Art & Commerce




Margin Notes The four most widely followed of the publicly owned ad shops-Interpublic, Omnicom, True North, WPP Group-reported their financial results for the June period, and, without exception, the numbers were good. The slowest showing came from True North, for which share earnings gained more than 15 percent, which is not bad. Even though revenues were strong across the board, the ad companies remained tightfisted on the cost side. Margins at Omnicom, True North and WPP were up compared to the margins for the same period a year ago. Interpublic, whose margins are the highest to start with, saw some erosion. Why do managers make such a fuss about margins? Because they have a great impact on the bottom line -profits-which is the main determinant of stock prices. At Omnicom, for example, a 1-percentage-point change in the pretax margin would change earnings by enough to affect the stock’s price by around 8 percent. Lately, the pressure on margins is coming not from profligate spending on expense-account lunches, but from the costs of integrating new operations and new technology. The plan is for these efforts to pay off in margin expansion in the next few years. -Alan Gottesman (westendal pobox.com) is principal of West End Consulting.

THE GOTTESMAN FILE
Profits in all cases and margins in most continued their robust expansion in the June ’97 period.
……….IPG…..OMC…..TNO…..WPPGY*
…..Earnings per share…..$1.09…..$0.81…..$0.30…..$1.11
…..Year-to-year change…..16.0%…..19.1%…..15.4%…..24.7%
…..Margin…..20.6%…..15.0%…..2.9%…..9.4%
…..Year-to-year change (% points)…..-0.6…..0.7…..N/M…..1.25
…..Stock value per margin point…..$3.57…..$5.84…..$1.04…..$2.73

Source: Company records. N/M = not meaningful. *WPP data for the six months through June ’97. Margin = pretax income/revenue. Margin change is the percentage-point difference between the pretax margin of the current period and the pretax margin of June ’96.