Earnings report: Interpublic sees revenue decline

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Interpublic Group of Cos. showed some improvement in the first quarter, with net income of $66.7 million after a $28.7 million loss in 2001. But factoring out a special charge in 2001, income was down 12.8% from $76.5 million in a year ago.

Diluted earnings rose to 18 cents per share from a loss of 8 cents a share in 2001, but dropped 10% from 20 cents, after factoring out the year-ago adjustments.

Revenue slumped 15.2% to $1.42 billion from $1.68 billion in 2001, with 12.8% due to client-spending reductions, 1% due to the loss of business from DaimlerChrysler and PepsiCo and the rest due to currency and other factors. DaimlerChrysler and PepsiCo shifted to rival Omnicom Group in 2000 and 2001, respectively.


Advertising and media revenue-59.4% of Interpublic's total-dropped 17%, while diverse marketing service units' revenue fell 12%. U.S. revenue plummeted 18%. Non-U.S. revenue fell 10%, with Europe and Canada down 10% and 11%, respectively. Asia and Latin America also were down 11%.

Interpublic brought in $744.6 million in net new business, which "suggests very good momentum," Chief Financial Officer Sean Orr told analysts last week. The net new-business total in the first quarter was three times larger than in the fourth quarter, said Chairman-CEO John J. Dooner, Jr.

Marketers' spending seems to be stabilizing and upfront negotiations "are more vibrant," a good sign of a recovery, said Mr. Dooner. The upfront market is the spring period when advertisers buy time in advance of the fall TV season.

ready to spend

Mr. Dooner echoed remarks by executives of rival Omnicom Group that marketers are ready to spend, but no one is willing to be first. "We're not suggesting the pocketbooks are out and money's coming in ... but it seems things are coming together and a lot of people are waiting for the gun to go off," he said.

The Lowe and Foote, Cone & Belding networks are stabilizing and making progress in new business, Mr. Dooner said. FCB, still cycling through issues following Interpublic's purchase of parent True North Communications last June, has begun to win business, and Lowe is also improving its new-business record, he said.

Headcount reduction

The company would not give analysts specifics on full-year revenue guidance but expects the revenue flow to improve in the second half.

The lower first-quarter revenue figures caught the attention of analysts, who questioned the company's projection that earnings per share will grow 15% if revenue is flat. After a 15% revenue drop in the first quarter and with the second quarter off to a slow start, Interpublic would have to increase revenue significantly in the second half to produce flat full-year results.

Mr. Orr countered the revenue comparisons become easier in the second half, but added Interpublic is managing costs and cash as if there were no second-half recovery on the horizon. Interpublic, for example, cut 1,000 jobs, or about 2%, of headcount, in the first quarter, on top of 5,200 jobs cut in restructuring last year. Mr. Orr said that even if full-year revenue declines, profit margins will meet or beat 2000's level, thanks to cost controls. As long as there are no further economic disruptions, double-digit profit growth is possible, he said.

"At the end of the day," Mr. Orr said, "we have to manage the hand that we're holding."

TakingStock: Interpublic Group (IPG)

May 3 close: $30.62

52-week high/low: $39.15/$18.25

Market cap: $11.6 B

First quarter:

Analysts' EPS forecast: $0.18

EPS: $0.18

Revenue: $1.42 B (-15.2%)

1Q02 net income: $66.7 M

1Q01 net loss: $28.7 M

StockQuote: Factor out a 1Q01 charge, and 1Q02's profit was 12.8% lower than 1Q01.

* Earnings per share

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