Interpublic's $327 mil loss highlights 'messy' situation

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Interpublic Group of Cos. served analysts a negative surprise with its third-quarter results, including wider losses and news of an extended turnaround period.

Interpublic executives warned in a conference call with analysts that an ongoing restructuring will continue into the first half of next year and charges could reach $250 million. Interpublic had previously planned to complete the restructuring this year, with charges of up to $200 million. The restructuring-initially announced last May-includes layoffs and office consolidations, as well as the sale of some assets. Interpublic reported its headcount at the end of the third quarter is nearly 4,000 employees fewer than the same time last year.

"The list of work to be done is long," said Chairman-CEO David Bell. He asked investors to "indulge me," reminding them that, after he took over as the post last spring, he had warned the turnaround would not be easy.

"It clearly is messy," he said.

In spite of an improving outlook in the U.S. and some foreign markets, Interpublic posted a third quarter net loss of $327.1 million, compared with a net loss of $89.6 million in 2002. The net loss was due to charges related to the restructuring and a $221 million charge to earnings to complete writing off goodwill at sports-marketing unit Octagon Worldwide. The unit is being restructured and integrated more closely with Interpublic's other holdings, while its troubled motor-sports business is on the block. Mr. Bell said Interpublic has already divested its motor-cross racetracks and is in talks with potential buyers for its four U.K. Formula One racetracks.

Organic growth-revenue increases after factoring out currency and acquisitions-was still hard to come by for Interpublic, which was down 1.7%. The company posted a drop of 0.7% in domestic organic revenue and a drop of 2.9% in its operations abroad. The overseas revenue drop was a sharp improvement from the second quarter, when organic revenue dropped 8.9%. The Asia-Pacific region is doing well, as is the U.K. market, but continental Europe is still struggling, said Chief Financial Officer Chris Coughlin.

`lackluster'

While analysts noted Interpublic's revenue trend was the best in years, it still fell short of its two key rivals. WPP Group and Omnicom Group both reported organic-revenue growth for the quarter. (AA, Nov. 3) In a report to investors, William Blair & Co. analyst Troy Mastin recommended caution on the stock, since "the numbers remain lackluster and evidence of progress remains sparse."

On the upside, Interpublic appears close to settling a series of shareholder lawsuits filed last year after the stock tanked in the wake of a series of earnings restatements. Mr. Coughlin said the company has earmarked a reserve of $127.6 million for settlements, which he said will be mainly made in stock. He would not elaborate on the status of the lawsuits.

Fast Facts

Third-quarter results

Interpublic Group of Cos. (IPG)

Revenue:

$1.42 billion, +2.3%

Net Loss:

$327.1 million, N/A

Source: Company report

Changes are vs. the year-ago period

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