Roth: Lowe, Media Shops Profitable in ’08

NEW YORK Interpublic Group CEO Michael Roth told attendees at the 35th annual UBS Global Media Conference here today that both agency network Lowe and media agencies Initiative and Universal McCann are expected to be fully profitable in 2008.

However, he also reiterated that IPG’s profit-margin goal for 2008 is being revised downward to between 8.5 percent and 9 percent.

The previously stated target was a “double-digit” profit margin by next year. “We’re still shooting for that,” Roth said of the double-digit figure, even though the official guidance is lower. And he noted that the revised estimate still represents significant improvement over the past couple of years when margins have been in the mid-single-digit range.

Lowe has been unprofitable and has undergone an extensive revamping over the last two years. The media shops have also been retooled during the same period, as new managers have refined their offerings. Roth said media was “partly profitable” this year, although he wouldn’t elaborate on which parts.

When asked about speculation regarding another possible reorganization of its media units, Roth said it was not the case—Universal McCann will remain aligned with McCann World Group and Initiative will remain aligned with Draft/FCB. “We like the results we have achieved” under that structure, put in place a little more than a year ago, he said. He did confirm that UM worldwide CEO Nick Brien was leading a media task force examining operating efficiencies.

One area the company will focus on more broadly in its effort to achieve margin targets is personnel costs, said Roth. IPG has about 43,000 employees worldwide, who account for about 62 percent of the company’s total costs. The goal is to reduce that figure to less than 60 percent of total costs. In follow-up questioning, Roth insisted IPG was not necessarily considering layoffs to reach that percentage, but instead was looking at being more efficient. A key focus will be on the head count of “non-revenue supporting roles.”

Roth also indicated that with less than 30 days left in the year, IPG was “on track” to be in compliance with Sarbanes Oxley by the end of the 2007. “Nothing is indicating that we are not going to be able to do that,” he said. Concerning the related Securities and Exchange Commission investigation into the company’s financial practices, he said, “It is my hope” that it will be resolved by early 2008. “There is nothing in our court that remains to be delivered” in terms of requests for information from the SEC, he said. “And there are no new issues.”

As to whether concerns about a possible recession are valid, “that remains to be seen,” said Roth. But so far, he said, the only market where the company has seen client pullbacks is Japan.

Roth said IPG would continue to make investments overseas, particularly outside the U.S. and Western Europe, regions that account for more than 80 percent of the company’s revenues. He referenced China where IPG has a presence. “China is a huge market and we need to do a better job of investing resources there,” he said.

Regarding the just-announced decision by Dell to award its $4.5 billion global marketing account to WPP—IPG was the other finalist—Roth was philosophical. “It was great to be in the finals,” he said. He added that one of the knocks against IPG is that it can’t compete globally against the other holding companies. But being a finalist in Dell, he said, “shows the vitality of our offering and our ability to compete on a worldwide basis.”