Publicis Groupe Remains Optimistic Despite Disappointing Q2 Performance and Lowered Sales Targets

CEO Arthur Sadoun attributes performance to client cuts

Photo of Arthur Sadoun speaking at Cannes Lion in 2018
Sadoun calls the Epsilon acquisition a "game changer."
Getty Images

Publicis Groupe is optimistic about the results of its Q2 earnings report released today, despite an anticipated decline in growth in the U.S. and North America as a whole.

“My feeling is that we are now clearly living in a world dominated by Amazon, Google and Facebook. The question is ‘Are we in the right model for the future while managing the future?’ Hopefully, this is what people will see in our results,” Publicis Groupe CEO Arthur Sadoun told Adweek, pointing to the holding company’s new business wins last year and the “game changer” of its Epsilon acquisition as cause for optimism.

The holding company reported 0.1% organic growth globally for the quarter and a decline in organic growth of 1.7% in North America, amounting to a 3.1% decline for the first half of the year in the region. This came despite major wins like Fiat Chrysler and GSK that led consultancy R3 to name Publicis as the top holding company for new business revenue in 2018.

Zacks Investment Research recently downgraded Publicis stock from “hold” to “sell” in a report issued to clients and investors. The company has lost approximately one-fifth of its market value over the past year, and this quarter’s results led the company to lower its annual sales targets, Bloomberg reported today.

"You can have all the data and tech in the world. If you don't have the right people, you just don't have a business."
Arthur Sadoun, CEO, Publicis Groupe

Sadoun attributed the decline in organic revenue in North America to clients in the region continuing to slash budgets on traditional advertising, a move he said was particularly damaging among a few clients.

“This had a big impact in Q1 and continued to have an impact in Q2. The difference between Q1 and Q2 is that we have new business ramping up,” he said.

He added that the outlook for North America moving forward was more optimistic, but today seems to have marked another blow for Publicis Groupe in the region, as former client eBay consolidated its global media account with WPP following a closed review.

“First, there will be a limit to budget cuts,” he said, “but we are being very conservative there, very calculated.” Second, the holding company is operating under the assumption that it can continue to transform some of its relationships with existing clients as they shift their spends away from traditional advertising.

Latin America also proved problematic for the company, with an 8.7% decline in organic growth that the report attributed to a “high comparable and the economic situation in some countries.”

Other regions fared far better, with Asia Pacific reporting growth of 2.7% and Europe reporting 2.4% organic growth, with positive organic growth in France and the U.K. of 2.1% and 4.6% respectively helping to offset declines in organic growth of 4.3% in Italy and 9.1% in Germany. In the Middle East and Africa, Publicis Groupe reported 12.9% organic growth.

Regarding the big-ticket Epsilon acquisition, Sadoun explained it would be about a year until Publicis Groupe could assess its full financial impact but said he is “confident that we have a huge competitive advantage.”

Asked to comment on Omnicom’s Wednesday’s earnings call, in which CEO John Wren said holding companies should not own data in order to avoid potential conflicts of interest, Sadoun said, “Maybe it was true yesterday.”

He added, “My feeling is that we are in something that is so significant in the digital world, that as a partner we need the data to protect the interests of our clients and make sure that they can take back control of their customer.”

While Sadoun conceded that he “might be wrong,” on that front, he said that he and Wren agree on one thing: the core of their companies’ services is creativity.

“You can have all the data and tech in the world,” he said, noting that Publicis has invested more than $150 million in new talent over the last 18 months. “If you don’t have the right people, you just don’t have a business.”