Analysts and shareholders reacted with exasperation last week to Interpublic Group's latest financial bombshell: a steep drop in earnings' projections and a vast understatement of an accounting imbalance in Europe.
The bad news and a subsequent 30 percent slide in the value of the stock led some IPG agency executives to question the leadership skills of CEO John Dooner and CFO Sean Orr. But by week's end, sources said IPG's board did not appear ready to make any changes at the top.
A top executive at one IPG shop said "executives are angry," while another singled out Orr, saying that he had failed at his job. Some even pined for the return of former CEO Phil Geier and former CFO Gene Beard, who ran the $6.7 billion company before Dooner and Orr took over.
Neither Dooner nor Orr could be reached. Board members either did not return calls or declined comment.
Friday's closing share price of $11.25 was down almost 2 percent from the day before, when, on a volume of 26 million shares, the stock fell below $10 at one point. (The stock hit a 52-week high of $34.98 in April.) The trading frenzy came after IPG lowered earnings-per-share estimates both for the third quarter and for the year, and nearly doubled its estimate of an accounting imbalance that surfaced in August among units of McCann-Erickson WorldGroup. IPG now estimates that the imbalance will be about $120 million.
Concerns about operating performance and "lackluster earnings" prompted Standard & Poor's on Friday to downgrade IPG's short- and long-term ratings, which means it will likely cost the company more to borrow money.
While not entirely surprised by IPG's announcement, analysts none theless were taken aback by the size of the swing, particularly in light of previous shortfalls. "It has been disaster after disaster," said Alexia Quadrani, managing director at Bear Stearns, who still gave Dooner and Orr the benefit of the doubt. "This management team is not perfect by any means, but I do think that not everything that has happened in the past 12 to 18 months is their fault."
The company estimates that 2002 earnings-per-share will be in the range of 85-90 cents, down from a previous estimate of $1.25-$1.35. For the third quarter, IPG lowered its earnings estimate to 8-10 cents a share—compared to Wall Street's prior consensus of 28 cents.
Dooner, in an internal memo issued Wednesday, framed the performance problems as a "shared responsibil ity." He further characterized operational issues at underperforming units including Octagon and FutureBrand as "short-term challenges," and urged colleagues to take heart in recent new-business gains.
"And while the specific issues at a handful of our operations that led to today's announcement were unfore seen, they are not acceptable," Dooner wrote. "We have already begun and will continue to address them directly and aggressively."