter, as we continue to anniversary declines in the prior year.

In the Nordics, revenues decreased 4% on a days adjusted constant currency basis driven by Sweden. This represented a decline from the 3% days adjusted growth in the second quarter. Our Sweden business has experienced a double-digit revenue decline on decreased manufacturing activity. Sweden also experienced a significant decline in manufacturing PMI in the month of September.

Norway continues to see strong revenue growth in low double digits during the third quarter and offset a significant portion of the Sweden decline. As Norway begins the anniversary very high growth in the fourth quarter combined with decreased demand in Sweden from manufacturing clients, we expect the Nordics to experience the revenue decline in the mid to high single-digit percentage range in the fourth quarter.

Revenue in the Netherlands decreased 21% on a days adjusted constant currency basis during the third quarter. Adjusting for the disposition of our language translation business last year, this represented an 18% days adjusted revenue decline, which is a slight improvement from the 19% days adjusted decline in the second quarter. This continues to reflect the impact of a weaker manufacturing market and the exit of select clients at the end of 2018, largely due to pricing decisions. Although market activity has weakened in the Netherlands, we expect a slightly improved trend into the fourth quarter, as we anniversary prior year declines.

Beginning in the first quarter of 2020, the Netherlands is implementing new regulations, which impacts the staffing industry. The regulation includes increased pay and related provisions for temporary workers. We are actively working with our clients and candidates to plan for these changes and it is possible this could result in some reduced demand as clients adjust to the new rules.

Belgium experienced revenue decline of 4% in constant currency, or a decline of 5% on the days adjusted basis during the third quarter. This represented an improvement from the 8% days adjusted constant currency decrease in the second quarter. We expect a similar to slightly improved revenue trend in the fourth quarter. Other markets in Northern Europe had a revenue increase of 9% in constant currency driven by the growth in Russia, Poland and Ireland.

The Asia-Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenue was down 13% in constant currency to $622 million, reflecting the deconsolidation of the Greater China JV following its public offering in early July. Organically APME grew revenues by 5% year-over-year in constant currency, or 4% on the billing days adjusted basis. Excluding the Greater China IPO gain, OUP equaled $23 million in the quarter. As adjusted this represented a 29% decrease in constant currency year-over-year, or a decrease of 6% on an organic basis. OUP margin decreased 80 basis points and on an organic basis decreased 40 basis points.

Revenue growth in Japan was up 8% on a constant currency basis and adjusting for billing days, this represented a 9% growth rate, which was a slight decrease from the 10% growth in the second quarter on the same basis. Permanent recruitment fees were up 8% year-over-year. Our Japan business continues to perform very well and we expect strong revenue trends into the fourth quarter.

Revenues in Australia declined 26% in constant currency. This represented an expected further decline from the 16% decline in the second quarter driven by the exiting of certain low-margin business in Australia to improve our profitability. We continue to expect revenue declines in the next couple of quarters in the double digits percentage range.

Revenues and other markets in Asia-Pacific Middle East were down 20% in constant currency as a result of the deconsolidation of China and organic days adjusted revenue growth was 21%. This was a result of the strong growth in a number of markets including Korea, Thailand, Vietnam, Middle East and Singapore.

Our Right Management business crossed over to growth in the third quarter with $48 million in revenues, representing 5% constant currency growth year-over-year. This represents an increase from the 1% constant currency decline in the second quarter. OUP equaled $8 million, an increase of 16% on a constant currency basis. OUP margin increased 150 basis points to 15.5%.

I'll now turn to cash flow and balance sheet. Free cash flow defined as cash from operations less capital expenditures was $459 million for the first nine months of the year compared to $262 million in the prior year period. The third quarter experienced positive cash flow of $206 million, which compared to $113 million in the year ago period. At quarter end, days sales outstanding decreased by about one day. Capital expenditures represented $12 million during the quarter.

During the quarter, we purchased 610,000 shares of stock for $51 million. As of September 30th, we have 1.3 million shares remaining for repurchase under the 6 million share program approved in August of 2018. Our Board approved an incremental 6 million share program in August of 2019, which remains unused.

Our balance sheet was strong at quarter end with cash $807 million and total debt of $1.03 billion, bringing our net debt to $223 million. Our debt ratio is a very comfortable at quarter-end with total debt to trailing 12 months EBITDA of 1.25 and total debt to total capitalization at 27%.

