WPP Avoids Expected Drop in Earnings as New Leadership Recognizes the Threat Consultancies Pose

WPP's like-for-like revenue dropped only 0.1 percent during the first quarter of 2018, beating estimates that predicted a more significant slowdown for the world's largest advertising company. New business also amounted to a healthy $1.737 billion for the quarter. This report followed the most dramatic period in decades for the holding group, which recently parted with longtime CEO Martin Sorrell and settled a highly publicized sexual harassment case. Its release led to conservative optimism, despite great uncertainty regarding both the company's leadership succession and its evolving business model, and WPP's stock price had risen 8 percent at press time. Essentially, the network reported flat growth, with U.S. losses countered by a better performance in EMEA and emerging markets. When combined with last week's news that IPG had outperformed the industry at large, the WPP call led some to express a more bullish view for advertisers in general moving forward. [kickout id="1"] "We are pleased to announce the group’s first quarter trading update, which is in line with our expectations. Our guidance for 2018 remains unchanged," said executive chairman Roberto Quarta in a statement. "Mark Read and Andrew Scott are providing the stability and leadership WPP requires, but there is no standing still. They have my and the Board’s full backing to review the strategy, to come back to us with recommendations and to move forward decisively to implement our vision for the group." One notable difference between this and earlier earnings calls: Read acknowledged that consulting firms like Accenture and Deloitte are "increasingly" competing with WPP for its business around the world. Sorrell long downplayed similar claims. "I think the industry is starting to see this as a larger challenge," said principal analyst Jay Pattisall of Forrester. "They're all focused on a new entrant to the sector, which is the consultants." He referenced a January report on the ways in which these organizations have begun adding creative services to their strategic bases, an opposite mirror image of the way WPP and its agencies structure their offering. Pattisall called enthusiastic responses to WPP's earnings "optimistic." "Some of that thinking was coming from the expectation that, because Martin left, something terrible was about to be announced in the financials, and that's clearly not the case," he said. The report also included commentary from Read and co-COO Andrew Scott that echoed language used in an all-staff memo meant to reassure WPP's employees around the world, following news of the Sorrell exit. "In the last two weeks we have focused on spending time with our clients and people, and the response has been very encouraging. As expected, our people are getting on with business as usual, and our clients have expressed their continued support for and confidence in WPP," they wrote. The note concluded, "Concentrating our efforts on stimulating growth for our clients, and organising the group to make that possible, is the best way to restore growth for WPP and all its stakeholders." Read has discouraged talk of auctioning off elements of WPP, and the report did not directly address the matter. The Times U.K., however, reported over the weekend that leaders of research division Kantar Media have begun talking to banks about the possibility of a sale—a move anticipated by several analysts as the potential first step in a group breakup. A comment from analyst Brian Wieser of Pivotal Research notes that WPP would have had a better quarter without factoring in the performance of the Kantar network—but Forrester's Pattisall said the organization still has value to WPP, especially in terms of research and data services that could strengthen its ability to compete with consultancies. "I don't think WPP needs to start selling off assets," Pattisall said. "They need a re-vision, if you will. Martin certainly had a vision; he took the company to amazing heights, and they need to reignite moving forward. Mark [Read] has a very different perspective coming from a digital background, but they have some work in front of them in terms of resetting that vision."

Leadership & Talent

WPP Avoids Expected Drop in Earnings as New Leadership Recognizes the Threat Consultancies Pose

Bullish investors boost stock price

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