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Despite Q2 Revenue Dip, IPG 'Confident' About Second Half of 2017

By Published on .

IPG CEO Michael Roth.
IPG CEO Michael Roth. Credit: Courtesy IPG

Interpublic Group saw a 1.7% drop in second-quarter revenue from the period a year earlier, with a relatively flat organic revenue increase of 0.4%, but CEO Michael Roth said he was still confident that the agency holding company will hit its organic growth target for the year.

"Our agencies and our people remain best-in-class and our recent mid-year business reviews indicate that our operators have a range of opportunities in the second half of the year that make the lower range of our 3-4% annual organic revenue growth target achievable," Roth said on this morning's conference call. "Our new business pipeline remains solid, and we are fully competitive when opportunities do arise."

Roth added that in order to deliver 3% or better organic revenue growth for the year, the holding company's agencies will not solely rely on winning new business, but also focus on its existing client roster and top 20 clients.

IPG's top 20 clients "are in a financial position to invest in their media dollars and ad spend and they have to to maintain market share," Roth said.

In the United States, IPG saw a slight organic revenue increase of 0.7% in the second quarter, year-over-year.

For the first half, organic revenue slipped 0.6% overall and grew 1.7% in the U.S.

Operating income in the second quarter was $206.5 million, compared to $224.3 million in 2016.

For the first half, operating margin checked in at $236.2 million, compared to $247.3 million in the first half of 2016.

Sectors that saw the most growth included health care, auto and transportation, retail and government, while tech and telecom, financial services and consumer goods slowed.

The U.S. market makes up 60% of IPG's overall revenue mix, and despite "challenges caused by political uncertainty," Roth said the "macro climate in the US and the overall tone from clients is supportive of a stronger second half."

In addition to some client losses, like Sprint and TD Bank, Roth attributed this quarter's slowing growth to fewer project-based assignments. He said if an agency finishes a large project and doesn't have another lined up to offset it, it leads to "choppy results on a quarter by quarter basis."

"Project business on the PR side in the second quarter was negative for Weber Shandwick, which is an anomaly and we think it'll pick up," said Roth.

Top performers
The agencies that led IPG's growth in the quarter include Mediabrands, McCann Worldgroup, Hill Holliday and Huge, he said.

When asked during the Q&A portion of the call why Roth feels confident about improved growth for the rest of the year, he said it's a combination of hearing from clients that they plan to increase media spend in the second half and knowing that agencies have ideas to help clients create revenue.

"We work with clients to say, "Where do you get the better bang for your buck?'" said Roth. "I think there's a lot of pressure on our clients in terms of bottom line, but if they're not selling products, they can watch their costs all they want, but they ultimately have to sell those products."

As he's said before, Roth declared that not concerned about consultancies such as like Accenture and Deloitte encroaching on the advertising space.

"And, while headlines would tell you otherwise, the consultancies remain largely at the periphery of our commercial markets," he said. "We continue to see growing revenue streams for the combination of transformational consumer strategies coupled with the ability to execute at scale."

Last week, Omnicom Group posted organic growth of 3.5% for the second quarter, but the North American market slowed to just 0.2% growth from 1.1% in the first quarter. At Publicis Groupe, which also reported earnings last week, organic revenue growth was 0.8% for the second quarter, and worldwide revenue was up by 2.2%

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