Our debt and credit facilities did not changed in the quarter. At quarter end, we had a EUR500 million note outstanding with an effective interest rate of 1.8%, maturing in June of 2026, and a EUR400 million note with an effective interest rate of 1.9%, maturing in September of 2022. In addition, we had a revolving credit agreement for $600 million, which remained unused.

Next, I'll review our outlook for the fourth quarter of 2019. We are forecasting earnings per share in the fourth quarter to be in the range of $2 to $2.08, which includes a negative impact from foreign currency of $0.07 per share. Our constant currency revenue guidance range is between a decrease of 2% to flat. Walking from the midpoint of a constant currency decrease of 1%, the impact of the net dispositions in excess of acquisitions is about a 1% decline. And after adjusting for that, our organic constant currency revenue trend is flat year-over-year. Billing days are largely the same year-over-year in the fourth quarter, do not impact the trend. Sequentially, this represents a continuation of the third quarter organic days adjusted flat revenue growth year-over-year.

We expect constant currency revenue growth in the Americas to be in the low to mid single digits with Southern Europe growing in the mid single digits with about 4% of this increase driven from the Switzerland acquisition, resulting in an organic constant currency growth rate for Southern Europe of 1% at the midpoint. Northern Europe decreasing in the mid single digits with about 100 basis points of the reduction related to dispositions, and Asia-Pacific Middle East decreasing in the double digit teens range, with about 19% of this decrease due to the deconsolidation of Greater China and the previous disposition in late 2018, resulting in an organic constant currency growth rate for APME of about 2% at the midpoint. We expect the revenue trend for Right Management in the flat to slightly up range.

Our operating profit margin during the fourth quarter is expected to be down 30 basis points compared to the prior year quarter, reflecting a slight improvement from the down 40 basis points trend experienced in the third quarter, excluding the special accounting gain. We expect our income tax rate in the fourth quarter to approximate 33%. The fourth quarter impact of the increased French tax rate increase is about 0.5% after recording the year-to-date increase in the third quarter. As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 59.9 million.

With that, I'd like to turn it back to Jonas.

Jonas Prising -- Chairman and Chief Executive Officer

Thanks, Jack. In this mixed global environment, demand for extensive portfolio of staffing services and workforce solutions continue to provide us with opportunities for profitable growth in many markets and brands. We have a very experienced leadership team that has been through these kinds of conditions in the past. And we're managing our global business with great confidence in our ability to adjust our operations as needed, whichever direction a specific market takes.

We continue to make the necessary investments to diversify our business mix, digitize all aspects of our operations and continuously innovate to create new value. Our market-leading geographic diversification and our leadership and innovative workforce solutions continues to set us apart from our competitors. And we're very proud that our managed service provider, TAPFIN, has been recognized by the Everest Group as a global leader for the sixth consecutive year. Equally important is how we conduct our business, which continues to be recognized and we had recently been awarded two more gold ratings from EcoVadis, the world leader in the evaluation of supplier sustainability, taking our account to 20 countries. And we have been included in the Dow Jones Sustainability Index in North America, as well as the FTSE4Good for the 11th year.

According to our ManpowerGroup annual talent shortage survey, the largest human capital study of its type, the labor market currently shows the highest ever level of talent shortages. More than 54% [Phonetic] of employers globally are experiencing a shortage versus 30% a decade ago. We also know from our proprietary research that companies know they need to train talent, and their intent to do so has increased from 20% to 80% over just the last seven years. We have unique insights into how to help them bridge their talent needs not only by finding the best talent in the market, but increasingly also by creating the best talent through scalable, upskilling and reskilling initiatives. We look forward to sharing more on this opportunity, as well as a more detailed update on our digital strategic initiatives in our next Q4 call.

In summary, overall global demand for our services and workforce solutions remains stable. The need for strategic and operational flexibility remains crucial due to the environment, and we are focused on driving profitable growth wherever we see the opportunities. I would like to thank our global teams for their daily focus on delivering on our brand promise and working hard every day to better serve the needs of both clients and candidates. We remain optimistic that the future work and the future for workers is bright, and that this will provide us with opportunities for profitable growth.

