Sorrell Upbeat Despite Dip in WPP Earnings

NEW YORK WPP Group chief executive Martin Sorrell, who has been the most cautious of holding company leaders in his industry outlook, on Friday said he sees indications of a turnaround, despite a dip in WPP’s first-half earnings.

Sorrell said WPP’s financial performance in the first half was helped by the “slight improvement in economic conditions” in the U.S., even as the continuing recession in parts of Europe and, particularly, the U.K. dragged down results.

WPP said its profits for the first half of 2003 before tax, goodwill amortization and impairment, fell 4.7 percent to about $320 million, down 2 percent in constant currency terms. Net earnings for the period dropped 17 percent to $150 million.

Revenue for the six-month period dropped 2.5 percent to $3 billion. On a constant currency basis, revenue rose 1.8 percent, primarily because of the weak U.S. dollar, partly offset by the strength of the euro against the U.K. pound sterling.

WPP estimated it gained net new billings of $2.1 billion in the period.

Sorrell noted that the three-plus years of recession have been driven by a downturn in business-to-business spending, while consumers, enticed by low interest rates and incentives such as zero-percent auto financing, have proven more resilient. Now, as marketers turn from cost cutting to revenue generation, “there are recent signs of increased business-to-business appending, particularly in technology,” Sorrell said in a statement.

He also cited the role of the U.S. government in spurring economic recovery: “Most importantly, significant government deficit spending is stimulating the United States economy, in particular in preparation for the 2004 United States presidential election. The growth in the United States government spending is currently greater than at any time since the Vietnam War in 1967.”

Additionally, prospects for 2004 are bolstered by the Athens Olympic Games, the Portuguese European Football Championship and heavy U.S. political advertising, all of which is expected to drive media pricing.

Sorrell, who last year declared the advertising recovery would be “bath-shaped,” said Friday that, “certainly it seems as though we are starting to climb out of the bath.”

As a result, WPP said its target margin of 13.8 percent in 2004 “looks achievable.” However, WPP cautioned that “for the full year in 2003, the addition of Cordiant Communications Group may result in modest margin dilution, but not at the expense of earnings per share.”