UPDATE: Adecco Sees Demand For Temporary Workers Continuing

Staffing giant Adecco SA (ADEN.VX) Thursday announced it would buy back 2% of its shares as it reported a sharp increase in fourth-quarter net profit and said it had enjoyed a strong start to 2011 due to growing demand for temporary workers.

The company said it expected the environment to remain favorable for flexible labor in 2011, with continued uncertainty making employers favor temporary over permanent staff.

Permanent jobs will be created, but just enough to cover the new entrants into the labor market, said Chief Executive Patrick De Maeseneire. "The additional activity coming from economic growth will be covered by flexible jobs," he added, a trend he expected to continue.

That's good news for recruitment companies like Adecco, whose customers currently favor temporary workers in order to avoid the large restructuring costs they incurred during the downturn.

Confidence was still too weak for permanent appointments, De Maeseneire said. "As long as there is uncertainty, but economic growth, that leads to more temps," he said.

Adecco is seen as a bellwether for the broader economy due to its links to labor markets and its performance follows positive results by rival staffing companies Randstad Holding NV (RAND.AE) and Manpower Inc. (MAN).

Investors welcomed Adecco's news. At 1137 GMT, its shares traded up 3.60 Swiss francs ($3.89), or 5.8%, at CHF65.30 while the benchmark SMI index traded roughly flat. Adecco's shares have gained 15% in value in the past 12 months.

Revenue in January jumped 17%. It grew 20% in France, 18% in North America and 32% in Germany, markets that represent more than half of its business. Growth remained strong in Italy, Benelux, Switzerland and the Nordic countries, while Japan returned to positive growth in January.

"Based on these developments, management is confident on strong top-line growth in the months ahead, albeit measured against higher comparables," Adecco said.

Net income in the fourth quarter increased to EUR141 million from EUR42 million a year earlier, beating a forecast of EUR110.8 million in a Dow Jones Newswires poll. Revenue climbed 32% to EUR4.99 billion, beating expectations of EUR4.92 billion.

For the year, net profit soared to EUR423 million from EUR8 million as sales jumped to EUR18.66 billion from EUR14.79 billion.

Revenue for industrial workers was a key driver for Adecco, with sales up 25% in the fourth quarter driven by growth in automotive, chemical and electronic sectors. The growth outpaced the increase for professional staffing, which rose 10%.

Adecco said it expected penetration rates of flexible labor to surpass the previous peaks of 2007 and 2008. Penetration levels--which refer to the proportion of temporary workers in the work force--were 2.5% in France, 2% in the U.S. and 1.8% in Germany in 2007/8.

The company's operating margin improved 110 basis points to 4.5%, and Adecco now was in "good shape" to achieve its mid-term earnings before interest, tax and amortization margin target of over 5.5%, De Maeseneire said. "We won't reach the 5.5% Ebita margin this year. It is a mid-term target. We are well on track."

Adecco said it would spend around CHF200 million buying back shares "if and when opportune."

The share buy back was a good way to use the balance sheet, Chief Finance Officer Dominik de Daniel said. The company currently holds 14.6 million treasury shares, which represent 7.7% of total shares issued, and under Swiss law is allowed to hold up to 10% of its own shares.

"This will be done opportunistically," De Daniel said. "There is no hurry."

-By John Revill, Dow Jones Newswires; +41 43 443 8042; john.revill@dowjones.com

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