I would now like to open the call for Q&A. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have questions in queue. The first one is coming from the line of Andrew Steinerman from JP Morgan. You may proceed.

Andrew Steinerman -- JP Morgan -- Analyst

Hi. It's Andrew. I wanted to ask about the US performance. It's great to see Experis back to growth. Could you just tell us what has changed there, and do you think it's sustainable? And then, again on the US Manpower brand, it's sort of hard to tell because of the manufacturing overhead [Phonetic], but do you feel like their operations are in a good position to capture a growth if the trade kind of pressures resolve?

Jonas Prising -- Chairman and Chief Executive Officer

Good morning, Andrew. Yes, we're very pleased with the overall performance of our business here in the US. I think, we've seen a continued progress over a number of quarters. And this quarter, we saw really that Experis, the investments and the progress we've made operationally starting to pay off. We're pleased with the progress, but we still think we have more work to do. On the Manpower side, I think, we're performing at markets. Clearly, we're starting to see some of the same headwinds here in the manufacturing sector as we see globally. But we feel good about where we are positioned and we feel we're performing to market, and we have more opportunities here still. So we feel good about the US business as a whole. We realize that we still have more work and more opportunities to capture here in the US. But the progress has been good and solid.

Andrew Steinerman -- JP Morgan -- Analyst

Great. Could you be a little more specific on Experis? You said you've made the investments that are paying off. Is that on the recruiter side, is that on the sales development side, just be a little more specific about what's working at Experis?

Jonas Prising -- Chairman and Chief Executive Officer

Well, we've spoken about this in past calls, so we see the US as still a market where we have opportunities for growth. So that's a market where we've been investing in recruiters, in sales resources, as well as in driving operational improvement and operational excellence initiatives, and we're starting to see that come through very nicely in terms of the billable hours growth, bill rate growth, the team also has applied some very nice pricing discipline, and what's been very pleasing, especially in this quarter is to see that the growth is coming primarily from convenience clients or smaller clients. So our sales teams are doing a good job locally managing to drive some very strong growth in those areas. Demand for IT skills, in particular, remains strong in the US. And I think it's more a question to find the talent that's -- it's clearly a talent-constrained market. But the teams have been executing well, and we're pleased to see the progress we've made so far.

Andrew Steinerman -- JP Morgan -- Analyst

Thanks, Jonas. I appreciate it.

Operator

Our next question is coming from the line of Jeff Silber from BMO Capital Markets. You may proceed.

Jeff Silber -- BMO Capital Markets -- Analyst

Thank you so much. I wanted to focus on the regulatory environment a little bit. I know we've had some proposals in France, from the current government regarding labor reform. Can you just give us an update where that stands? And where do you think there could be some impact on your business going forward? Thanks.

Jonas Prising -- Chairman and Chief Executive Officer

Good morning, Jeff. Yeah, I think, you're referring to the discussions and the implementation of a legislation that is really trying to reflect and manage the direct costs for shorter term contracts. And so, the French government is implementing this in seven sectors, seven industry sectors. And their aim is to try and limit the use of very short-term contracts. And -- this is still in progress. We're still trying to understand the exact mechanics of how this is going to be implemented. The idea is for the data collection to start around these contracts in 2020. The first stab at this will be implemented in January of '21. And then every year for the next three years they'll continue to measure the data, so that they have a good benchmark and the three-year average in terms of the industries that should have the increased direct costs, because they are extensive users of short-term contracts and conversely the lower direct costs for those industries that have lesser use of these short-term contracts. From our perspective, we think this is entirely manageable at this point for a number of reasons. We have the ability to upskill and reskill our workforce at scale there, which is one of the things that drives more direct cost for ourselves, but also as more importantly for our clients. So, we think at this point this is something that is not going to be truly disruptive for us and may actually provide us with some opportunities in France.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. Really appreciate the detail there, Jonas. And Jack, in your prepared remarks, you talked about new regulation coming in, in the Netherlands in the first quarter of next year. Can you just give us a little bit more color on that and what you think the impact on your business may be there? Thanks.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yeah. Jeff, the -- the Dutch regulation is really related to the temp industry overall and it's basically increasing the employment taxes for temp workers. So the cost of temp workers will go up. And so this will be effective January 1st. We're working through that with our clients currently. There's other parts of the provision that relate to payrolling. Payrolling is not a big part of our business in the Netherlands. So that's not going to be a major factor. And there's other components regarding transition allowances for temporary workers and those type of things.

