WPP earnings beat expectations, but details about Sorrell departure still a mystery

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A company plaque is cleaned outside the offices of British advertising giant WPP in London on August 23, 2017.
A company plaque is cleaned outside the offices of British advertising giant WPP in London on August 23, 2017. Credit: DANIEL LEAL-OLIVAS/AFP/Getty Images

In its first financial report since CEO Martin Sorrell left earlier this month, WPP reported better-than-expected results for its first quarter.

The world's largest holding company's like-for-like net sales fell 0.1 percent in the quarter, which came in better than the 1 percent drop analysts expected. WPP said its first-quarter group's reported revenue fell 4 percent from last year to 3.6 billion pounds.

WPP's leadership — including the company's new co-chief operating officers Mark Read and Andrew Scott — addressed investors and analysts in a meeting in London and later in a call with U.S. analysts.

Liberum analysts called the results presentation "reassuring," saying the group had been clear on the challenges to the business while "maintaining the fundamental business model of agencies was sound."

Pivotal Research senior analyst Brian Wieser wrote in an investor note that the firm remains "positively oriented around opportunities to the upside at this point in time, especially given our longer-term view on the agency sector as one which will eventually return to something resembling 'normal' growth. WPP in particular is – notwithstanding the leadership vacuum at present – the best positioned among the group in terms of its geographic footprint and the businesses it is invested against."

WPP executive chairman Roberto Quarta, in the London investor meeting, addressed Sorrell's departure and the company's reasoning for not disclosing the circumstances around it.

"Martin resigned. Martin was not terminated. This came about at the end of the investigation when the results of the investigation were known," Quarta said. "Martin decided to resign. Before the board had taken into consideration the outcome of the investigation and determined whether or not it was appropriate to take action."

"We have no requirements to disclose or necessity to disclose," he said. "I think that we also make it very clear … that the financial impact on this personal misconduct allegation was not material to the WPP earnings. That's pretty much the case."

He added that since it is considered to be personal conduct, it was a "matter of privacy, and therefore, it's a matter for Martin, and hence the reason why we did not disclose."

In the call later Monday, Quarta spoke about the company's search for a new CEO. He said the company is trying to conclude the process as quickly as possible, but said "it must be done both thoroughly and properly."

Quarta also addressed analyst speculation that WPP would see a breakup in the near future. He said though the company will be keeping an open mind and doing what they thought would create most value for shareholders, "The starting point is definitely, this is not a breakup," he said. "It is far too early to speculate about specific asset sales."

Scott added WPP intends to address underperforming parts of the group to focus on growth and free up resources for investment.

Quarta also said clients have seemed confident about their relationships with the ad holding company. But Ford, one of the company's most important clients, said earlier this month it is reviewing its global creative.

The group did have a number of large wins in the quarter, including Hotels.com at MediaCom, Danone at Wavemaker and Bose across a WPP team. The company said its net new business wins totaled $1.7 billion in the first quarter. Losses included Marriott's global media, which had previously been with MEC, to Publicis Groupe agencies and creative and media work for many of Campbell Soup Co.'s well-known brands, which went to Publicis Groupe following a review.

As for the ongoing challenges facing the industry, Read touched on the growth of Amazon, Facebook and Google; competition from consultancies and structural, lasting changes in the market.

He said even when pressures on clients relent, "we're not going to go back to doing things in the old way."

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