Comeback in Q4 Brings Hope

Industry holding companies released their 2002 results last week, offering divergent views about whether the marketing-services industry is on the road to recovery. Nonetheless, their earnings underscored one thing about which everyone agreed: The beleaguered U.S. market showed some resurgence in the fourth quarter, bolstering revenue in the period.

In the quarter, Omnicom Group’s revenue jumped 7.5 percent to $2.1 billion, from the same period in 2001, with domestic revenue surging 8 percent to $1.1 billion. WPP Group said it saw a 2 percent rise in fourth-quarter revenue for its U.S. operations, the first increase in nearly two years. (WPP does not break out revenue for the quarter; it reports full-year and six-month numbers.)

Maxxcom, which is based in Toronto but generated 66 percent of its 2002 gross income in the U.S., saw a 7.3 percent rise in overall gross income to $48.6 million, from fourth-quarter 2001. Interpublic Group is expected to report its results late this week, although it is not clear whether senior management changes at the holding company will affect that release.

For the quarter, Omnicom reported a 9 percent increase in net profits to $201.5 million, or $1.08 a share, from the same period in 2001. In January 2002, Omnicom stopped recording goodwill amortization; taking that adjustment into account, the company earned $185.4 million, or 98 cents a share, in fourth-quarter 2001.

Omnicom CEO John Wren tempered the news with caution about the consequences of a possible war with Iraq, but said he is optimistic about Omnicom’s prospects this year.

“We are cautious on the short term, because of geopolitical concerns,” he told Wall Street analysts last week. “We are bullish, probably more bullish than anybody else in our industry.”

Omnicom remained the envy of the industry in this difficult operating environment. For the year, the company reported a 10 percent increase in net profits to $643.5 million, or $3.44 a share, on a 9.4 percent rise in revenue to $7.5 billion, from 2001. Again, 2001 amounts were adjusted to reflect the end of goodwill amortization.

Among industry executives, WPP CEO Martin Sorrell has been the most cautious in his expectations for a recovery. The fourth-quarter increase in the U.S. was not enough to change his belief that 2003 will be another “difficult” year, he said. According to Sorrell, a significant uptick will not occur until 2004, when the industry will enjoy a lift from events such as the U.S. presidential election, the Athens Olympics and the European Football Championships.

WPP said 2002 “headline” profits, excluding one-time items, fell 19 percent to $602.3 million, or 37 cents a share, on a 3 percent drop in revenue to $5.9 billion.

Maxxcom, affiliated with U.S. agencies including Margeotes|Fertitta + Partners and Crispin Porter + Bogusky, said 2002 net income rose to $2.6 million, or 7 cents a share, compared to a loss of $11 million in 2001. Gross income in the year decreased 2.7 percent to $177.9 million, from 2001. Maxxcom CEO Harold Reiter said, “There is a seasonality to our business. The industry is not back to where it was, but the current information is cause for hope.” —NOREEN O’LEARY