NEW YORK Interpublic Group today reported a net loss of $21.9 million for the third quarter despite a revenue gain of 7 percent, compared to the same period last year.
The loss represented a downturn from Q3 2006, when IPG posted net income of $3.7 million. This year's third-quarter revenue totaled $1.56 billion, up about $11 million from $1.45 billion in the like period last year. Increased operating costs were one factor in the quarterly loss. Salary and related expenses, for example, grew nearly 8 percent in the quarter, to $1.03 billion, IPG said.
IPG CEO Michael Roth attributed the salary cost increase to the hiring of new talent, particularly in the realm of digital marketing. And those costs will likely continue as shops such as Lowe and DraftFCB seek to deepen their digital capabilities.
Severance expenses also grew during the quarter, primarily due to layoffs related to DraftFCB's loss of Verizon. What's more, IPG said such expenses would continue as revenue from other losses, such as General Motors at Lowe (GMC, Saab), dries up.
Rising costs prompted Roth to back off of his previously stated goal of double-digit operating margins by the end of 2008. "We will continue to push for double-digit margins, but we expect to post operating margin of between 8.5 percent and 9 percent in 2008—a dramatic improvement over the negative 1.7 percent the company reported less than two years ago," he said.
Roth still expects to achieve peer-level growth by next year, however, given that organic revenue grew in both the quarter and first nine months of the year. Organic revenue grew 5.7 percent for the third quarter and 4.8 percent in the first nine months of 2007, compared to the like periods last year.
IPG CFO Frank Mergenthaler addressed the severance costs during an hour-long conference call with industry analysts this morning.
"As we've begun planning for next year, it has become apparent that the effects of these losses will be greater than we'd previously anticipated," Mergenthaler said.
The GM losses at Lowe in particular "led us to reevaluate the agency's overall cost base," Mergenthaler added. As a result, IPG incurred $5 million in severance costs at Lowe in the third quarter and expects that the "total program at the agency will involve approximately $13 million in cash and non-cash restructuring expense, to address head count and real estate, over the next two quarters," said Mergenthaler.
IPG also suffered a loss during the first nine months of 2007. During that period, the company had a net loss of $10.8 million, though it represented a marked improvement from last year's net loss of $100.8 million during the comparable time frame.