Publicis Reports Disappointing Quarterly Results After Epsilon Acquisition News

Following its announced plans to acquire data intelligence company Epsilon for an estimated $4.4 billion on Sunday, Publicis Groupe released its first quarter earnings report for 2019 early, posting an organic decline of 1.6%. The 1.6% decrease excluded results from Publicis Health Solutions, which the holding company sold to Altamont Capital Partners in January. The holding company reported revenue growth of 1.7% to 2.1 million euros ($2.4 million) for the quarter, which Publicis Groupe chairman and CEO Arthur Sadoun described in a statement as "in line with expectations." In North America, which is the company's largest market, it saw an organic decline of 4.3% on an adjusted basis, which it said reflected "attrition that continued to impact traditional advertising, the effect of a handful of media losses from the third quarter 2018 and a strong comparable base in [the first quarter of] 2018." Latin America was also down 6.3% organically, while Europe grew 0.7%, Asia-Pacific rose 1.2% and the Middle East and Africa—the best performing region in the quarter—increased 26.6%. In his statement, Sadoun attributed the slowing growth to "attrition" from "a handful" of the company's fast-moving consumer goods clients. He added that the company maintained a high retention rate of its clients, helping to "mitigate" the negative impact CPG clients reducing their budgets has had on the company. For example, P&G recently cut production expenses on its marketing business, leading to layoffs at multiple Publicis agencies in New York. "North America net revenue has been particularly affected by this attrition that represented around 300 basis points of impact on the region performance," Sadoun said. "However, we believe that the pace of attrition will slow down in the second half of 2019." Publicis reported that its "data, dynamic creativity and business transformation" business increased 27% for the quarter, and in his statement, Sadoun boasted of the company securing more new business wins than its competitors in 2018. An R3 report released in January found that Publicis generated the most in new business revenue ($736.4 million) out of the big agency holding companies. Still, last year's new business boost has not yet seemed to have a significantly positive impact on its results. For the fourth quarter of 2018, Publicis missed its revenue goals and suffered its largest single-day stock price decline since Sept. 11, 2001 as a result. In France today, Publicis stock was up more than 5%, likely because of its announcement to acquire Epsilon, which seems to be serving as a distraction from the holding company's tepid first quarter results. The deal, reflecting Publicis' increasing investment in data, is the largest in the holding company's 93-year history and confirms an earlier April 1 statement. "The focus is on the Epsilon acquisition announcement to provide a positive story to counterbalance otherwise modest growth," Forrester principal analyst Jay Pattisall told Adweek. "It’s particularly significant that margin pressure from consumer package goods continues to be a drag on organic revenue, particularly in the U.S and despite new business momentum in 2018. The question is whether their 2018 new business wins plus the added Epsilon clients may provide enough growth to off-set Publicis’ dependence on advertising and media business." In a Q&A with Adweek on the deal, Sadoun said that Publicis had "50 meetings with those guys before making our decision, because I wanted everyone in the first line of management to feel that it was the right thing to do … It’s a very compelling transaction that will create shareholder value for sure." "Realized at compelling financial terms, the transaction will make us fully equipped with truly end-to-end suite solutions to address the increasingly complex needs of our clients in a fast-changing, data-driven marketing environment," Sadoun said during today's call. "The Publicis Groupe will be stronger, with a balanced revenue mix across diversified expertise. We will be in a position to grasp a larger share of the marketing and business transformation market, which will significantly expand our growth opportunities."