IPG Acknowledges Client Cutbacks

NEW YORK Although Interpublic Group hit its operating margin and organic growth targets for 2008, it came against the backdrop of significant client retrenchment at the end of the year.

Client belt-tightening has continued since then, forcing IPG CEO Michael Roth to acknowledge to industry analysts that 2009 will be a year of maintaining, rather than growing, IPG's 8.5 percent margin. And to accomplish that, IPG agencies will focus increasingly on costs, which will likely mean more layoffs.

"What we've shown is we've been quick to react to taking costs out of our business," Roth said last Friday during an hour-long call with analysts. "And therefore, we expect, as the revenue declines persist, [that] we will be taking actions in the first quarter. Obviously, salary is an important part of that. So, we do expect to see" more layoffs.

And while Roth hasn't made any predictions about client spending levels this year, he appears to be bracing for the worst. In reply to a question about margins, he said: "If revenue declines in the range of, conservatively, 2 to 3 percent, we think we can maintain margins by taking actions early on. If the revenue deteriorates at a greater rate than that, obviously we'll be hard-pressed to maintain our margins."

Even at 8.5 percent, IPG's margin lags far behind those of competitors such as Publicis Groupe (16.7 percent) and Omnicom Group (12.6 percent).

Roth, now in his fifth year as CEO, used words like "cautious" and "very measured" to describe how clients are spending thus far this year. "Within client sectors and geographies, there's still a high degree of variability in terms of how clients are behaving," he said.

In Asia and Latin America, for example, IPG is still expecting growth, but at much lower rates than in recent years. In contrast, he sees "softness" in "larger, developed" European markets, such as the U.K. and Germany.

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