I think, the probably the most significant is going just to be the higher cost for temp workers. So we're working through that with our clients. We have been spending a lot of time planning for that with them currently. There are some other details around more stringent planning requirements in terms of advanced notice for changes to temporary workers. But with all that being said, the Netherlands is about 3% of our global revenues. So we'll keep you updated on it, but it shouldn't have a major impact on the consolidated revenue trend.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. Thank you. I'm sorry.

Jonas Prising -- Chairman and Chief Executive Officer

And Jeff, maybe I could just add to that -- to your question and to say that in the Netherlands, we have strong delivery models also there with a focus on upskilling and reskilling and redeployment of talent. So that would help us extend assignments and also sophisticated scheduling models. So I think we're well placed to help our clients adjust to the changes involving scheduling and planning for this when it happens. But to Jack's point we're still in the early stages, so we'll see how this pans out as it gets implemented.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay, thanks. Appreciate the detail.

Operator

The next question is coming from the line of Seth Weber from RBC Capital Markets. Your line is now open.

Seth Weber -- RBC Capital Markets -- Analyst

Hi, good morning. I wanted to just go back and clarify, I think what I thought were two different comments about the France market. Jonas, in your prepared remarks, I think, I heard you say that France was stabilized. But then Jack, when you talked about sort of the cadence through the quarter, it sounded like August and September were softer. So, I'm just trying to tie those two comments together. Thanks.

Jonas Prising -- Chairman and Chief Executive Officer

Yeah. Sure, Seth. Really what we were saying was we did see a bit of a decrease from what we initially estimated at the end of the second quarter. So that additional step down really came through in the months of August and September from July. So from a quarter overall perspective, we were down from the flat result in the second quarter. So when we were talking about the stabilization, as we exit the quarter and now that we're into October, we're seeing a stable level of that decline that we saw step down in August and September. So that's really the takeaway there. And as I talked about in my guidance, we're currently expecting France in the fourth quarter to be at a level overall equal to the rate of decline in the third quarter.

Seth Weber -- RBC Capital Markets -- Analyst

Thanks. Okay. That's helpful. Thanks, Jack. And then, just another clarification. You called out some acquisitions that helped the US revenue. Was that a benefit to margin as well? I mean, the margin was surprisingly strong. So I'm just trying to kind of make sure there's nothing unusual in that margin strength. Thanks.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yes, no, good clarification, Seth. No, those were Manpower franchises in the US. There were three of them. They happened relatively late in the quarter. So they didn't really have a big impact on the revenue trend. But with that being said, they're not going to have a big impact on the OUP margin. So that is not one of the reasons. OUP margin was up in the US. I think, the main drivers were really what Jonas was referring to in the operational improvement on the Experis side. And that was really what was happening there. So the franchises -- and maybe just a little more color on the franchise acquisitions. There were three franchise acquisitions. And on an annual basis it's about $50 million in revenues. And that happened at the very end of August. So not a big impact on Q3. They'll have a small impact on Q4, and that's why we call out the organic results, and we'll continue to do that as we anniversary those.

Seth Weber -- RBC Capital Markets -- Analyst

Very helpful. Thank you very much guys.

Operator

The next question is coming from the line of George Tong of Goldman Sachs. You may proceed.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks, good morning. You mentioned that the markets are slowing in Northern Europe, specifically Germany, Netherlands and Sweden. Can you discuss how Brexit factors into your outlook and which markets show the most risk of further deceleration?

Jonas Prising -- Chairman and Chief Executive Officer

Well, the markets in Germany, Netherlands and Sweden in particular are markets that are open economies, and they seem to be the markets that are most affected by the uncertainty around trade and tariffs and these -- those kinds of issues. As it relates to Brexit, that is something that we're now waiting for the pending Brexit to occur. That appears to have caused some reduction in investments. If you read external reports, in the UK, just this morning you saw a report that estimated the impact to be potentially up to 1% of GDP growth already. So companies are holding back.

