Interpublic posts worst operating margins since '03

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With the advertising industry emerging from the funk of the past few years, its third-largest player, the Interpublic Group of Cos., continues to struggle to right itself.

Plagued by bad acquisitions, accounting troubles and the overall poor ad environment, Interpublic has groped for a turnaround under President-CEO David Bell, the executive appointed to marshal the company's rebound. And its most recent results, announced last week, left little to suggest that the parent company of McCann-Erickson, Lowe Worldwide and Foote, Cone & Belding is making major headway on the road to recovery.

In its third-quarter report, Interpublic posted a net loss of $578.4 million on revenue gains of 6.3% to $1.51 billion. That's a loss of $1.40 a common share. The company also experienced its worst operating margins since Mr. Bell took over the helm of the company.

"Our results this quarter are decidedly mixed," said Mr. Bell in a conference call with analysts. "We are still moving in the right turnaround direction, but in keeping with our past comments, we've said that progress would not always be linear."

contrast

Organic revenue, which excludes acquisitions, increased 1.8% and improved for the sixth consecutive quarter. But Interpublic's operating profit margin (excluding restructuring charges and writedowns in the value of assets) skidded to 4.3% in the third quarter from 9.3% in the second quarter. It was the worst margin performance since Mr. Bell became CEO in the first quarter of 2003, when Interpublic's margin fell to a depressed 1.75%.

The company's results are in sharp contrast to those recently posted by Omnicom Group and WPP Group, the two largest advertising holding companies. Omnicom's third-quarter profit leapt 17% last quarter while WPP reported an increase in revenues of nearly 12%.

On the bright side, Mr. Bell pointed to strong performances by McCann and Deutsch as well as recent new-business wins by FCB including the White House Office of National Drug Control Policy, a $150 million account. Moreover, Lowe's new management team, led by newly appointed worldwide CEO Tony Wright, took over last week and Interpublic is considering a restructuring of its media possessions, both developments that could lead to future improve-ments. Mr. Bell also said that he will begin to devote more attention to working with clients and business development, while new Chairman Michael Roth's "presence will increasingly be felt on strategic, operational and financial issues."

"We think that management is doing all the right things, but we are less confident in our ability to predict the final financial outcome," Merrill Lynch analyst Lauren Rich Fine wrote in a research note. "We continue to be caught between a concern that certain IPG brands are past their prime and a sense that IPG could benefit from any potential fallout from the pending Grey [Global Group]/WPP merger."

contributing: bradley johnson

Fast Facts

Interpublic Group of Cos.

IPG

Revenue: $1.51 billion, up 6.3%

Net loss: $578.4 million

Source: Company reports

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