* Sees fourth-quarter earnings of $0.72-$0.80 per share vs est $0.70
* Third-quarter earnings $0.79 per share vs est $0.68
* Double-digit drop in sales in France and Italy
* Gross margin up 10 basis points to 16.6 pct
* Shares up as much as 14 pct
By Tej Sapru
Oct 19 (Reuters) - Manpower Inc reported higher-than-expected quarterly earnings and forecast a fourth-quarter profit above Wall Street expectations, as the global staffing company grew margins by dropping less-profitable deals, even as it warned of lower demand from employers wary of hiring in a weak economy.
Manpower shares were up 10 percent at $39.68 in afternoon trading on the Nasdaq.
The world's No. 3 staffing company, which derives most of its sales and profit overseas, has been under pressure from a weak economy in Europe, where the ongoing crisis has seen many companies cutting back on hiring.
"We are acting on the premise that we are entering a prolonged period of soft economic conditions," Chief Executive Jeffrey Joerres said on a post-earnings conference call.
Manpower generates about two-thirds of its sales in Europe and suffered double-digit declines in sales in France and Italy, dragging overall sales down 11 percent in the quarter.
Still, gross margins rose 10 basis points to 16.6 percent.
Avondale Partners analyst Randle Reece said Manpower was not just responding to the macroeconomic trends, but trying to change the way it does business.
"An important part of this is enforcing discipline in the way they go to market ... Ensuring that their staff does not sign deals with unattractive profit margins."
"In the Americas, they have been walking away from some low-margin business," Reece said.
Manpower, whose clients include ABB, Deutsche Bank , Novartis and Cisco Systems, reported a 20 percent fall in net income to $63.1 million in the third quarter ended Sept. 30.
However, earnings per share of 79 cents in the period came in well ahead of Wall Street estimates of 68 cents per share, according to Thomson Reuters I/B/E/S.
Sales at the Milwaukee, Wisconsin-based company fell 11 percent to $5.17 billion, but came in ahead of analysts expectations of $5.11 billion.
Manpower now expects to earn between 72 cents and 80 cents per share for the current quarter, above Wall Street estimates of 70 cents per share.