WPP Stock Stumbles Following Anticipated Q4 Revenue Decline

WPP stock took a dive this morning after the holding company reported a decline in Q4 revenue. At the time of publication, WPP stock was down nearly 15.7% from its closing price on Wednesday following the release of WPP's 2019 preliminary full-year and Q4 results, which showed a decline in revenue of 1.9% less pass-through costs. For the full year, revenue less pass-through costs declined 1.6%, or 1.2% if Kantar was included. Bain Capital acquired a majority stake in Kantar from WPP back in July. [article_summary section="1"]In an earnings call, WPP CEO Mark Read stressed that such losses had been anticipated and were in line with the holding company's guidance for the year, while admitting that, in retrospect, WPP "should have been more forceful in reiterating" those expectations for Q4. "2019 was the foundational year for the new WPP strategy, and thanks to the hard work of all our colleagues we have made substantial progress in a short period of time," Read said in a statement. "We said that we would make progress in the journey to return WPP to growth, simplifying our business and reducing our debt, and we have delivered against each of these goals—having met our guidance for 2019, achieved our restructuring targets and completed the sale of a majority stake in Kantar. The second half of 2019 was stronger than the first, with performance improving globally and in the United States, our largest market." On the earnings call, Read placed WPP's 2019 performance in the context of the first year of its three-year plan to return the holding company to growth, noting that WPP delivered on the organic revenue growth margin guide it set up after Read took over as CEO in 2018. He also stressed that revenue less pass-through costs was up from -2.5% during the first half of the year to -0.7% for the second half of 2019, and noted that the holding company's performance was stronger outside of North America. While there was an improvement in North America, the region finished the year with a decline of 5.7% in revenue less pass-through costs, compared to revenue growth in the rest of the world, including an increase of 0.3% in the U.K., 0.7% in Western Continental Europe and 1.4% across other regions. Read noted a strong performance in the CPG category for 2019, while stressing a need to improve in the automotive and healthcare categories. [article_summary section="2"]According to Forrester principal analyst Jay Pattisall, WPP’s Q4 performance was not entirely unexpected given the company had set the expectation of negative growth earlier in the year. "Q4 is a continuation of negative growth in the U.S. for WPP and part of a broader holding company trend with four of the seven largest reporting declines in 2019," Pattisall told Adweek. "For WPP, 2019 was a transition year that included sizeable organizational changes," he noted, citing VMLY&R and Wunderman Thompson; company and real estate restructuring; the establishment of a new management team and leaders at operating companies; and the sale of Kantar. "The question is, how soon in 2020 will we start to see the benefit of all these efforts?" [article_summary section="3"]Looking ahead to 2020, Read remained optimistic and said WPP remained on track to deliver on the current expectations of its three-year guidance, anticipating flat growth for the year. "Logically during 2020, the line needs to cross the X-axis," he said. "That’s what we're saying it will do. Things are on track to get to where we need to get to." He noted that fewer WPP accounts were in review compared to 2019, while also focusing on areas for improvement. "We need to do more to invest in our healthcare business," he said, adding that WPP is "somewhat underweight in financial services" and there "should be some growth opportunities there." He also expressed a desire to do more to attract top talent to WPP. "If we can make WPP the best place where talent wants to work," he stressed, it will result in "something we can deliver to our clients." Asked about the potential impact of coronavirus, Read said it was too early to offer any specific guidance. He noted that while WPP had not yet closed its books on February, the impact has been minimal thus far, given the existing impact of the Lunar New Year holiday on operations in China. Read was "impressed by the resilience of people and the ability to get on with work, but there’s no doubt it will have an impact on our company," adding that impact would "likely have to do less with China than uncertainties on the global impact" of the coronavirus outbreak.