Holding companies post poor earnings

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Agency holding companies reported weak results for the third quarter and girded themselves for more pain with a rash of restructuring charges meant to protect profits in 2002.

Holding companies reassured analysts they will continue to restructure and cut costs to improve the bottom line as economic weakness is expected to last through the middle of next year.

Interpublic Group of Cos. posted a net loss of $477.5 million or $1.29 a share after a $593 million charge-larger than the company had initially told the Street-to cover restructuring efforts. Factoring out the charges, Interpublic would have shown $54.5 million in net income and earnings per share of 15 cents, one cent above analysts' consensus estimates

Interpublic reported third-quarter revenue dropped 7.4% to $1.61 billion vs. a year ago; domestic revenue dropped 15.7% to $900.4 million. Wall Street analysts gave Interpublic a cautious thumbs-up while still worrying about its unstable revenue flow and the uncertain ad spending outlook. Merrill Lynch & Co.'s Lauren Rich Fine called the revenue forecast "cloudy at best" in her report and argued Interpublic is not turning new business wins into improved revenue as well as its competitors. Goldman Sachs & Cos.' Michael Beebe noted Interpublic was "turning an important corner" in a report to investors, but he, too, remained concerned.

Restructuring was also a recurring theme in the report of Havas Advertising (see story, left). Havas saw third-quarter revenue drop 4% to $397 million after factoring out acquisitions and currency fluctuations. Bob Schmetterer, chairman-CEO of Havas' Euro RSCG Worldwide, said fee pressure has increased this year, mainly driven by corporate profitability concerns among clients. Chairman-CEO Alain de Pouzilhac said he expects Havas revenue to be flat this year while the ad industry will fall about 4%. In 2002, he predicted, Havas revenue will grow 2% to 4% while industry ad spending will fall about 2%.

In spite of flat revenue in the U.S., Publicis Groupe posted slight growth in revenue during the third quarter thanks to some new business gains. Publicis reported third-quarter revenue of $528 million, with organic growth of 1.6%. Grey Global Group reported weak third-quarter results, with net income down 71% to $1.5 million and revenue down 2% to $296 million. A strong showing overseas, where revenue grew 5%, was not enough to make up for weak results in the U.S., where revenue dropped 11%.

Amid all the bad news, privately held Bcom3 Group showed significant improvement. Bcom3 posted a 5.1% increase in revenue in the third quarter to $456.6 million. Bcom3 reported net income of $4.7 million for the quarter vs. a year-earlier loss. Bcom3 plans for an initial public offering have been delayed due to the economy; it is now expected to go public next year. Chief Financial Officer Eileen Kamerick said the company is waiting for improvement in the IPO market and for its profit margins to reach parity with other holding companies. She did not specify Bcom3's current margin, but most holding companies have shown margins in the low-10% range this year.

Contributing: Kate MacArthur, Laurel Wentz

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