NEW YORK Interpublic Group, hit hard by spending cuts from clients in the auto sector and events marketing, reported second-quarter revenue of $1.47 billion, a 19.7 percent drop from the year-ago period.
IPG's Q2 net income plummeted 76 percent to $20.9 million, or 4 cents a share, from $88.1 million or 17 cents a share, one year ago.
Viewed in organic terms (excluding the impact of acquisitions and currency fluctuations), IPG's revenue fell 14.5 percent during the second quarter.
In a call with analysts, IPG CEO Michael Roth said results in the quarter were additionally impacted by strong comparables in the year-earlier period and spending cutbacks from telecom and technology marketers. Even with the anticipation of a stronger comparable 2008 quarter, Roth and CFO Frank Mergenthaler admitted that the depth of the decline surprised them in the month of June. The prominent cause of the drop in quarterly performance was reduction in scope of work, Roth said.
At the market's opening, after the conference call, IPG shares dropped more than 14 percent from yesterday's close of $6.19 a share.
The company, which counts General Motors as one of its largest clients, said about 4 percent of that decline stemmed from reduced spending in the auto and events sectors. Organic revenue in the events sector, in which IPG operates Jack Morton Worldwide, slid 40 percent. Roth and Mergenthaler did not address the scope of fee reduction at GM, after its recent bankruptcy reorganization, but said no cash reserve was warranted as a result of that and the company is being paid in a timely manner.
IPG said year-to-date organic revenue has dipped 10.5 percent, and it reported a loss of $53 million for the first six months of 2009. This compares to net income of $18.2 million, or 4 cents a share, for the first six months of '08. Roth expects that IPG can maintain operating margins around 7-7.5 percent for the year and believes the company's full-year drop in organic revenue will be comparable to the year-to-date decline.
IPG said that over the past nine months, the company incurred about $120 million in severance expenses related to the layoff of 4,100 employees, or 9 percent of its workforce. Roth said IPG execs at the operating units continue to be "maniacally focused" on cost controls. IPG reported $35 million in incremental severance costs in the quarter. In regard to additional layoffs in the second half of the year, Mergenthaler said he believes the "major heavy lifting" is over and while third-quarter severance costs will be a little higher than the year year-earlier period, the fourth quarter will be less.
In the quarter IPG reported a 35 percent decrease in incentive compensation and a 30 percent drop in costs for temporary help.
Roth said Draftfcb, which picked up new accounts like Starbucks and Miller Lite, was the company's best performer in the quarter, from the perspective of both the top line and margin performance. But he said, overall, IPG is in a negative position in net new business compared to the year-earlier quarter. In response to an analyst's question about recent loss of business from the holding company's largest client, Microsoft, he said McCann Worldgroup's relationship is "solid" and "not at risk".
During the second quarter, IPG salaries and related expenses dropped 12.2 percent to $968.4 million, compared to the same period in 2008. (Adjusted for currency effects and the effect of acquisitions, those expenses declined 7.5 percent organically.)
However, the company said its staff-cost ratio, comprising salaries and related expenses as a percentage of revenue, increased in Q2 to 65.7 percent from 60.1, and to 70.2 percent from 65.3 percent in the first half, as salary cuts were outweighed by revenue reductions.
IPG's holding company peers, as expected, also reported drooping results for the second quarter and first half:
"Omnicom Takes Big Hits in Revenue, Profit"
"Organic Revenue Slides at Publicis"