WPP Shares Jump as Emerging Markets Push Profit Above Estimates
WPP Plc (WPP), the world’s largest advertising company, reported first-half profit that rose more than analysts estimated on growth in Asia and Latin America. The stock rose the most in more than two years.
Profit, excluding some items such as declining value of acquired brands and financial instruments, rose to 517.9 million pounds ($848 million) from 455.3 million pounds a year earlier, the London-based company said today. That beat the 512.6 million pounds analysts estimated in a Bloomberg survey.
Chief Executive Officer Martin Sorrell has said he will double spending on acquisitions this year as the company expands into digital marketing and faster-expanding markets such as Brazil to make up for slower growth in Western markets. WPP owns advertising businesses including Young & Rubicam, Ogilvy & Mather and Grey Group.
“The one great advantage WPP has in the near term is the earlier investment and larger share of revenue coming from emerging markets,” said Claudio Aspesi, a London-based analyst at Sanford C. Bernstein, who rates the shares “outperform” and doesn’t own them. “Growth in the next couple of years will have to come from emerging markets, so the bigger the reliance on emerging markets, the better.”
WPP climbed 7.4 percent to 623 pence in London trading, the biggest increase since April 2009. The shares have declined 27 percent this year, giving the company a market value of 7.9 billion pounds.
Sales in Asia, Latin America, Africa, the Middle East and Central and Eastern Europe, which together make up almost 30 percent of revenue, grew 11 percent from a year earlier, excluding the impact of acquisitions and currency fluctuations, the company said. That compares with 6.1 percent overall growth.
Reported revenue grew to 4.7 billion pounds, in line with analysts’ estimates in a Bloomberg survey. Adjusted earnings per share at 22.8 pence in the first half, up 19.4 percent, were also in-line with estimates
In July, sales rose 4.3 percent while the gross margin was up 5.2 percent. In the full year, the operating margin may improve beyond the 0.7 margin points growth reported in the first half, the company said.
The industry will get a boost from the U.S. Presidential elections, the Olympics and the European Football Championship next year, Sorrell said in an interview today.
“There is an events cycle of sports and politics that, in theory, should sustain 2012,” Aspesi said. “The year that always looked tough for the advertising agencies and WPP was 2013.”
At the same time, economic difficulties globally, including fears of debt problems in countries such as Spain, Greece, Italy and France as well as the U.S. federal deficit, are “storm clouds everywhere” threatening ad spending, Sorrell said.
“Given recent events, our operating companies will be even more cautious about hiring additional staff in the balance of this year,” the company said. “Plans, budgets for 2012 and forecasts will, therefore, be made on a conservative basis.”
The stock has declined as investors expressed concerns about weaknesses in the global economy and how that might affect brands’ plans to spend on advertising, according to Numis Corp. analyst Lorna Tilbian.
Sorrell said this month that Standard & Poor’s decision to downgrade the U.S.’s long-term debt rating would hurt consumer and business confidence and affect the advertising industry.
“There does seem to be a dissonance or disconnect between the macro picture as defined by the stock markets and the macro picture as defined by individual company results, which have continued to be generally better than expectations,” the company said in the statement. “It is true, however, that markets look to the future, often a year or so in advance, and are rarely wrong.”
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