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Episode Seven: Man And Machine
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Interpublic Group of Cos. ended 2015 with a boost in total organic revenue and beat expectations in the fourth quarter.
The holding company, which has a portfolio including McCann Worldgroup, FCB, IPG Mediabrands and Weber Shandwick, among others, on Friday reported total revenue of $7.61 billion in 2015, up 1% from the prior year.
Organic revenue, excluding one-time factors such as acquisitions and external forces such as currency fluctuation, increased 6.1% -- up 5.3% internationally and 6.8% in the U.S. In 2015, IPG grew organically in every major region of the world, and across nearly all major agencies and client sectors, said IPG Chairman-CEO Michael Roth on the earnings call.
Net income decreased 4% to $480.5 million. The decline follows a 74.9% boost in net income during 2014.
"From every perspective, 2015 was a very successful year, with notable accomplishments in the marketplace and strong financial results," said Mr. Roth said in a statement. However, "increased macro uncertainty and market volatility" will lead the holding company to approach 2016 with "an appropriate degree of caution," he warned. "This is true most clearly in Brazil, but also with respect to markets such as Continental Europe and the Middle East. There is also the potential for slowing in China. The currency environment remains volatile, which could have negative effects on client spending."
For the fourth quarter of 2015, revenue was down 0.5% to $2.20 billion compared to the same period in 2014. Worldwide organic revenue increased 5.2%, including an organic revenue increase of 4.1% internationally and 6.2% in the U.S. Net income for the quarter decreased 14% to $282.9 million.
IPG for the fourth quarter reported earnings of $0.65 per basic share, beating analysts' expectations of earnings per share of $0.62 and revenue of $2.19 billion for the quarter, according to Yahoo Finance.
The company is currently targeting organic growth of 3% to 4% in 2016 and an additional 50 basis points or more of margin improvement, it said in its earnings statement. "I think our clients have the money to spend and they will do that. But they do have an element of caution," said Mr. Roth on the call. "That's why we're not expecting 6% growth. We're forecasting 3% to 4% [growth]."
$142.5B 2015 U.S. ad spending for 200 LNA
Mr. Roth attributed much the holding company's success to its its "open architecture" approach, which brings multiple disciplines together for clients and in new-business pitches. It's a move in line with the company's recent appointment of Philippe Krakowsky to chairman of Mediabrands. Mr. Krakowsky, who played a part in the creation of Mediabrands within IPG, is known for facilitating integration across agencies.
"If we can bring all of these offerings together, we can in fact help our clients move the needle," he said, in response to an analyst's question about whether IPG was safeguarding budgets by doing more business consulting. "It's refreshing to be able to walk into a room and put together new ideas from a business context. It's why I'm bullish on our industry. We always find way to sustain ourselves."
IPG experienced unusual trading volume last month, which also marked the end of the year-long standstill agreement between the agency services holding company and activist investor Elliott Management.
Now that the agreement has ended, Elliott Management could start a proxy fight to try to wrest majority control of the board and more aggressively push for a sale, extend the agreement to negotiate new terms with the holding company, or just stay the course with its equity stake and current board influence and hope for a payout at some point.
After taking the equivalent of a 6.7% stake in IPG in mid-2014, the activist and holding company struck a deal that included a board shakeup – three new members replacing two existing members -- and the formation of a finance committee focused on improving IPG's margins and advising on global financial strategies and transactions.
The end of the agreement comes after a relatively quiet, and financially stable, year for IPG.