Now, having said that from our perspective, our team in the UK is really doing an excellent job of mitigating that weakness and then looking for new opportunities in the areas in which we do business, and it's been great to see how we manage to uncover those growth opportunities and take advantage of them, so that we're increase in both our top line as well as our bottom line in a market that is quite difficult.

George Tong -- Goldman Sachs -- Analyst

Got it. And then can you discuss the pricing environment in France? And how much you believe pricing can either partially or fully offset the French subsidy headwinds to gross margins over the next several quarters?

Jonas Prising -- Chairman and Chief Executive Officer

I would say, overall, George, the pricing environment remains rational, and it's always competitive. And as you've seen, our teams in France have done an excellent job applying pricing discipline for the quality of service and skills that we're able to provide to all of our clients in France. So, so far, we've done a very, very good job around that. And the labor market is quite tight, and the labor market and the unemployment rate in France has come down quite significantly in 2019.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

And I would just add to that George. The subsidy rate improves in the fourth quarter. So our France business has done a great job offsetting that subsidy headwind of 50 basis points in France for the first nine months, so that's a big reason we saw the improvement in the GP margin. And we expect the pricing -- the good progress they've made in that regard to continue into the fourth quarter based on actions taken at the beginning of the year. And the subsidy level improves with the Fillon subsidies. So that headwind gets reduced to only 15 basis points in the fourth quarter. So we expect price -- the actions that the France team have taken to continue to help on the GP margin trend.

George Tong -- Goldman Sachs -- Analyst

Very helpful. Thank you.

Operator

Next question is coming from the line of Mark Marcon of Baird. You may proceed.

Mark Marcon -- Robert W. Baird -- Analyst

Good morning. I was wondering, if you could talk a little bit about Germany, in terms of the outlook going further beyond this current quarter. It looks like we're going to anniversary some -- we're anniversarying some really tough comps and so or easy comps. And so it seems like, if things stabilize a little bit, we should get a little bit of improvement. Just wondering how we should think about that. And then if you could outline, Jack, any sort of special considerations as we model out the first quarter in the beginning of next year that we should take into consideration aside from the Netherlands, which you mentioned, just anything else that we should really keep up up to speed on?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Okay. Mark, maybe first on your Germany question, I'd say, very good point. We did see the 5% improvement this quarter on a steeper decline in the year-ago period in that rate of decrease, so we went from that 24% days adjusted decrease down to 19%. And Jonas mentioned that that's where we're seeing a lot of pressure in the manufacturing sector. And candidly, we expect that pressure to continue from an external perspective. So we are expecting continued improvement. To your point, we do anniversary some even steeper declines in the fourth quarter. So we do expect to improve the rate, the revenue trend into the fourth quarter. I think beyond that, then we continue to run at an anniversaried. And so I'd expect to see a bit more stable performance in 2020 as we move beyond the fourth quarter, and we've fully anniversaried some of those very large declines. But I think it's going to really depend on our ability to hold the associates on assignment stable. And as I mentioned last quarter, we've actually been -- the business has been doing a very nice job of holding the associates on assignment stable in Germany, despite the higher conversions from temp to perm by some of the clients. And it's really going to depend on the manufacturing industry or the sector overall in Germany being able to continue to hold at a stable level and hopefully improve in the future, but what we've seen lately is further step down. So I think that's going to be part of what we continue to monitor in Germany, but we will see improvement as we go forward, just based on those anniversaries.

I think, in terms of your second question on the outlook for 2020, and any other factors, so we talked already about the Dutch regulation. There is also, as we mentioned last quarter some regulation in Japan that's going to be coming in, in the second quarter, relating to some equal pay provisions for temp workers as well. A bit too early to tell, what -- what the impact of that's going to be. We're working closely with our business planning for that as well. We think that's manageable at this stage. And I'd say, the last item would probably just be the tax rate overall, and I'll certainly give updates on these items at year end as part of our fourth quarter results. But the tax rate -- the only big change in the tax rate is France. We expected France to come down 2% in their corporate tax rate this year. They canceled that reduction, but it does start up again next year. And that should get us back to some improvement in the effective tax rate by about 50 basis points on an overall basis year-over-year. So I'd say those are probably the main items to think about at this time, and I'll give a further update on those topics at year-end.

