Temporary Staffing is Entering the “Bermuda Triangle” of Margin Pressures (Part 2 of 2): Manpowergroup Inc (MAN), Trueblue Inc (TBI), Barrett Business Services, Inc. (BBSI)

Page 1 of 2

In part one of this series, we discussed a “Triangle” of likely economic concerns that are due to contract the margins of temporary staffing providers.

To re-cap, they are:

1). Increased volatility (good or bad) in the unemployment rate

2). Increase workers compensation rates, particularly if unemployment drops

3). Increased gas prices

To be clear, while I feel that the temporary staffing market is due for a hiccup, I don’t believe it should be avoided altogether. This “Triangle” provides the largest risk to Manpowergroup Inc (NYSE:MAN) and Trueblue Inc (NYSE:TBI), but competitors that operate in better geographic markets or skilled labor staffing should continue to thrive.

Manpowergroup IncStick with ”skilled,” stay out of Europe

Check out these numbers for the most in-demand jobs with the highest number of jobs produced, since the recession.


Occupation
Software Developers Accountants/Auditors Marketing Specialists Computer Analysts/Administrators Human Resources/Labor Relations Specialists
Sales Representatives

Mechanical/Industrial Engineers

Jobs added since 2010
70,872 37,123 31,335 45,000 22,773 17,405 13,656

Growth %
7% 3% 10% 5% 5% 4% 6%

Source: Rasmussen

Nearly all of these markets are staffed by either Robert Half International Inc. (NYSE:RHI) or Kelly Services, Inc. (NASDAQ:KELYA); particularly Accounting for the former and Engineering for the latter. Both firms are equipped to navigate through a difficult temporary market–Robert Half because of its high margins, and Kelly because of its diversified client services. Better yet, they don’t have the exposure to Europe that

Manpowergroup Inc (NYSE:MAN)

Manpowergroup Inc (NYSE:MAN) has, and Kelly is expanding in the highest growth markets—Latin America and Asia.

Robert Half’s brand recognition in the temporary staffing industry is so strong that some of its brands are synonymous with the markets they serve (i.e., Accountemps). This creates credibility amongst clients in fields that need experts and drives Robert Half’s ridiculously high billing rates. Robert Half has a respectable operating margin of 9%, but it’d be much higher if you subtracted the cash they spend to have some of the best recruiters in the industry–most of whom are former accountants, lawyers, etc. These are expenses that firms like Manpower and Trueblue Inc (NYSE:TBI) largely don’t have, but it’s also what drives gross margins higher.

The typical bill rate for Accountemps, for instance, is a 60% mark-up. That means, if Robert Half pays an employee $10 per hour, they bill their client $16; a remarkable feat. So remarkable, that it leads Robert Half to have gross margins nearly three times as fat (41%) as the aforementioned

Manpowergroup Inc (NYSE:MAN). This fact, coupled with the fact that Robert Half’s white collar staffing model comes with essentially no workers compensation risk, makes up for the fact that they’re primarily a temporary staffing provider.

In other words: high margins + brand moat + lower risk=a good place to start!

PEO providers offer flexibility in down markets

While Robert Half has been on an absolute tear, I believe misinformation has lead Kelly to still be a bargain. Sure, the stock has risen to a 52 week high, but it’s within a much tighter range, and still far off its pre-recession price (around $35) despite being more profitable today.

Kelly’s earnings are projected to rise 14% this year, and considering that it has met or exceeded earnings for 12 straight quarters, I feel comfortable building a position based on those projections. Kelly has a strong long-term temp business in growing skilled labor areas like Engineering, but also offers much more. The company is successfully transitioning its business to have more exposure to permanent placement and especially HR outsourcing, PEO and Vendor Managed Services (VMS,) all of which have low overhead and risks. Those services also thrive in all “economies,” good or bad, because they save companies money.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!