Interpublic Reports Top- and Bottom-Line Growth in Key Third Quarter

Net Income Leaps for the Second Consecutive Report

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Michael Roth
Michael Roth
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Interpublic Group of Companies on Wednesday morning beat analysts' expectations for revenue growth in the third quarter, reporting a year-over-year increase of 8.3%, and said net income grew 88.6% to $92.8 million.

Organic revenue, including results from continuing operations but excluding factors such as acquisitions, increased 6.3%.

"We are pleased with strong growth in revenue and profitability during the quarter and for the first nine months of 2014," Interpublic Chairman-CEO Michael Roth said in a statement. "Strategic actions taken over the years to develop our digital assets, creative talent and operations in the U.S. and emerging markets have positioned us to succeed in a marketing landscape that is increasingly fragmented, where offerings must be integrated, data-driven and focused wholly on the consumer."

Interpublic's agency networks include IPG Mediabrands, McCann Worldgroup and Weber Shandwick.

The quarter was driven by consistent growth across most regions and new business wins, including Pizza Hut, Cisco, Ulta, Office Depot and Choice Hotels, Mr. Roth said during a call with analysts following the earnings release. Net new business remains positive, he said. However, he added that the company will feel losses in the fourth quarter.

Success in the third quarter bolsters Interpublic's argument that the company is executing the right strategy well. It comes after activist investor Elliott Management, a hedge-fund venture run by billionaire investor Paul Elliott Singer, said in July that it had amassed the equivalent of a 6.7% stake in the world's fourth-largest agency company through shares and options. At the time, Elliott said it was seeking "constructive dialogue" with Interpublic's board on "steps to maximize shareholder value."

Interpublic in the third quarter showed strong growth in both the U.S., with a 7.9% increase in organic revenue, and internationally, with 4.2% growth.

The company grew in all major regions with the exception of continental Europe, which accounts for 10% of Interpublic's business and decreased 1.3% organically during the third quarter. Within the company's largest international market, Asia Pacific, Q3 organic growth was 2.7%, with increases in China, Australia and Singapore, but decreases in Japan and India.

Healthcare, which was recently in a "lull" due to patent expiration, was the fastest growing client sector for Interpublic in the third quarter thanks to new product offerings and the need for content support.

Third quarter operating income grew 21% to $171.3 million, resulting in an operating margin of 9.3%, the company said. Third quarter net income available to IPG common stockholders was $89.7 million, resulting in earnings of $0.21 per basic and diluted share.

The results are on par with the company's second quarter, during which the company saw both top-line and bottom-line growth. Last quarter, revenue grew 5.4% to $1.85 billion compared to the same period a year earlier, and net income increased 20.4% to $103.7 million.

Nearly every agency got a shout-out, stonewalling analysts looking for a specific offering or network on which to pin growth. However, Mr. Roth emphasized McCann's "increased creative standing" and strong new business performance. He also spoke highly of the social media and content capabilities driving growth at PR agency Weber Shandwick.

Unlike other holding companies, Mr. Roth didn't point to media operations as a top growth engine. Still, he seemed optimistic on the programmatic buying front. In response to questions from analysts, he said programmatic buying currently accounts for 10% of clients' media spending in the U.S. He once again explained that IPG Mediabrands remains "media agnostic" and doesn't take equity positions in offerings we provide."

"We're not fronting media owned and then taken out on the bottom in terms of expenses," he said, contrasting Mediabrands' digital buying and trading model to other holding companies that do take ownership positions on media. "Our organic number is not grossed up as [with] some competitors."

He explained that programmatic buying is causing "distrust" among clients, many of whom are taking their business in-house. "They don't understand what's going into this black box," he said.

Still, he said that in its barter business, the company does take equity "but that's understood when we use [barter group] Orion in the marketplace."

He also said the company will continue to consider alternative media-buying models.

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