Publicis Third-Quarter Sales Growth Slows on Weak China Ads

Publicis Groupe SA, which is merging with Omnicom Group Inc. to form the world’s biggest advertising company, reported slower third-quarter sales growth because of weaker ad spending in China.

Revenue rose 3 percent to 1.68 billion euros ($2.3 billion) from a year earlier, Paris-based Publicis said in a statement today. Excluding currency fluctuations and acquisitions, sales climbed 3.5 percent, missing Nomura Holdings Inc.’s 4.2 percent estimate and slowing from an increase of 5 percent for the previous quarter. Shares fell as much as 2.5 percent in Paris.

Still, Publicis confirmed its 2013 target of as much as 3.6 percent growth as the quarter saw European sales rise for the first time this year and as digital businesses expanded 12 percent. The combination with Omnicom is progressing through the regulatory process before competition watchdogs and will offer clients integrated campaigns and advanced technology while helping contain costs at the companies, Publicis said.

“The main thing: we’re on track,” Chief Executive Officer Maurice Levy said at a press conference in Paris. “We’ve already obtained two green lights: that of South Korea and South Africa. We’ve done the filing in the U.S. We’ve started the process in Europe. We’ve advanced on China.”

Publicis shares were down 2.2 percent to 59.05 euros at 9:09 a.m. Omnicom rose 1.6 percent to $64.96 in New York yesterday.

Client List

Levy said Publicis, the owner of ad agencies Leo Burnett and Saatchi & Saatchi, and Omnicom -- the second-biggest ad firm behind WPP Plc -- haven’t lost any clients since the merger was announced in July and said most have been supportive. Managers of the companies are scheduled to meet later this week in Florida to discuss the integration plan, he said.

“‘We don’t have the intention to merge the networks; that is clear,” Levy said. “Our idea is that we should do 100 basis points of additional growth on top of the average that the two groups could do by themselves.”

Omnicom reported slower revenue growth in the third quarter as well, saying yesterday sales for the period hit $3.49 billion. That narrowly beat analysts’ $3.48 billion estimate and is down from $3.64 billion in the second quarter as European markets slowed for the New York-based company.

Publicis and Omnicom shareholders will each hold about 50 percent of the new entity, Publicis Omnicom Group. The alliance will give the owners more clout to negotiate better ad rates for their clients for media placements on television, the Internet and in print as the advertising industry starts showing signs of a recovery. They’ll be better able to compete against the growing might of Silicon Valley companies such as Google Inc. and Facebook Inc., which are pulling revenue away from traditional media, they’ve said.

Emerging Markets

Digital activities at Publicis accounted for 38 percent of revenue in the first nine months, compared with 33 percent in 2012 as digital growth registered double-digit growth everywhere except in Europe.

Levy said in a video statement today that he sees continuing “double-digit” growth in Publicis’s digital business, and signs European spending is starting to pick up.

Growth in emerging markets slowed in the third quarter as developed countries are starting to gain ground, Levy said. Publicis’s market researcher, ZenithOptimedia, forecasts 3.5 percent growth for the advertising industry in 2013.

New business in the first nine months totaled $3.4 billion from clients including Whirlpool Corp., Dunkin’ Donuts Inc. and Bang and Olufsen AS. Publicis made eight acquisitions in the third quarter, including Netalk, a social-media agency in China, and Bosz Digital, a Latin American digital production company.

While Publicis met internal forecasts “despite tensions stemming from Brazil and the situation in Syria,” Levy said “caution is required particularly since the global economic situation has come under the threat of government shutdown in the USA,” according to a company statement.

(Updates with Nomura estimate in second paragraph.)
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