NEW YORK (AdAge.com) -- Interpublic Group of Cos. reported dismal results for the fourth quarter and announced $165.7 million in charges and a restatement of earnings back to 1997. These are in addition to a previously announced restatement of earnings totaling $181.3 million in charges.
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The new charges include $135.8 million in asset impairment for the Octagon Motor Sports unit, as well as $29.9 million in other charges from 1997 to 2002. Interpublic, which has placed Octagon for sale, had previously warned the charges could reach as high as $500 million.
Options for Octagon
In a conference call with analysts, Interpublic said it may shut down Octagon. Newly appointed chairman-CEO David Bell admitted that shuttering the money-losing motor sports unit is one option being considered as a way to exit the business. Interpublic has retained Goldman Sachs to broker a sale of the unit, but Mr. Bell told analysts additional outside help had been engaged to study other alternatives. He warned that additional write-downs may be necessary in coming quarters, and the size will depend on which exit strategy is used.
Mr. Bell last week replaced John J. Dooner Jr. as chairman-CEO of Interpublic.
79% drop in net income
Interpublic posted net income of $20.3 million in the fourth quarter, down 78.9% from the year-ago period on revenues of $1.7 billion, down 3.8% from last year. For the year, net income totaled $99.5 million, up from a loss of $534.5 million in 2001; revenue dropped 8.7% to $6.2 billion.
U.S. revenue was down 10% for the year, but showed improvement in the fourth quarter, when it rose 0.4%, while international revenue deteriorated in the fourth quarter, dropping 8.8%, but finishing the year down 6.8%.
"These results are unacceptable ... a turnaround is what it required," said Mr. Bell, who vowed a "relentless focus" on fiscal discipline. Most of the earnings drop is due to weak results at Octagon and weakness at McCann-Erickson Worldwide, he said. McCann's non-advertising businesses had a "disastrous" year in 2002, and its Japan and Latin American units showed shortfalls, he said.
Costs increased 4.5% in the fourth quarter, which contributed to the shortfall, said Chief Financial Officer Sean Orr, who added the company will continue to bring down its headcount to cut costs.
While Interpublic's officers would not offer quarterly guidance -- citing the uncertain economic and political situation a war with Iraq may cause -- Mr. Orr revised the outlook of flat 2003 revenue issued last December to a forecast of a 1% to 4% drop in revenue, due to a more conservative spending trend. He said clients have delayed or cut spending lately due to the geopolitical uncertainty.
Interpublic made its report after the market closed. The market, anticipating bad news, sold off the stock earlier in the day to a 10-year low of $8.42; the stock closed at $8.59, down 4.6%.