Mark Marcon -- Robert W. Baird -- Analyst

Great. And then, Jonas, I was wondering, if I could ask you something given all of your travels around the globe, you've been through many cycles. As we take a look at the international markets, particularly the European markets, you've been through downturns before. What inning of the current European softness do you think we're in? Do you think we're -- the early stages or mid stages in terms of the softness that we're seeing? And what are you hearing from your people and your clients in terms of how they're thinking about next year developing as the year unfolds, and maybe as Brexit gets settled, and maybe some stabilization on the trade issues?

Jonas Prising -- Chairman and Chief Executive Officer

That's a great question, Mark. And I would say in our conversations with clients, what used to be somewhat unclear in terms of why they felt a little bit less confidence and why they saw some weakness, asking them the same question today, it's very clear that the slowing growth environment is heavily driven by the concerns around the trade wars and tariffs to be implemented or having been implemented in many parts of the world. And that clearly is the main driver of the slowing of the manufacturing sector, which in turn is driving the slowing of global growth. So it's a little bit different from other down or slowing environments than we've seen in the past because it's so clearly driven by actions taken by policymakers that are affecting global growth and is now coming through to all parts of the world, including the US.

Now, looking at Europe and stepping away, I would -- we would still think that Europe should be in the middle innings of their economic cycle now being disrupted by this uncertainty around trade and tariffs. Having said that, the construction -- the conversations we have with our clients are still constructive. The labor markets are tight. The need for talent in all industries remains very strong. And we can see opportunities in many parts of Europe, where the economy overall is slowing, but we can still see very strong opportunities for perm growth. For instance, Italy and Spain and France to name a few, had very strong performance, even Germany on the permanent recruitment side. So there's still opportunities for growth. And the key is going to be when these trade tariffs, when the policymakers decide to settle this ongoing tension, and then I believe we can move forward in an even more constructive way. But from all of my conversations with our clients and in all of the various markets that I've traveled to over the last seven months or eight months, this very much feels like a slower growth environment, and it does not feel like an acceleration into a more broad-based recession. There are some industries that have troubles, but the service part of the economy in many countries are still performing well and that the consumer is still involved in driving growth. So it looks like a slow growth environment, truly uneven, but not an acceleration into a recession at least at this point.

Mark Marcon -- Robert W. Baird -- Analyst

Really appreciate the comments. Thank you.

Jonas Prising -- Chairman and Chief Executive Officer

Thank you, Mark.

Operator

The next question is coming from the line of Kevin McVeigh from Credit Suisse. Your line is now open.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Jonas, just a follow-up on Mark's question around that. You've got the uncertainty in terms of the open market to Germany and things like that. Does that trickle into the close markets? And as you talk about the potential stabilization, is that a function of just easier comps or the macro? Is the macro stabilizing or is it just a function of overall you're seeing some easier comparison and ultimately is the macro the stabilization? Does that get worse based on tariffs from kind of the larger countries, Germany linking into the others or how should we think about that?

Jonas Prising -- Chairman and Chief Executive Officer

Well, I think you can see across the many countries that some -- there is some effect of the overall slow growth environment as you would expect, as their export clients and recipient markets are slowing down. So it clearly illustrates that we live in a connected world where the idea that in isolation you can implement certain policies and hope that it doesn't boomerang and come back to you is really not working out in that way. Having said that, in conversations with our clients, at least, in markets that are doing well and even in markets that haven't been doing so well, but are now improving, our feeling is that the stabilization is really happening in many of those end markets, which is reflected in our own performance. Now whether it lasts, that is of course a question that's very difficult to answer depending on, what other measures policymakers may take good or bad. But we feel that the stabilization we see in some markets is underlying and structural. And of course, this is the beginning of the time that we saw the downturn occur last year being a leading indicator of some of this impact. So of course, the comps are also somewhat helpful in some markets, but it appears that some of the stabilization we're seeing at a lower level appears to be more structural than just based on comps.

