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IPG Points to Project Work, CPG Setbacks - Not Consultancies - for Third Quarter Revenue Miss

By Published on .

Michael Roth
Michael Roth Credit: Courtesy IPG

If there was one thing Interpublic Group of Cos. CEO Michael Roth made clear during the company's third quarter earnings report today, it's that consultants are not cutting into its business.

"Despite a great deal of press coverage announcing that consultants are making inroads into our business, we do not see them in any material way in new business, and when we do, we have been faring quite well on those opportunities," said Roth, adding that Huge recently beat out a range of agency and consultant competitors in the McDonald's U.S. digital pitch.

Instead, he attributed IPG's flat organic revenue growth for the third quarter that fell below analyst expectations to a decrease in project-based work and consumer packaged goods spending.

IPG reported organic revenue growth of 0.5 percent, year-over-year, for the third quarter, with an organic increase of 1.3 percent in the U.S. and a decrease of 0.7 percent internationally. For the first nine months of the year, organic revenue increased 1.1 percent, compared to the same period in 2016, while organic revenue jumped 1.6 percent in the U.S.

And that's about as good as it's going to get in the industry. According to a report from Pivotal Research Senior Research Analyst Brian Wieser this morning, the "growth that IPG is experiencing is probably slightly-better-than the industry's average."

He added in the report that the numbers represent "a continuation of trends that have been negatively impacting the industry," such as weaknesses among some of the largest marketers in the economy and enhanced contract scrutiny.

Despite all this, Roth said on the call that IPG saw momentum in its media operations, both in the U.S. and international markets, as well as strong creative growth in the U.S. IPG Mediabrands' UM won the "highly competitive Spotify account," said Roth, while McCann New York recently picked up Home Goods and MullenLowe won Whole Foods. Roth also called out FCB, Deutsch and Hill Holliday for strong performances in the third quarter.

The holding company's Constituency Management Group of marketing services specialists and PR agencies, saw an organic revenue drop of 5.0% in the quarter, which Roth said on the call was mainly driven by a drop-off in project business among its PR agencies.

When asked on the call about whether IPG is seeing a different appetite from clients for agency-of-record relationships, Roth said there's "no question" that clients are looking at AOR partnerships differently and veering toward projects. However, he said McCann has several strong long-term multinational clients that require the AOR title because of the breadth of services being offered.

Roth said the holding company's "open architecture" model allows it to bring together resources from all disciplines, such as data, insights, creative and experiential, without having to "restructure the entire company."

"Consulting firms have yet to be in a position to provide all those different resources that we can offer," he said, adding that IPG can provide the value of creative and help clients with where and how to distribute all necessary resources.

Operating income in the third quarter was $219.1 million, compared to $208 million in 2016. For the first nine months of 2017, operating income checked in at $455.3 million, remaining constant compared to the same period in 2016.

The holding company revised its full-year 2017 target to organic growth of 1 to 2 percent, down from the target it gave last quarter of 3 to 4 percent organic growth.

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