PARIS In a week of somber industry reports of contracting business, Publicis Groupe reported a first-quarter revenue increase of 1.3 percent to $1.4 billion.
Along with the client cutbacks affecting all industry players, U.S. multinationals like Omnicom Group and Interpublic Group have been penalized by the impact of the strengthening dollar. But while they have reported declines in organic growth of 6.6 percent and 5.6 percent, respectively, their French rival said organic growth slipped 4.4 percent.
In an interview today, Publicis CEO Maurice Levy said: "That organic growth level is not what I'd like, but we have had a more limited reduction, thanks to our strong digital operations and emerging markets and new business."
In the quarter, Publicis' digital business accounted for 20.5 percent of revenue compared to 17.6 percent in the year-earlier period. (Advertising represented 38 percent.) Publicis said it won $1.7 billion in new business in the quarter. (Download Publicis' complete Q1 financials.)
In terms of organic growth, Publicis' European operations were hardest hit, showing a decline of 6.6 percent. North America was down 3.6 percent and Asia Pacific, 6.3 percent. Latin America rose 3.1 percent and the Mideast and Africa, 3 percent.
Levy declined to give full-year revenue guidance, noting, "There have been so many uncertainties in the spiral of decline." As an example of that he cited the ongoing forecast revisions at Publicis unit Zenith Optimedia, which in December predicted a 0.2 percent decline in global spending and two weeks ago made its latest revision of a 6.9 percent drop. However, Levy said that while he expects Publicis' second quarter to be "worse" than the first, he believes the second half of 2009 will be better than the first half and the company should return to positive growth next summer.
In light of brutal industry conditions, Levy said it's not certain Publicis will be able to maintain its 2008 margin of 16.7 percent.
"We don't know what will be the effect of the decline in growth this year," he said. "There is a possibility of erosion, but we are still confident we can continue to deliver the highest margin in the industry."
Levy allows that market conditions in the first quarter "were much worse than anticipated." He cited cutbacks from "the well-known suspects," automotive and finance companies, as well as those from luxury goods marketers. In the quarter, Publicis' revenue from the automotive sector, where the company works for General Motors, Toyota, Renault and Fiat, was off 20 percent at constant exchange rates, accounting for 13 percent of revenue, down from 15 percent in the year-earlier quarter.
As for the company's financial exposure to General Motors, Levy estimated that 65-75 percent of it is in media buying, about $150 million, which is subject to client sequential liability. He estimated that the remainder of the fee business at Publicis units is about $40-70 million.
Levy said the client categories "holding up well" amid the current economic turmoil are fast-moving consumer goods, energy, pharmaceuticals, healthcare, business-to-business, telecos and some segments of IT. He said over 50 percent of Publicis clients are still increasing budgets and in recent conversations with his CEO contacts that short of optimism, he is now seeing a more positive outlook from them.
Publicis is maintaining its corporate-wide hiring freeze this year. In the first quarter, Publicis recorded about $25 million in severance costs, about the same as in Q4.
Levy is still making acquisitions in 2009, primarily in digital and emerging markets. Earlier this month, the group bought Nemos, a Swiss interactive communications company. "Prices are slightly down," he said. "It's a buyers' market."
$73.9 Mil. Q1 Loss for IPG
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Omnicom's Q1 Revenue Falls