Kevin McVeigh -- Credit Suisse -- Analyst

That's super helpful. And then, just, Jack, given where you are, how do you think about kind of the cost component of it? I know, you continually look to optimize the margin profile of business. Should we expect any more restructuring, or are you kind of where you are, or just any thoughts around that as well?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yeah. Well, I'd say, from the restructuring we did earlier in the year, we are getting that run rate savings that I talked about earlier. So we expected about $10 million a quarter, that is coming through based on the actions we took. And if I look back the actions we took were in some of the markets where we're seeing a lot of the pressure that we talked about earlier in terms of some of the trends in Northern Europe. I'd say going forward, we don't pre-announce restructuring. And so what you should expect from us is we'll continue to look at our operations and identify any additional areas for optimization. I think from a broader perspective, from a cost basis, there's a lot we're doing that doesn't qualify as restructuring. We continue to implement great programs to reduce a lot of our back office costs and finance accounting shared services, our technology managed services. So we are getting run rate savings for the actions we've taken in that regard in the past, and we continue to implement those actions across the globe. And we'll be doing more of that work in Europe and are at the moment and will continue to be doing that as well. So I think we feel pretty good about our ability to continue to take costs out of the organization. And we'll be giving further updates on that in future calls.

Kevin McVeigh -- Credit Suisse -- Analyst

Thank you.

Operator

The next question is coming from the line of Manav Patnaik from Barclays. Your line is now open.

Ryan Leonard -- Barclays -- Analyst

Hey. This is Ryan on for Manav. Just a question on France in terms of some of the new, I guess the data measuring period. And is there any risk similar to the Netherlands as this rolls out that there's some hesitancy from clients who maybe don't want to be known as in the early stages of measurement being heavy users of agency labor?

Jonas Prising -- Chairman and Chief Executive Officer

Well, thanks Ryan. The measure is aimed at all of short-term contracts, which incorporates fixed term contracts and other forms of contracts other than temporary staff contracts. And of course, they are more prevalently used by the industries that are really leveraging those kinds of contracts. So in actual fact, we believe that there might be an opportunity for a shift from the shorter term contracts being used to temporary staffing contracts because of our ability to manage reassignments and redeploy talent in a scalable and structured way. So, it doesn't -- it's not aimed at the temporary staffing industry, per se, it is aimed at the use of flexible contracts of all kinds in France. And in that context, we think that we have a very, very good form of flexibility that, that really stands very strong in the light of these changes in providing good, sustainable flexibility for companies as well as for our temporary associates. So it could be an opportunity from that perspective. And those short-term contracts are two times to three times the size of the temporary staffing contract market. So it could be an opportunity for us.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

And I would just add to that. One of the main themes around the new legislation is to basically look at unemployment taxes. And to Jonas' point, it's only on seven sectors. If we -- staffing is not one of the sectors. So our cost for our associates won't go up. It's going to be impacting our clients. And it's about a third of our business today are the sectors that are impacted by the new regulation, the regulations effective in 2021. 2020 will be the year they do all the mapping of the history and the cost. And effectively, we think we have a competitive advantage because we have very good reassignment rates of our temps to Jonas' point. So I think for our clients where staffing companies have the ability to have longer durations of their associates and higher reassignment rates for their associates, they will have an advantage. So we feel pretty good about that going into the new regulation in 2021.

Ryan Leonard -- Barclays -- Analyst

Got it. Thanks. Very helpful. And then, maybe could you talk about how you approach M&A in a market like this? I would imagine that multiples have probably come down, but there's a large degree of uncertainty. I mean, would you try to take advantage of some of the -- call it, uncertainty or fears around that and look to expand in any way? And how should we think about how you approach it, given the number of global headwinds that exist?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Our strategy really hasn't changed. We are very disciplined when it comes to M&A. We look at many different factors and the areas of interest for us are primarily the higher margin professional skill sets as well as in the solutions era, should we go after some targets. But we keep on monitoring the market situation and the ups and downs may not be a triggering factor for us as it relates to M&A.

Ryan Leonard -- Barclays -- Analyst

Got it. Thank you.

Operator

Our next question is coming from the line of Gary Bisbee from Bank of America Merrill Lynch. Your line is now open.

