Publicis Sags as Brexit Casts Pall on 2017 Advertising Outlook

  • Ad company says elections, customer concerns cloud visibility
  • Publicis, WPP fall after ‘cautious’ outlook for coming year

Publicis Groupe SA, the French advertising giant struggling to replace several large North American accounts, fell the most in a year as it signaled a shaky outlook for advertising in 2017.

Third-quarter revenue missed analysts’ estimates, dragged down by the loss of U.S. media-buying accounts like Procter & Gamble Co. and Coca-Cola Co. in the past year. Some U.K. customers in finance and other segments have pulled back because the U.K.’s vote to leave the European Union may hurt business.

“We approach 2017 cautiously given the lack of visibility owing to elections in the U.S., France and Germany, and the consequences of Brexit,” for the U.K. and the rest of Europe, Maurice Levy, the company’s 74-year-old chief executive officer, said in a statement.

Publicis, whose clients include Wal-Mart Stores Inc. and Nestle SA, reported a 0.4 percent decline in sales, to 2.32 billion euros ($2.54 billion), below analysts’ average estimate of 2.33 billion euros. Organic growth, which strips out effects from acquisitions and currency swings, was 0.2 percent, bolstered by advances in digital business in Europe and the Asia Pacific region.

The French company warned in April that it would be hit by the loss of several media-buying accounts during the following quarters. That effect has been compounded by projects recently completed at digital ad agency Razorfish, at a time when new ones haven’t reached their full potential yet, Levy said. Sales declined 4 percent in North America in organic terms in the third quarter.

Publicis fell as much as 6.5 percent, on track for the biggest loss since Oct. 22, 2015. The stock was down 4.8 percent to 63.8 euros at 3:14 p.m. in Paris. In London, rival WPP Plc lost as much as 3.2 percent -- a read-through from the slump reported by Publicis and the weaker outlook, Charles Bedouelle, an analyst at Exane BNP Paribas, said in an e-mail.

At 0.2 percent, organic growth at Publicis was slightly below expectations, and the company’s comments on the fourth quarter and full-year 2017 were circumspect, Bedouelle said in a note to clients. 

For more on Maurice Levy and Publicis succession, click here.

Although Publicis has decided to keep all its operations in the U.K. following the country’s June 23 vote to leave the European Union, many customers are considering moving London-based operations to continental Europe, “notably in finance but not only,” Levy told reporters. “They are worried that a hard Brexit could close some doors to European markets. They are very cautious.”

At recent roadshows and private discussions with the French broker, managers in global advertising have all highlighted their fear that the market was too complacent about Brexit and political risk, Exane BNP Paribas’s Bedouelle said.

“None were really seeing major impact yet they were expecting it to hit in 2017,” Bedouelle said.

Publicis said it will raise its dividend payout ratio to 42 percent in 2016 from 39.5 percent last year, achieving a target it originally set for 2018.

Levy, who has led Publicis into the digital age, plans to step down next year after almost 30 years as CEO. The process of finding a successor will start in November and is expected to be completed by February.

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