Holding Co. Numbers Paint Bleak Picture

NEW YORK As marketing-service companies released their first-quarter results last week, the expectation wasn’t so much about whether the news would be bad, it was more a question of just how bad.

Amid current industry conditions, where negative growth is the new performance metric, Omnicom Group said its year-on-year fall in total revenue (excluding exchange-rate effects) was 6 percent in the first quarter; Interpublic Group, 6 percent; MDC Partners, 7 percent; and WPP Group, 6 percent. Publicis Groupe saw a 4 percent fall in revenue between the first quarter of 2008 and the first quarter of 2009, but reported a 1.3 percent increase when exchange rate effects are included.

Adweek estimates that for these five companies, total revenue fell from $9.4 billion in the first quarter of 2008 to $8.9 billion in the first quarter of 2009, a decline of just under 6 percent.

With marketers slashing budgets, industry results reflected a company’s ability to control costs as a way to hold margins in the face of declining revenue and income. Additionally, a company’s financial fate was influenced by the size of its digital operations and scale in emerging economies, which help offset exposure to the hard-hit U.S. traditional advertising market. Out of their control, however, were foreign exchange issues because of the strengthening of the dollar.

Omnicom said net income slid 21 percent to $164.5 million, or 53 cents a share, on a 14 percent decline in global revenue to $2.75 billion. About 7.8 percent of that decline, or $232 million, was attributed to foreign exchange. Omnicom cited three factors accounting for over 30 percent of its drop in organic growth: recruitment marketing, specialty and newspaper media businesses and Chrysler.

“Despite the weak top line [Omnicom], management did an excellent job reining in costs, including a $20-25 million reduction in incentive comp in the quarter,” said Alexia Quadrani, an analyst with JPMorgan.

IPG 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 Q1 ’08. The company’s revenue fell 10.8 percent to $1.33 billion. Exchange rates had a negative effect of 7.3 percent, while net business acquisitions added 2.1 percent. IPG benefited from a drop of 1.3 percent in international growth, which helped offset a 10.8 percent slide in the U.S. IPG unit Lowe Worldwide, which in the past has been cited as a drag on holding-company results, was singled out for its contribution in European new-business wins.

Analysts like Morgan Stanley’s Benjamin Swinburne were encouraged by IPG’s results. “We are raising our revenue growth forecast for ’09 to down 9-10 percent from down 11-12 percent, due in large part to the upside in Q1, driven by strong international performance,” he wrote in a research report.

WPP reported a 5.8 percent drop in like-for-like revenue to slightly less than $3.1 billion, which excludes revenue from recently acquired TNS. Digital media spending grew faster than traditional media, but at slower rates than in the past. While revenue was below expectations, operating margins were ahead of budget thanks to cost reductions.

Publicis said revenue rose 1.3 percent to $1.4 billion, and it had the lowest organic revenue decline at 4.4 percent. “That organic growth level is not what I’d like, but we have had a more limited reduction thanks to our strong digital operations and emerging markets and new business,” Publicis CEO Maurice Levy told Adweek.

In the quarter, Publicis’ digital business accounted for 20.5 percent of revenue compared to 17.6 percent in 2008 Q1, while advertising represented 38 percent. New business wins came in at $1.7 billion. On the downside, Publicis said revenue was off 20 percent from auto clients like General Motors, Toyota and Fiat, and accounted for 13 percent of revenue, down from 15 percent in 2008 Q1.

MDC Partners said consolidated revenue dropped 10 percent to $126.7 million. Net income was $29,000 compared to a loss of $3.4 million in the year-earlier period.

Execs at industry companies expect second-quarter results to be just as bad as the first quarter, or worse. While client commission and project income adjusted quickly to the economic meltdown in the fourth quarter, renegotiating fees take time and that process is continuing into the first half.