A correction has been made in this story. See below for details.
Interpublic Group of Cos' earnings disappointed, but its remaining investment in Facebook, valued today at about $122 million, could pay off for shareholders by the end of the year.
The company reported a 1.4 % decrease in revenue to $1.7 billion and a 3.1% decrease in net income to $105.5 million in in the second quarter. But when asked about future buybacks, CEO Michael Roth reminded listeners on the earnings call that the company is still sitting on 4.4 million shares in Facebook, about half its initial stake.
The company sold about half of those shares in private markets in August of last year for $133 million. A restriction on the sale of the remaining shares comes off in November, allowing Interpublic to sell if it chooses.
"In November, restrictions on our Facebook shares come off," said Mr. Roth during the call. "We're free to do whatever we decide to do. We've indicated our investment is not strategic and will be opportunistic in the marketplace. What we do with the proceeds if and when we sell will be up to our board and the market conditions. That will be another avenue in terms of returning money to our shareholders."
The company's remaining shares are now valued at $121 million, based on today's price for Facebook shares. The company set the value for its filings on June 30th. IPG is said to have paid less than $5 million for its initial stake in Facebook.
The company's performance, which disappointed some analysts who had forecasted a slight bump in the quarter, can be attributed in large part to client pull-back in the U.S. and economic uncertainty in Europe. U.S. revenue was down 3.7%, with organic revenue down 3.2%. However, international revenue grew 1.6%, and the firm saw a 6% boost in organic revenue. Mr. Roth pointed to international growth by R/GA, among other firms.
Health care, which accounts for about 15% of the company's business, suffered from drugs going off patent, among other factors, noted Mr. Roth. Client loss, including SC Johnson and Microsoft, as well as decreased spending in the retail category also continues to affect growth, he said.
On a positive note, the Constituency Management Group, comprising PR agencies Weber Shandwick and GolinHarris, among other specialty shops like Jack Morton, showed an 8.7% gain in revenue to $292.4 million. "When you look at competitor results, particularly on the PR side, I think you continually see Weber Shandwick outperform our competitors on the PR side," said Mr. Roth.
Though signs don't point to a hopeful the third quarter, considering strong growth during last year's third quarter. The company is projecting 3% organic revenue growth for the full year. It also expects to deliver growth of 50 basis points on its operating margin in its full-year outlook.
In 2010, Interpublic's Q3 profit was $42.4 million. But during the same period in 2011, quarterly profit more than quadrupled to $208.1 million. At the time, the company saw a pretax gain in the third quarter of $132.2 million from its August sale of about half of its tiny stake in Facebook.
Mr. Roth pointed out that the agency will be aggressive in digital investment, once again pointing to success by digital firms like R/GA.
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CORRECTION: The original headline for this article was "IPG Reports Losses But Touts Potential Return on Facebook Investment." While IPG reported lower profits and lower revenue, it did not report a loss. Ad Age regrets this error.