Interpublic reported an $8.6 million net loss for the first quarter of 2003, compared to $59.8 million in net income in the same period in 2002, and a loss of 2¢ per share. Revenue showed marginal growth of 0.9% to $1.43 billion, helped by currency fluctuations. On an organic basis-factoring out currency and acquisitions-revenue dropped 5.4%, with U.S. revenue down 3% and international revenue down 8.5%, mainly due to double-digit drops in Europe and Latin America.
But currency also caused rising costs, including a 4.5% rise in salary expenses, in spite of a reduction of 1,400 employees worldwide during the quarter, and a 15.4% increase in office and other expenses.
"The numbers ... are disappointing and unacceptable," said Chairman-CEO David Bell. Mr. Bell, who took the reins in March, said the company has made headway in correcting financial-management issues at its McCann-Erickson WorldGroup network, as well as "finally reaching the bitter dregs of Interpublic's foray into motor racing."
$11.1 mil charge
Interpublic recorded a $11.1 million charge to write down assets of its Octagon Motor Sports operation, renamed Brands Hatch Circuits. Interpublic has placed parts of the troubled racing unit on the block and shut down others in an effort to stop losses that have dragged down the company's total earnings during the last year.
Executives said they will spell out an "accelerated cost-savings plan" when Interpublic releases second-quarter results in August. The program will include "substantial severance" in the second quarter, Mr. Bell said. He did not give out many details on the cost cutting, but said Interpublic's bank covenants allow for up to $200 million in restructuring costs, and the program will be balanced by gains from the projected sale of NFO Worldwide.
The cuts will also include reductions in the corporate structure which should result in $25 million in savings annually, Mr. Bell said. The first corporate-level cuts will include the elimination of the Advanced Marketing Services unit structure, which will leave the companies in that unit reporting directly to headquarters.
Management reaffirmed previous forecasts of 68¢ to 72¢ per share for the year, saying the effects of the cost cutting will be felt in the second half and revenue traditionally accelerates in the second half.
"We're digging out from a deep pit, but in short order we have made progress," Mr. Bell said.
May 9 price: $11.87
52-week high/low: $34.05/$7.20
Market cap: $4.42B
Analysts' EPS* forecast: $0.07
1Q 03 EPS: ($0.02)
Revenue, % change: $1.43 B, +0.9%
1Q03 loss: $8.6 M
1Q02 income: $59.8M
Stock quote: CEO David Bell says future plans are "single- mindedly" focused on organic growth