Interpublic Group's net income in the third quarter fell by more than half compared to the same period last year, as revenue declined and severance costs related to layoffs grew.
IPG ended the quarter with net income of $17.2 million, versus $38.7 million in Q3 2008. During the period, total revenue fell by 18 percent to $1.42 billion, while severance charges jumped 53 percent to $23.4 million. Organic revenue (which excludes fluctuations in currency rates and other factors) declined by 14 percent.
The revenue downturn stems from the global recession, which has resulted in many clients slashing spending, canceling projects and generally asking to get more ad services for less, according to IPG CEO Michael Roth (shown).
"We were hurt by reductions in scope and certain lost assignments in the tech sector, including projects in our event business that did not recur this year as well as the unprecedented challenges being faced by the automotive industry," Roth said this morning during an hour-long conference call with industry analysts. "Adding to the challenges was the fact [that] we posted a very strong Q3 last year and therefore faced difficult comparisons."
Marketers continue to remain "cautious," though the "tone of our conversations with clients concerning the economy is improving," Roth said.
"But we have not yet seen this convert into consistent commitments to new and existing project assignments," he added. "Therefore, it looks as if the pace of the recovery will be slower than we previously expected."
Through the first nine months of 2009, IPG recorded a net loss of $35.8 million -- a significant swoon from the like period last year, when IPG reported net income of $56.7 million. Revenue through September declined nearly 17 percent, to $4.22 billion, with organic revenue sliding 12 percent. Severance costs for the period totaled $94.9 million, more than double the expense in the first nine months of 2008 ($39.9 million).
The operating margin picture also was downcast, with margins for Q3 and the first nine months falling to 4.1 percent and 1.7 percent, respectively, from 6.7 percent and 5.1 percent, respectively, last year.
In August, IPG projected a year-end margin of 7 to 7.5 percent, down from 8.5 percent at the end of 2008. Roth suggested today that IPG might not meet its year-end goal, saying that there's about a "50 basis points margin of risk to that outlook. We'll therefore continue to stay focused on costs for the balance of the year."
IPG ended Q3 with a worldwide headcount of about 40,000, down 11 percent from 45,000 at the end of last year.
IPG's stock closed at $5.96 today, down more than 2 percent from Tuesday's closing price of $6.11, amid heavy trading volume of 17.7 million -- more than double the average volume of the past three months, according to Yahoo Finance.
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