WPP Forecasts Slow Ad Growth -- WSJ
March 04 2017 - 3:02AM
Dow Jones News
By Nick Kostov
WPP PLC Chief Executive Martin Sorrell is struggling to sustain
revenue growth after losing two big-name accounts last year --
blaming belt tightening by advertisers and forecasting a sluggish
2017.
The world's largest advertising firm by sales, whose agencies
include JWT and Ogilvy & Mather, on Friday reported its slowest
quarter of revenue growth since 2012. It expects growth of only 2%
this year.
Shares closed down almost 8% in London trading.
WPP said it hadn't lined up new business fast enough to make up
for losing accounts with AT&T Inc. and Volkswagen AG, which
together made up about 1% of the firm's overall revenue. Mr.
Sorrell said advertisers are struggling with a low-growth,
low-inflation environment, and some are contending with activist
investors and industry-changing technological disruptions.
"Clients are generally grinding it out in a highly competitive
ground game, rarely resorting to a passing game or Hail Marys," WPP
said Friday, as it reported its full-year results.
WPP said profit for the year climbed 21% to GBP1.4 billion
($1.72 billion), while revenue rose 18% to GBP14.39 billion. The
company raised its 2016 dividend to 56.6 pence from 44.69
pence.
Investors focused on the lower revenue-growth outlook.
For years, the advertising world has wrestled with the seismic
shift from traditional advertising platforms, such as print and TV,
to digital. More recently, the ad agencies have contended with
major slowdowns in industries that they have long relied upon for
growth.
Consumer-goods giants like Procter & Gamble Co., Nestle SA,
Unilever PLC and Anheuser-Busch InBev NV have all struggled to
boost growth amid a tepid global economy, cutthroat competition and
fast-shifting consumer tastes.
"It's a tough space, and two of WPP's three biggest clients are
having a tough time," said Paul Richards, an analyst at Numis,
referring to P&G and Unilever. "If some of your biggest
customers are having a tough time, then it's very hard to buck that
trend."
At many big advertisers, all that has forced aggressive
cost-cutting, driving down bids for advertising agencies, Mr.
Sorrell said Friday.
"There is fierce agency competition giving rise to excessive
discounting, " he said.
Global ad expenditure is poised to grow 3.6% in 2017, compared
with 5.7% growth in 2016, according to a forecast from Magna
Global, the ad-buying agency owned by Interpublic Group of Cos.
WPP's slowdown comes as its closest competitors face their own
headwinds. Publicis Groupe SA is navigating a rare leadership
transition in the wake of a failed merger with U.S. rival Omnicom
Group Inc. Amid those distractions, the French firm has been stung
by a series of lost accounts in North America.
Havas SA, meanwhile, is struggling with a slowdown in emerging
markets.
Omnicom, which snatched AT&T and Volkswagen from WPP and
entered 2017 with other new business, is suffering from the strong
dollar and reported lower-than-expected revenue for its most recent
quarter.
WPP said its like-for-like net sales -- a measure used to judge
the company's underlying performance -- rose 1.2% in January
compared with a year earlier. For the fourth quarter, like-for-like
net sales expanded 2.1%, the slowest rate since the third quarter
of 2012. All of WPP's regions slowed in the final three months of
last year with the exception of emerging markets. Growth in those
markets, accounting for a third of WPP's business, accelerated
slightly.
In North America, like-for-like revenue dropped 2.8% in the
final quarter of the year. Results for the U.K. were buoyed by the
fall in the value of the pound since the country's vote to leave
the European Union. WPP warned that prospects there were "mixed" as
the post-Brexit vote scenarios play out over the next two
years.
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
March 04, 2017 02:47 ET (07:47 GMT)
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