IPG outperformed its holding company rivals in the first quarter of 2018, hinting that its business might be on steadier ground. Still, the company slightly missed its earnings and revenue targets, and its stock price was down 1.15 percent at press time.
One reason for the encouraging performance is that, unlike other “big five” companies, IPG has not been forced to defend its biggest accounts in recent months.
In this morning’s earnings call, CEO Michael Roth highlighted new business efforts in the U.S. and globally, particularly on the media side.
“Most of the reviews you’re reading about are not ours,” he said, citing wins in the financial, healthcare and auto industries such as Initiative picking up Liberty Mutual’s U.S. media business and MullenLowe Group winning a global creative review for Edgewell Personal Care, maker of Schick, Playtex, Carefree and other brands.
He also referenced the ongoing U.S. Army review, which could be worth up to $4 billion over 10 years, expressing optimism that McCann would retain the account, saying, “We hope to hear this year.” He also cited McCann’s solid financial performance as well as Huge’s recent expansion into more consulting work.
Overall, Roth said, “we see evidence of marketers returning to growth mode” despite lingering economic uncertainty in the U.S. and abroad.
The key metric in the report, according to Roth and other company executives, is organic growth. Revenue grew organically by 4.3 percent in the U.S. and 2.6 percent internationally compared with last year. By comparison, Publicis reported 2.8 percent organic growth in the U.S., and Omnicom’s U.S. revenue growth dropped 0.1 percent year over year.
IPG’s global net revenue increased 5.9 percent to $1.77 billion, while total revenue jumped 5.1 percent to $2.17 billion. Operating expenses also saw a 5.8 percent increase, with $1.33 billion in “salaries and related expenses” 6.3 percent higher than last year’s total.
Analyst Brian Wieser of Pivotal Research said the company “undoubtedly outperformed the industry to a significant degree” though earnings per share were “slightly below expectations.” While Roth emphasized U.S. agencies, revenue growth was strongest in Latin America and the U.K. at 10.6 percent and 7.8 percent, respectively, with totals for Europe and the APAC region both declining. Wieser also cautioned investors that “enhanced contract scrutiny” by clients is affecting all holding companies, and he continues to rate IPG stock as “hold.”
Roth and other executives emphasized that the first quarter of each year is traditionally the smallest in terms of revenue, and that IPG is using the new ASC 606 accounting standard for the first time this quarter.
The ASC 606, which went into effect in December, affects the way companies report revenue from customer contracts and significantly increases the amount of “pass-through revenue” that is not taxed at the corporate level.
“Our strong first-quarter performance and the current tone of business have us on track to deliver on our financial targets for the full year, likely at the high-end of 2 percent to 3 percent organic growth of net revenue and with operating margin expansion of 60 to 70 basis points from our restated 2017 results,” read a statement from Roth.