WPP Drops as First-Half Profit Gain Falls Short of Estimates
WPP First-Half Profit Rises 39% to $232.5 Million
Jock Fistick/Bloomberg
There was a “significant recovery” in revenue growth and profit in the first seven months of 2010, with July having the strongest advance, even as clients remained uncertain about the future, said Chief Executive Officer Martin Sorrell.
There was a “significant recovery” in revenue growth and profit in the first seven months of 2010, with July having the strongest advance, even as clients remained uncertain about the future, said Chief Executive Officer Martin Sorrell. Photographer: Jock Fistick/Bloomberg
Aug. 24 (Bloomberg) -- Martin Sorrell, chief executive officer at WPP Group Plc, talks about first-half profit and the outlook for advertising spending. The world's largest advertising company said net income jumped 39 percent from a year earlier to 150.8 million pounds ($232.5 million). Sorrell speaks from London with Francine Lacqua on Blooomberg Television's "Countdown." (Excerpt. Source: Bloomberg)
WPP Plc, the world’s largest advertising company, fell the most in almost eight weeks in London trading after it expressed “uncertainty” about market recoveries in Europe and the U.S.
Net income in the first half rose 39 percent from a year earlier to 150.8 million pounds ($232.2 million), the owner of Ogilvy & Mather and Grey Group agencies said in a statement. Analysts surveyed by Bloomberg had an average estimate for net income of 163.5 million pounds, not adjusting for amortization and impairment charges. Sales rose 3.5 percent to 4.44 billion pounds.
WPP, whose biggest clients are Ford Motor Co., Procter & Gamble Co. and Unilever NV, is wary of “Eurozone fiscal contagion from Greece, Portugal, Spain and Ireland” as well as effects from government spending cuts in the U.K. and elsewhere, Chief Executive Officer Martin Sorrell said in an interview. The outlook came even after a “significant recovery” in revenue growth and profit in the first seven months of 2010.
“Expectations were running high and I think the only thing analysts could be worried about is that this easy bounce could end at some stage,” said Alexander Wisch, a media analyst at Standard & Poor’s Equity Research.
WPP fell as much as 3.6 percent, the biggest intraday drop since July 1, to 647 pence in London. The shares were trading at that level as of 1:09 p.m., giving the company a market value of 8.13 billion pounds.
“We pepper our statement with concerns about uncertainty and one is the contagion in Europe, also the U.S. deficit as well as the current administration’s attitude toward business,” Sorrell said in a phone interview today.
‘Slog’
“The most likely scenario is a slow-growth ‘slog,’ particularly in the mature geographical markets and traditional media markets, perhaps with inflation and higher interest rates in the long term,” London-based WPP said in the statement.
July had the strongest advance, Sorrell said, as marketers increased ad spending in the U.S. and U.K. and print and television advertising recovered.
WPP and its peers including Interpublic Group of Cos., Omnicom Group Inc. and Publicis Groupe SA are posting higher sales and profit as marketers increase spending on ads after slashing budgets in previous years.
First-half billings at WPP rose 8.5 percent to 20.3 billion pounds, the company said today. Net new business almost doubled to 2.1 billion pounds.
Travel, Airlines
Sorrell said ad spending in the travel and airline industries remained under pressure while automotive, telecoms and packaged-goods companies boosted budgets.
“WPP’s interims are likely to bring forecast upgrades for the year,” Giasone Salati, an analyst at Execution Noble in London, said in a note to clients. “We expect faster margin progression and believe that the shift from a creative/talent- based business model to a data/technology-intense one offers larger economies of scale longer term.”
WPP said it’s aiming for diluted headline earnings per share for 2010 similar to 2008’s all-time high and an operating margin ahead of the adjusted margin in the second half of 2008. The company said it expects to match or exceed its goal of improving the margin by 1 percentage point.
WPP’s GroupM media-buying unit raised its forecast for global ad spending in June, saying it would climb by 3.5 percent this year to $451 billion. It previously predicted a 1 percent increase. If achieved, this would equal the amount spent in 2006-2007. GroupM also predicted a 4.5 percent increase in global ad spending in 2011.
Pipeline
The company has a number of small and medium-sized acquisitions in the pipeline, Sorrell said, adding the focus is on fast-growing markets and digital activities.
WPP aims to get a third of its revenue from digital business in three to four years, he said. It currently gets 28 percent of revenue online.
The average number of WPP employees in the first half fell 8.7 percent on a comparable basis to 100,008 people.
WPP’s French rival Publicis said last month its first-half net income rose 28 percent as marketers boosted spending, helping its largest ad agencies, Leo Burnett, Publicis Worldwide and Vivaki. Sales climbed 15 percent to 2.54 billion euros ($3.21 billion).
To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.
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