Interpublic's Revenue and Net Income Rose in Second Quarter

U.S. Revenue, Largest Contributor, Increased 3.4% to $1.03 Billion

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Michael Roth
Michael Roth

Interpublic Group of Cos saw both top-line and bottom-line growth in the second quarter of 2014, the agency holding company said Friday morning.

Revenue grew 5.4% over the quarter a year earlier to $1.85 billion, according to Interpublic, which owns ad agencies such as creative shops McCann Worldgroup, FCB and Lowe and Partners; digital agencies R/GA and Huge; PR shops Weber Shandwick and GolinHarris; and media agencies Initiative and UM. Organic revenue, excluding the effects of events such as acquisitions, was up 4.7%.

Operating income increased 12% from the quarter a year prior to $195.8 million, Interpublic said, while net income increased 20.4% to $103.7 million.

The figures follow a revenue boost of 6.1% in the first quarter and a net loss of $20.9 million.

Total revenue from U.S. operations, the largest contributor to the overall, was up 3.4% to $1.03 billion, while international revenue increased 8% to $820.5 billion.

Across regions, organic growth was 16.4% in the U.K., 7.4% in Latin America, 4.4% in Asia Pacific and 18% in other markets. Continental Europe decreased 1.4% organically.

The second quarter saw one of the biggest new business pitches and wins of the year, with Interpublic's McCann, with the help of other shops, winning the bulk of the Microsoft creative and global deployment work. On a webcast to discuss the earnings report, Chairman-CEO Michael Roth called the Microsoft win "a strong proof point that, when we tap into the right talent from across the group, we can be successful ...."

Mr. Roth referred to cross-agency efforts more than once, citing customer relationship management shop MRM as an example. "MRM is already among the leading global digital networks in our industry, and has been a key contributor to a number of our major IPG 'open architecture' wins in the past year," he said. "A number of our strong U.S. independent agencies, such as Hill Holliday, Martin, Mullen and Deutsch, are also increasingly participating in integrated, cross-agency efforts."

A handful of analysts asked about the benefits of, and investment in, programmatic ad technologies for buying and selling ads. "The efficiencies of automation and program buying are here to stay," Mr. Roth said. "Whether it's through private exchanges, public exchanges or customized exchanges, it's all about data and reaching consumers in a more efficient way. We have to invest in that. That's what we've done."

On the traditional media front, Mr. Roth said the TV industry's annual upfront marketplace for ad time in the new season was "kind of weak this year." But networks could do well selling their remaining inventory later in year in the so-called scatter market, he said.

In a dig on other holding companies that buy and resell media inventory to their clients, he emphasized that IPG Mediabrands doesn't "take inventory" for arbitrage. "Other than the barter biz, and there is some inventory there and that's their business model, we don't take positions," he said. "We're agnostic in terms of what inventory we sell, so we're not making profits on inventory we're selling to clients."

During the second quarter, the company the company repurchased 3 million shares of its common stock and paid a common stock cash dividend of $0.095 per share, for a total of $39.9 million.

"For the full year, we are well-positioned to exceed our organic growth target of 3-4% and improve operating margin by at least 100 basis points, to 10.3% or better," Mr. Roth said in a statement.

He told the Wall Street Journal last month that, despite heavy trading in IPG stock and chatter around Elliott Management setting its sights on IPG, he wasn't concerned about the holding company's vulnerability to an activist investor.

Interpublic is the fourth-largest agency holding company by revenue, following WPP, Omnicom and Publicis. Omnicom and Publics agreed last year to merge and form a new No. 1, but abandoned the effort this year amid regulatory hurdles and disagreements about leadership.

While acknowledging that it's "yesterday's news," one analyst what Interpublic learned from the failure of the Publicis-Omnicom merger.

"The distraction of having two very competitive companies like Omnicom and Publicis focused on the transaction instead of what we're doing out there was kind of fun," said Mr. Roth. "We used it to our advantage in the recruitment of high-profile, talented individuals. Now it's back to competing as usual."

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