Profits at Interpublic Group declined in the both the second quarter and first half of 2013, despite revenue growth. The company blamed costs associated with new-business efforts and softness in continental Europe, particularly in June.
Second-quarter revenue grew more than 2 percent to $1.76 billion, with U.S. operations leading the way (up more than 3 percent on an organic basis), Interpublic reported today. International organic revenue for the quarter, however, was flat.
Net income for the period declined 19 percent to $79.9 million.
The rate of profit decline was even greater in the first half, when net income fell 61 percent to $20.7 million. Revenue in that period grew more than 2 percent to $3.29 billion.
Organically, revenue grew 2 percent in both the second quarter and the first half.
Interpublic CEO Michael Roth told analysts that it's not unusual for one of his companies to incur a million in expenses when pitching a piece of business. "You have to put your best foot forward and it's very competitive," he said, noting that some of his global networks now pursue pieces of business that would have previously been considered too small for them.
Roth also reminded investors the costs of adding staff for new business-wins lags revenue recognition. In the case of an IPG agency like Mullen, which won Acura in March, he described that additional hiring as "significant".
In the second quarter, IPG companies won Cadillac, Amazon media and Zurich Financial, after gaining business from Chevrolet, Acura and SABIC in the first quarter.
Organic growth in Europe, which accounts for 11 percent of Interpublic's revenue, dropped 8 percent because of reduced spending by multinational and local marketers. Germany and France were notably impacted amid client spending cutbacks that were larger-than-expected in June. At the other end of the spectrum, organic growth in Latin America jumped 16 percent while the Asia Pacific region grew 4.5 percent.
Roth said that the company remained committed to its full-year objectives of achieving 2-3 percent organic revenue growth and improving its operating margin by 50 basis points.
"The significant deleveraging that we have achieved and the strength of our balance sheet provide additional, powerful levers that allow us to support the strategic needs of our business and also return capital to our owners," he added. "This combination will drive enhanced shareholder value going forward.”