Interpublic Reports Net Loss of $35.8 Million in First Nine Months

Holding Company Was Profitable in Third Quarter but Saw Major Cost-Cutting

By Published on .

NEW YORK ( -- Interpublic Group of Cos. swung to a net loss of $35.8 million for the first nine months of 2009, from $56.7 million in profit in the same period a year ago.

Michael Roth
Michael Roth
The advertising holding company, the parent of agency networks including McCann Erickson and DraftFCB, was profitable in the third quarter, posting net income of $17.2 million. But that profitability came with some intense cost-cutting, and is less than half the net income it posted in third quarter of 2008, which was $38.7 million.

Interpublic's quarterly revenue fell to $1.43 billion from $1.74 billion in the year-ago period, and for the first nine months, revenue was $4.23 billion, down from $5.06 billion in 2008. Year to date, Interpublic's organic revenue decreased 11.8% compared to the prior period.

On a conference call with analysts this morning, Interpublic CEO Michael Roth said the global economy continues to weigh on the company. Clients have reduced the scope of ad assignments they are giving to agencies, he said, and sectors such as technology, telecommunications and automotive -- all categories in which Interpublic has key clients, such as Microsoft, Verizon and General Motors -- have been challenging. Geographically, Interpublic is in line with its agency competitors, reporting softness in overseas markets such as Germany, Spain and Italy.

"It looks as if the pace of the recovery will be gradual," said Mr. Roth, taking a more cautious stance than did Publicis CEO Maurice Levy, who yesterday stated the ad market recovery has begun and predicted positive growth numbers by mid-2010. Of course, the Paris-based holding company seems to be weathering the storm better than its competitors, reporting single-digit revenue declines in the quarter. U.S.-based Omnicom Group last week said it saw domestic revenue in the quarter decline about 13% and international revenue about 16%.

"McCann has felt the brunt of the issues in the tech and auto sectors," Mr. Roth told analysts. Still, "we continue to have confidence in Worldgroup" he said, noting the network is working on strengthening McCann's offering in Brazil. Mr. Roth singled out DraftFCB as the company's top performer, and walked analysts through new-business wins at Interpublic agencies, mentioning Deutsch recently winning Volkswagen, Mullen snagging the Zappos account, and R/GA picking up digital duties for MasterCard and Taco Bell.

He also spent time addressing the merger of Deutsch with Lowe, twice batting away the notion the move was driven by a desire for cost-savings, but acknowledging it was an upside of the deal. "We don't do these transactions purely as a cost-savings benefit. ... [W]hat was driving that transaction was a strategic fit and an opportunity to grow both businesses," Mr. Roth said. "But there will be some savings." Among other things, the company is poised to see "facility savings" with the elimination of the Lowe's New York office, as its staffers move into Deutsch's building.

Interpublic, which pegs its work force at about 40,000 employees, recorded $23.4 million in severance charges in the quarter, and for year-to-date, severance amounted to $94.9 million. Interpublic's chief financial officer, Frank Mergenthaler, on the call noted the company plans to take more aggressive severance actions in the fourth quarter, with the expectation that full-year charges will be $50 million higher than they were in 2008.

While acquisitions aren't a priority for Interpublic, it is still in the market for potential transactions to fill holes in Latin America, and maybe pick up some smaller digital properties, though the company has "walked away from a couple things," Mr. Mergenthaler said.

At one point during the call, in response to a question from an analyst, Mr. Roth expressed some frustration with the "general tone of how clients are approaching our business." He said that "there's no question clients are looking for more for less" and took issue with clients' competitive review processes trending away from agency-of-record assignments, citing "some of these jump-balls that are out there" for work.

Most Popular