UPDATE: Economic Fears Hit Adecco As Market Momentum Slows

Adecco SA (ADEN.VX) Wednesday was hit by investor fears that the ongoing financial crisis could soon hurt job markets in industrialized economies as it warned of slowing business in July, even as the world's largest staffing company posted a 45% jump in second-quarter net profit.

The investor skepticism pushed Adecco's shares almost 7% lower in early trade, against the overall positive trend in Switzerland. At 0847 GMT, the shares were down 4.8% at 36.8 Swiss francs, adding to the stock's 36.8% drop this year.

The Zurich-based company said net profit for the three months to end-June rose to EUR141 million from EUR97 million, beating analyst forecasts of EUR125 million as Adecco registered double-digit growth in the U.S. and France, its two major markets.

Sales were also above expectations, rising 11% to EUR5.17 billion from EUR4.65 billion, as demand in the automotive sector in Italy and Germany also helped boost revenue and as business in emerging market continued to thrive.

But analysts and investors said the growth rates weren't enough to disperse concerns over Adecco's ability to protect itself against cooling economies in Europe and the U.S. as the financial crisis is expected to hurt consumer demand and curb economic growth.

Furthermore, job markets in countries such as the U.S., Spain and the U.K., although they have improved from recession lows, are still weak. And concerns are rising that any new jobs generated will be in emerging markets, where Adecco's market presence is still comparatively small and where profit margins are lower.

"In this market environment, the sales rise was too little to impress," said Robert Scholl, asset manager at the 8.5 billion Swiss francs ($11.6 billion) pension fund Aargauische Pensionskasse. "And fears are that the industrial and automotive sector in Europe and the U.S. could soon be hurt again if the global economy cools off and Europe and the U.S. fall into recession," Scholl said.

Chief Executive Patrick De Maeseneire tried to disperse some of these fears, saying "there are no warning signals that clients are reducing the number of temporary staff." While he said that business was "a touch lower" in July, he also cautioned that it was important how the market will develop after the holidays in September.

De Maeseneire's outlook comments failed to imbue investor trust as the market is aware that Adecco's ability to read market trends is limited. The company is only able to predict developments about one month ahead.

During the last crisis, Adecco, which leads the market ahead of competitors such as U.S.-based Manpower Inc (MAN) and Randstad Holding NV (RAND.AE), lost around 30% of revenue and had to launch a hefty cost cutting program to protect profit margins and keep losses in check.

Its attempt to place more professional staffers such as lawyers and IT specialists helped it keep up margins and Chief Financial Officer Dominik de Daniel said Adecco was confident the demand for highly specialized staff will continue to perform well.

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com

(John Revill in Zurich contributed to this article.)

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