Gary Bisbee -- Bank of America Merill Lynch -- Analyst

Hey, thanks for squeezing me in at the end. Jack, just one question for you. The equity earnings from the China business, now that you're a minority owner of that, where is that? I didn't see you break out, like a new line, or put that in the breakout of interest in other or anything like that. So where is it in the P&L and how much was it in the quarter?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yeah. So, I think we gave a bit of a preview on that last quarter. So that's below the line. So that comes in, in other income other expense. And if you look at the detailed financials in the press release, you'll see miscellaneous income is part of the other income other expense. That's where it's coming in. And so, as I mentioned before, we own 51% of the China JV; previously, we used to consolidate it. The results came in all as part of our consolidated results. Now that -- we still are the largest shareholder of the Greater China operation, but now we are below 50%. We're at about 36% ownership. And that's coming in as an investment in and that comes through the other income expense. So that's part of the reason you're seeing that, that income increased year-over-year and miscellaneous income and other income other expense.

Gary Bisbee -- Bank of America Merill Lynch -- Analyst

And there hasn't been any change in your expectation that it's like, I don't know, mid-single-digits, I guess pre-tax that would be millions of contribution quarterly, is that still reasonable?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yeah. I'd say, our expectations on the profitability of the business hasn't changed. We feel really good about our Greater China business, and it's performing very well. And there's been no real change to the expectations. So it will continue to be a good contributor for us. It'll just come below the line in our equity pickup.

Gary Bisbee -- Bank of America Merill Lynch -- Analyst

Perfect, thank you.

Jonas Prising -- Chairman and Chief Executive Officer

And we have time for one more, last question.

Operator

And sir, the last question is coming from the line of Tobey Sommer from SunTrust. Your line is now open.

Tobey Sommer -- SunTrust -- Analyst

Thank you. I was wondering if you could give us some color about the performance of your various solutions, RPO, MSP in the countries that are in decline. Are those lines of business tracking the declines in the sort of the country results, or they demonstrating a different top-line trend a little bit more resiliency? Thanks.

Jonas Prising -- Chairman and Chief Executive Officer

Well, thanks, Tobey. Yes. They are demonstrating more resiliency. In actual fact, they're growing nicely. Our global offerings, MSP as well as the RPO offerings are doing well. We feel very good about our pipeline in terms of what we're seeing coming through in the next quarter. So they're holding up and they're really driven to some different mechanisms as they are more long-term in nature, and they are integrated deeply into our customers' operations.

Jack McGinnis -- Executive Vice President and Chief Financial Officer

And I would just add, Tobey, to give you a little color. We don't really break out that, that level of detail. But just directionally, the US had good growth in solutions and RPO and MSP during the quarter. So that contributed to overall growth in solutions for them in gross profit. I'd say, France had good growth in the Proservia business in the third quarter as well, that contributed to overall growth in solutions. And I'd say, Australia would be the other big one. We have a very large RPO business in Australia. And from a total solution standpoint they had nice growth with strong MSP performance as well as a good stable RPO business there as well.

Tobey Sommer -- SunTrust -- Analyst

So to the extent, you're going to look at one of the softer geographic regions, would MSP and other -- and RPO, would those actually be growing, or just declining a little less significantly?

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Yeah. I'd say, some of the softer regions aren't bigger RPO businesses for us. So it actually hasn't had a big impact on our solutions business overall, like Germany would be a good example. Germany, we do have a good sized Proservia business. And I'd say, that is down a bit year-over-year, but that's really driven by some isolated items. I wouldn't say, it's a broad-based trend for the business. And I'd say, the UK is the other big solutions business for us, and they had good growth in MSP. Their RPO was maybe a little softer on a specific client or two type of reduction in activity. But I'd say that, that's probably the story. I don't think there is a big change based on the markets they are seeing a lot of weakness at the moment.

Tobey Sommer -- SunTrust -- Analyst

Thank you.

Jonas Prising -- Chairman and Chief Executive Officer

Thank you very much. And with that, we come to the end of our third quarter earnings call. We look forward to speaking with you again in our Q4 earnings call at the beginning of next year. Thank you and have a good weekend.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Jonas Prising -- Chairman and Chief Executive Officer

Jack McGinnis -- Executive Vice President and Chief Financial Officer

Andrew Steinerman -- JP Morgan -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

George Tong -- Goldman Sachs -- Analyst

Mark Marcon -- Robert W. Baird -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Ryan Leonard -- Barclays -- Analyst

Gary Bisbee -- Bank of America Merill Lynch -- Analyst

Tobey Sommer -- SunTrust -- Analyst

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