NEW YORK Hit by client cutbacks and exposure to the automotive and financial services industries, Interpublic Group today reported a first-quarter loss of $73.9 million, or 16 cents a share, compared with a loss of $69.7 million, or 15 cents a share, in the year-ago period.
IPG’s operating loss in the quarter was $82 million compared to a loss of $58 million in the 2008 quarter. IPG said that excluding severance from both periods, the company’s operating margin was flat compared to last year, despite its double-digit drop in revenue. The company incurred severance expenses of $42 million in Q1, an increase of $28 million from a year ago. Over the past six months, the company has recorded about $90 million of severance expense related to the layoff of 2800 employees, or 6 percent of its workforce. (Download IPG’s complete Q1 financials.)
In a conference call with investors, IPG CEO Michael Roth said: “While the automotive and financial services sectors were very hard hit, other client industries were down anywhere from 1 or 2 percent to up in the high single-digits. In fact, in the aggregate, our 20 top 100 clients, excluding the two hardest hit categories, were actually flat for the quarter.”
IPG CFO Frank Mergenthaler said the company derives 13 percent of its business from the automotive and transportation sector and 8 percent from financial services.
Analysts asked about IPG’s exposure to General Motors, as the automaker rushes to create a restructuring program that would allow it to avoid bankruptcy.
Mergenthaler reiterated remarks he made in the fourth quarter: In a worse-case bankruptcy scenario, IPG has a $150 million exposure in receivables, work-in-progress and committed media. However, when pressed today, Roth conceded that did not include costs associated with shutting down any of IPG’s Detroit agencies. Mergenthaler pointed out those shops work for non-GM clients as well as the automaker
In IPG’s agency networks, revenue decreased 10.2 percent, with an organic drop of 5.4 percent. Of that decline, U.S. revenue was off 8.4 while international markets took a 1.5 percent hit. Revenue was off at all of the company’s networks, with the exception of Draftfcb, which saw growth from healthcare and direct marketing business.
At IPG’s CMG segment, Q1 revenue decreased 13.8 percent, with an organic decline of 7 percent. In the U.S., organic growth declined 10.8 percent and was flat internationally. The company’s events business, which typically includes large-scale business-to-business forums, “decreased significantly,” according to Mergenthaler and IPG’s PR businesses had “only a slight organic decrease”.
Like other U.S.-based multinationals, IPG was impacted by the growing strength of the dollar: While international revenue slipped 14.5 percent, the organic decrease was only 1.3 percent. Compared to the first quarter of 2008, exchange rates had a negative effect of 7.3 percent on IPG’s bottom line, while net business acquisitions added 2.1 percent.
Roth assured analysts about the company’s liquidity picture: “We continue to believe that our existing liquidity allows us to handle the $250 million maturities that will come due late this year and in 2010.”
Roth described January as a “difficult” month, but said business had picked up in February and March. He cited new client wins at Draftfcb and strong improvements at Lowe, particularly in the U.K, with new assignments from Unilever. Still, in looking ahead he said: “There’s no reason to think there will be any deterioration in [IPG] revenue but you have to assume some cautiousness in this environment.