IPG Narrows Q3 Loss; Revenue Flat

NEW YORK Interpublic Group today reported a net loss of slightly more than $6 million for the third quarter, an improvement over the same period a year ago, when it lost nearly $108 million.

For the first three quarters of 2006, IPG has narrowed its net loss to about $131 million compared to $255 million for the first nine months of 2005.

IPG’s Q3 revenue was basically flat, improving to $1.45 billion from $1.44 billion a year ago. Revenue for the first nine months fell nearly 2 percent, to $4.31 billion compared to $4.38 billion last year.

In its quarterly financial report today, IPG also revealed “deficiencies in the administrative processes and the controls related to the granting, documenting and accounting for stock options, which resulted in certain cases in which the date used for the exercise price of stock option grants made between 1996 and 2002 preceded the finalization of those grants for accounting purposes.”

Because of the errors, which IPG described as “not material to any individual prior period in which they occurred,” the company adjusted its accumulative deficit as of Jan. 1, 2006 by $26.4 million.

Since 2002, however, all stock option grants have been accounted for correctly, IPG said. What’s more, a recent review of the company’s practices found “no evidence of any systematic pattern of selecting an exercise price for options based on the lowest stock price over the period preceding option grants,” the No. 3 holding company said.

The global agency holding companies have generally reported sluggish Q3 growth. For example, Havas last week said its Q3 revenue was basically flat and Publicis Groupe said its organic revenue grew more slowly than expected [Adweek Online, Nov. 6].

IPG CEO Michael Roth said he was “pleased” with the company’s Q3 and nine-month revenue performance. “All of our companies are demonstrating that they are increasingly competitive in the marketplace,” Roth said. “We continue to believe that we are well-positioned for improved performance next year and to achieve our 2008 turnaround goals.”

Later, during an hour-long conference call with industry analysts, Roth and CFO Frank Mergenthaler emphasized signs of progress in IPG’s financial turnaround but acknowledged that much work remains, especially in the area of cost cutting. For example, IPG needs to further reduce its salary base as well as the cost of benefits and freelancers, even though salaries and related expenses actually declined $2 million in Q3 compared to the same period last year, Mergenthaler said.

Going forward, Roth expressed concern about trends affecting the entire industry, such as ad spending declines in the automotive and pharmaceutical sectors. “We remain cautious [about] the fourth quarter because we can’t assume that we will be exempt from the top-line pressure that a number of our peers have attributed to sector-specific reductions,” he said.

Speaking more broadly, Roth told analysts, “Our results this year speak to a company in transition. We are well on our way to getting our arms around the control environment and putting accounting issues in the past.”

For the second quarter of 2006, IPG reported net income of $47 million, compared to $3.5 million for the same period last year.

For the first half of the year, IPG lost $125 million, compared to a net loss of $147 million for the first half of 2005.

IPG suffered a net loss of $182 million for the first quarter, up from a $151 million net loss for the same period last year.

The holding company also remains the subject of a Securities and Exchange Commission investigation into a $181.3 million accounting imbalance that IPG revealed in 2002. The probe, which began in early 2003, expanded last year after IPG restated its results for 2000-04 after uncovering additional accounting problems, some of which stemmed from “employee misconduct.”

Top IPG clients include General Motors, Johnson & Johnson, Microsoft and Unilever.