CHICAGO (AdAge.com) -- Interpublic Group of Cos. announced layoffs of 3,500 employees and said it will close or merge more than 75 facilities by year-end. The moves came as Interpublic reported a quarterly net loss and lowered its full-year earnings target.
The job cuts are in addition to the 2,200 people Interpublic said it laid off in the first half of this year; the combined cuts represent 10% of its worldwide staff.
'Already behind us'
The company said 90% of the staff cuts have already been made or that staffers were already notified. Chief Financial Officer Sean Orr said, "We feel [this is] already behind us."
The world's largest ad agency holding company posted a second-quarter net loss of $110.2 million vs. net income of $166.4 million a year earlier. Interpublic lost 30 cents a share in the recent quarter vs. diluted earnings per share of 45 cents a year ago. Revenue fell 4.3% to $1.74 billion; U.S. revenue dropped 7.3%. Results for this year and last year include the June acquisition of True North Communications for $1.7 billion in stock.
Announcement to analysts
Speaking with analysts in a conference call late today, Interpublic executives said the company will take $500 million in 2001 restructuring charges as it moves to cut costs. Of that, $375 million comes from cost-cutting efforts, including severance payments; the rest comes from a recently revealed restructuring, including the integration of True North.
Chairman-CEO John J. Dooner Jr. said, "We didn't reduce costs as quickly as we should have."
The second-quarter net loss reflects restructuring and a write-down of goodwill and "asset impairments." The company recognized only part of its massive 2001 restructuring charges -- taking only a charge of $51.3 million -- in the second quarter. Interpublic took a $221.4 million second-quarter write-down of goodwill and asset impairments and warned additional write-downs of goodwill could be ahead this year.
Interpublic announced the cuts after the stock market closed. Its stock closed today at $28.10, up 12 cents but near a 52-week low.
Austerity program double expectations
The austerity program is more than double expectations. In June, the company said it expected the restructuring charge to be $300 million.
This is the fourth consecutive quarter that Interpublic has taken a charge.
The bulk of the goodwill write-down, or $140 million, was attributed to the acquisition of Capita Technologies by DraftWorldwide, Interpublic's marketing services unit.
'Small dogs and cats'
Other assets included in the charge were "relatively small dogs and cats," Mr. Orr said.
"Wall Street often excludes one-time charges when they look at earnings. However, when a company takes them so consistently maybe it warrants some attention," said Alexia Quadrani, an analyst for Bear Stearns.
"If they guarantee they will realize the [promised] annual savings by beginning of next year, it would have to come out soon, perhaps by the third quarter," Ms. Quadrani said.
Mr. Orr said revenues and client spending declined much more sharply than had been expected and that cost reductions had not kept pace, "necessitating faster and deeper cost-cutting measures."
Hard hit by tech decline
He added that Interpublic had been hard hit by a decline in its heavy concentration of technology and telecommunications clients, including the $400 million AT&T Wireless account that had been at True North's Foote, Cone & Belding, San Francisco. The company said True North had accounted for the AT&T loss prior to the acquisition. The account loss will be posted in net new business for the third quarter.
Executives said revenue would be flat for the rest of the year and that the decline in May and June had been particularly steep for most of the category.
"Not only are we in a difficult economic environment, last year we had such an exuberant year," Ms. Quadrani said. "Not only are you dealing with a recessionary environment, you're dealing with tough comparisons."