IPG Reports Surprisingly Strong Performance for 2018 Despite Late-Year Account Losses

Interpublic Group CEO Michael Roth said he is "very pleased" with the company's "outstanding" performance for both the fourth quarter of 2018 and the year as a whole in this morning's quarterly earnings call. The holding group seemed to buck industry trends with 5.5 percent organic net revenue growth for the year, exceeding its own 4.5 percent target. IPG's 7.1 percent global fourth-quarter organic revenue growth was also considerably higher than that of competitors Omnicom (3.2 percent) and Publicis (negative 0.3 percent). And these numbers came despite some major account losses to close 2018, chief among them the U.S. Army's global marketing business, which went to Omnicom, and Fiat Chrysler, which sent its North American media account to Publicis Groupe's Starcom. [kickout id="1"] Stock prices have hovered just under $22 today after an early 7.29 percent boost thanks to pre-market trading. The company's board also voted for IPG's seventh consecutive year of dividend increases, raising the shares by 12 percent to $0.235 cents. "Today’s results point to our ability to adapt to rapid change," Roth said, stating that he believes the company has successfully pivoted to address changing media habits in addition to a rise in direct-to-consumer marketing, client in-housing and "the threat, though still in the early stages, of new entrants into our competitive space." He attributed the numbers to the strength of IPG's agency roster, particularly FCB, Mediabrands, Huge, McCann and R/GA. Roth also noted his company's efforts on the diversity front, citing the performance of recently appointed female leaders at The Martin Agency and MRM McCann. Clients in the CPG, healthcare, retail and auto sectors helped drive these numbers, Roth added in a statement that was diametrically opposed to Publicis CEO Arthur Sadoun's citation of budget cuts among major CPG players as the main reason his company failed to meet revenue expectations for Q4. Forrester principal analyst Jay Pattisall speculated that this disparity may be attributed in part to P&G's recent reorganization, a move that also led to a new media model based on seven different brand categories. Pattisall also noted the seemingly counterintuitive fact that IPG had better quarterly results than Omnicom despite the losses. "I think it’s just a matter of these not having taken root yet," he said. "We could anticipate the results of Omnicom's new business wins starting to reflect in the numbers in Q1 and Q2." Today also marked the first earnings report to consolidate the performance of Acxiom, a database marketing company acquired by IPG last summer for $2.3 billion, but that division will not factor into organic growth results until Q4 of 2019. Total net revenue growth for the quarter, Acxiom included, was 13.3 percent, with adjusted EBITDA for all of 2018 at $1.08 billion. In discussing the results of the acquisition, Roth cited Acxiom's perceived ability to "remove the pain points of organizing and cleansing data, which in turn positions large marketers to leverage their data." While Roth said the entire IPG team of more than 54,000 could take pride in their 2018 performance, he also confirmed that the aforementioned account losses would eliminate $30-40 million in earnings from the first quarter of 2019 and said the group would soon "take cost actions" in the form of layoffs "to further right-size our cost structure." In a Q&A session following the call, Roth addressed the hypercompetitive nature of the agency business and reports of clients increasingly choosing their partners based on price—especially in the media space—by implying that other holding companies will not be able to achieve sustained success by lowballing their way through pitches. “To the extent that some of our competitors are lacking revenue … that’s one way of doing it," he said. "You can win quick business by buying it, but it’s not going to be reflected in the margins." Pattisall also said that recent Forrester research backs this up: when surveyed about the reasons for their most recent account losses, some 55 percent of agency executives point to new CMOs or other leaders on the client side, while a greater majority of their marketing partners name price as the driving factor. On the new-business front, Roth cited several recent wins, including an unspecified UM client, Deutsch's victory in the Reebok creative review, UPS's decision to go with Initiative and The Martin Agency and PR firm Weber Shandwick picking up Pernod Ricard's global business. “We don’t have anything in review now,” he told another analyst. "[But] I don’t want to jinx it."