WPP Shares Slide as Revenue Growth Slows -- 3rd Update
March 03 2017 - 12:32PM
Dow Jones News
By Nick Kostov
WPP PLC Chief Executive Martin Sorrell is struggling to sustain
revenue growth after losing two big-name accounts last
year--blaming belt tightening by advertisers and forecasting a
sluggish 2017.
The world's largest advertising firm by sales, whose agencies
include JWT and Ogilvy & Mather, reported its slowest quarter
of revenue growth since 2012. It forecast growth for this year at a
subdued 2%.
Shares closed down almost 8% in London trading.
WPP said it hadn't lined up new business fast enough to make up
for losing accounts with AT&T Inc. and Volkswagen AG, which
together accounted for about 1% of WPP's overall revenue. Mr.
Sorrell said advertisers are struggling with a low-growth,
low-inflation environment, while some are being distracted by
activist investors and industry-changing technological
disruptions.
"Clients are generally grinding it out in a highly competitive
ground game, rarely resorting to a passing game or Hail Marys," WPP
said Friday, as it reported full-year earnings.
WPP said net profit for the year rose 21% to GBP1.4 billion
($1.72 billion.) Revenue rose 18% to GBP14.39 billion. WPP raised
its 2016 dividend to 56.6 pence from 44.69 pence.
Investors focused on the lower revenue-growth outlook.
For years, big advertisers have struggled with the seismic shift
from traditional advertising platforms, like print and TV, to
digital. More recently, they have contended with major slowdowns in
industries that they have long relied upon for growth.
Consumer-goods giants like Procter & Gamble Co., Nestle SA,
Unilever PLC and Anheuser-Busch InBev NV have all struggled to
boost growth amid a so-far tepid global economy, cutthroat
competition and fast-shifting consumer tastes.
"It's a tough space, and two of WPP's three biggest clients are
having a tough time," said Paul Richards, an analyst at Numis,
referring to P&G and Unilever. "If some of your biggest
customers are having a tough time, then it's very hard to buck that
trend."
At many big advertisers, all that has forced aggressive
cost-cutting, driving down bids for advertising agencies, Mr.
Sorrell said Friday.
"There is fierce agency competition giving rise to excessive
discounting, " he said.
Global ad expenditure is poised to grow 3.6% in 2017, down from
a rise of 5.7% in 2016, according to a forecast from Magna Global,
the ad-buying agency owned by Interpublic Group of Cos.
WPP's slowdown comes as its closest competitors face a host of
their own, specific headwinds. Publicis Groupe SA is in the midst
of a rare leadership transition, in the wake of a failed merger
with U.S. rival Omnicom Group Inc. Amid those distractions, the
French firm has been stung by a series of lost accounts in North
America.
Havas SA, meanwhile, is struggling with a slowdown in emerging
markets.
Omnicom, which stole AT&T and Volkswagen from WPP and
entered 2017 with other new business, is suffering from the strong
dollar and reported lower-than-expected revenue in its most recent
quarter.
WPP reported January like-for-like net sales--a measure used to
judge the company's underlying performance--up 1.2% from the same
period last year. For the fourth quarter, like-for-like net sales
expanded 2.1%, its slowest rate since the third quarter of 2012.
All WPP's regions slowed in the final three months of last year
with the exception of emerging markets. Those markets makes up for
a third of WPP's business and accelerated slightly.
In North America, like-for-like revenue dropped 2.8% in the
final quarter of last year. The company's headline results in the
U.K. were boosted by the fall in the value of the pound since the
country's vote to leave the European Union. WPP warned that
prospects there were "mixed" as the post-Brexit vote scenarios play
out over the next two years.
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
March 03, 2017 12:17 ET (17:17 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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