WPP Cuts Forecasts Again on Lower Ad Spending -- Update
October 31 2017 - 8:46AM
Dow Jones News
By Nick Kostov
WPP PLC cut its annual sales forecast for the third time this
year, as the world's largest advertising company struggles to boost
revenue at a time when previously big-spending consumer-goods firms
are ratcheting down marketing spend.
The London-listed company on Tuesday said it now expects sales
growth excluding currency swings and acquisitions to come in
"broadly flat" for the year and also lowered its profit-margin
guidance. After achieving 3.1% comparable net sales growth last
year, WPP initially targeted 2% growth for 2017 before cutting its
forecast to 0-1% two months ago in a move that sent shock waves
through the marketing industry.
Like other ad giants, WPP is grappling with the slowest revenue
growth since the financial crisis as some of its largest clients
like Procter & Gamble Co. and Unilever NV cut their advertising
budgets. That slowdown in growth has led some investor to question
the broader health of the agency business, with the emergence of
new competitors and fast-changing technology also putting pressure
on share prices.
WPP's closest competitors face similar headwinds. Omnicom Group
Inc. reported a fall in its third-quarter revenue earlier this
month, although its numbers beat estimates, while rival Publicis
Groupe SA reported revenue below expectations after being hit by a
slowdown in Europe, sending its shares sharply lower.
WPP Chief Executive Martin Sorrell -- known for giving colorful
economic predictions -- said the low growth environment has led
consumer-good companies to keep a tight lid on costs.
He added that low interest rates were driving capital into
activist investing, which was putting pressure on companies to
focus on short-term returns.
"The traditional view that innovation and branding is critically
important is coming under focus from the zero-based budgeters and
activists," Mr. Sorrell said.
Mr. Sorrell added that Facebook and Google weren't a threat to
WPP's business, and were forecast to be WPP's top two destinations
for investing its clients' money this year.
WPP said the weakest performance in the third-quarter came from
the group's North America operations, where the company last year
lost accounts with AT&T Inc. and Volkswagen AG. Comparable net
sales fell 4.9% in the region, driven by weakness across all
divisions. The U.K. was WPP's strongest region in the quarter, with
comparable net sales up 2%.
Overall, comparable net sales -- a key measure used to judge the
company's underlying performance -- fell 1.1% in the three months
to Sept. 30, compared with a fall of 0.5% in the first half. The
company reported a 1.1% rise in turnover for the period to GBP3.65
billion, as the Brexit-weakened pound meant its earnings overseas
were boosted when converted into sterling.
WPP didn't break out profit figures for its third quarter. Its
shares, which have fallen almost 30% this year, rose 1.5% on
Tuesday.
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
October 31, 2017 08:31 ET (12:31 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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