UPDATE 2-Adecco expects steady demand for temps in Europe

Thu Aug 7, 2014 4:43am EDT

* Q2 net profit rises 15 pct to 145 mln euros

* Sales of 4.99 billion euros vs forecast of 5.07 bln

* Biggest market France continues to weigh on overall growth

* Confirms on track to meet mid-term EBITA margin target

* Shares fall 2.7 pct, underpeform sector (Adds comments from CEO)

By Caroline Copley

ZURICH, Aug 7 (Reuters) - Adecco, the world's largest staffing company by sales, expects a modest economic recovery to keep demand for temporary workers stable in Europe as it reported a slight slowdown in underlying revenue growth in the second quarter.

Employment agencies like Adecco and Dutch rival Randstad are seen as barometers for economic health since companies tend to hire temporary workers at the start of a recovery when they are reluctant to commit to full-time hiring.

In Europe, Italy and Iberia were bright spots for Adecco in terms of revenues in the quarter, while in France, the company's biggest market, sales were flat.

Adecco's Chief Executive Patrick De Maeseneire said it was hard to gauge how hiring would develop over the rest of the year but he expected moderate economic growth to support a pick-up in temporary hiring.

"If we listen to our clients, we have no reason to believe there will be a change. But with all that's going on in the world there is also no broad optimism at the moment," he told Reuters in an interview.

He said uncertainty over the Ukraine crisis had not impacted Adecco's business in the country and neighbouring Russia so far, and he did not expect it to materially weigh on sentiment among Adecco's clients.

The Swiss company's underlying revenues, excluding currency moves, rose 5 percent in the second quarter to 4.99 billion euros ($6.7 billion), falling slightly shy of the average analyst forecast for 5.07 billion in a Reuters poll.

This was slightly below the 6 percent growth seen in the first quarter, but above 4 percent seen in the final three months of last year. Revenue growth in July was between 5 and 6 percent, Adecco said.

Shares in Adecco, which have shed over 7 percent of their value so far this year, were trading down 2.7 percent at 63.60 francs by 0745 GMT. The Swiss industrial goods and services sector was down 0.4 percent.

"Adecco continues to deliver solid performance even though organic growth is not yet in high-single digit range foreseen for full-year 2014," Vontobel analyst Michael Foeth, who rates the stock "buy," said.

J. Safra Sarasin analyst Dominik Studer said he considered the recent share price weakness as a buying opportunity since demand for flexible labour should increase over the rest of the year.

FRENCH DRAG

In Adecco's biggest market, France, which has lagged a recovery in other European countries, revenues were flat in the quarter compared to a rise of 1 percent in the first quarter.

This chimes with U.S. rival ManpowerGroup Inc, which said last month a weak performance in France had dragged on its revenue growth in the second quarter.

But elsewhere on the continent busy factories helped support growth.

"If we exclude France, continental Europe is up 10 percent and it's all driven by industrial which is the early cyclical business," De Maeseneire said.

A particular strong point was Italy, despite entering recession in the second quarter, where revenues jumped 18 percent. Iberia also notched up growth of 21 percent, driven by export-orientated clients.

These markets are benefiting from labour market reforms during the financial crisis, which make it easier and more acceptable to hire temporary workers, Adecco said.

De Maeseneire said its strategy remained to focus on organic growth, but added the company was considering smaller, bolt-on acquisitions to enhance its technology.

Quarterly net profit rose 15 percent to 145 million euros, in line with the analyst consensus.

Adecco confirmed its target for earnings before income tax and amortisation (EBITA) margin to represent more than 5.5 percent of revenue by 2015. It had an EBITA margin excluding restructuring costs of 4.6 percent in the quarter. (1 US dollar = 0.7476 euro) (Editing by Miral Fahmy and Jane Merriman)

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