Shares of WPP Dive On Weak 2020 Sales -- WSJ
February 28 2020 - 3:02AM
Dow Jones News
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 28, 2020).
By Suzanne Vranica and Adrià Calatayud
Shares of WPP PLC plunged to their lowest level in almost a
decade after the world's largest advertising company said sales
would be flat for 2020, adding more pressure on Chief Executive
Mark Read.
WPP said organic revenue -- a closely watched measurement of its
underlying operating performance -- declined 1.9% in the fourth
quarter, compared with the 0.8% decline analysts forecast.
WPP shares were down about 16% Thursday, hitting their lowest
level since 2012.
Like much of the advertising sector, WPP is grappling with a
raft of challenges including increased competition from tech giants
such as Alphabet Inc.'s Google and Facebook Inc., and consulting
firms such as Accenture.
The British company, which owns agencies such as Wunderman
Thompson and GroupM, is in the midst of a three-year turnaround
plan after it was stung by losing business from clients such
American Express Co. and Ford Motor Co.
WPP said it is too early to predict the effects of the
coronavirus epidemic but many in the ad sector are bracing for
fallout, since ad companies have operations across the globe.
"The market is worried about their revenue outlook of flat
before the impact of the coronavirus and the lack of any margin
improvement in 2020," said Michael Nathanson, an analyst at Moffett
Nathanson. "In addition, after showing improving revenue trends,
the fourth quarter performance was a step back."
The downbeat outlook adds more pressure on Mr. Read, who took
the reins of WPP in September 2018, after the departure of longtime
CEO and founder Martin Sorrell.
Mr. Read has sought to slim down the company to make its
operations, which span the globe, less unwieldy for marketers to
navigate.
"We are pleased with the progress that we've made, but we're not
in any way complacent," said Mr. Read during a conference call with
analysts. "We know that we've got work to do." He added that the
company has "made significant progress simplifying WPP," pointing
out that it has gone from having nine networks of creative ad
agencies to five.
For 2019 as a whole, the company said organic sales fell 1.6%.
The company's 2020 guidance of flat sales excludes any hit from the
coronavirus epidemic. Its projection fell short of analysts'
expectations and is well below recent forecasts from rivals such as
Omnicom Group Inc. and Interpublic Group of Cos. Earlier this
month, Omnicom said it expects organic revenue growth of 2% to 3%
for 2020.
In response to the coronavirus, WPP began restricting travel at
the end of January, and its current policy is for no travel to
China, Hong Kong, Singapore, South Korea or Japan. Only essential
business travel is allowed within the Asia-Pacific region or to
Italy. Earlier this week, Omnicom closed the London office of one
of its subsidiaries until Monday as a precautionary measure after a
staff member developed flulike symptoms after returning from
Australia via Singapore.
WPP's pretax profit fell to GBP928.1 million ($1.20 billion)
from GBP1.26 billion with revenue of GBP13.05 billion. Net profit
fell to GBP62.7 million.
"The second half of 2019 was stronger than the first, with
performance improving globally and in the United States, our
largest market," Mr. Read said. However, WPP's North American
operations were hit by a 5.7% fall in net sales for last year,
dragging the group's performance.
Under its turnaround program, launched in December 2018, WPP
aims to return the company to sustainable growth in line with its
peers in 2021 and operating profit margin of at least 15%.
Russ Mould, investment director at investment platform AJ Bell,
said 2020 was supposed to be the year when WPP started to deliver
the benefits of its restructuring, but guidance for zero growth
this year and the fourth quarter slump in sales seemed
"uninspiring" for investors.
"The targets for 2021 have been maintained but the market's
patience appears to have snapped," Mr. Mould said in a note to
clients.
Write to Suzanne Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
February 28, 2020 02:47 ET (07:47 GMT)
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