IPG Q3 losses narrow; must put focus on shops

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Its major accounting woes may be behind it, but Interpublic Group of Cos. now has to turn its attention to another vexing problem: a group of poorly performing ad agencies.

The third-largest holding company last week reported narrower net losses for the third quarter and year-to-date compared to 2004. Its loss for the third quarter was $102 million, down from $502 million a year ago. But organic revenue, an important industry benchmark, was flat for the first nine months of the year and down 3% for the third quarter-driven largely by trouble at ad agencies suffering from client losses.

Revenue in Interpublic's ad agency group, which includes networks like McCann Erickson and Foote Cone & Belding as well as stand-alone agencies like Deutsch, was down 3.3% for the third quarter.

Chief Financial Officer Frank Mergenthaler said this was "primarily driven by shortfalls at McCann and Deutsch." He added that McCann's decrease in organic revenue was also due to a new revenue-recognition policy governing contracts. McCann, the company's star performer, recently lost home-improvement retailer Lowe's creative and media business, while Deutsch has endured a tough stretch with the loss of several clients including Mitsubishi, Revlon and Lenscrafters. (Both have also won new clients recently. Deutsch has picked up General Motors Corp. work and a mobile-phone startup called Helio, while McCann won a large piece of Credit Suisse First Boston's business.)

"All our units are basically flat to slightly down," Mr. Roth said. "Some are a little bit up. Obviously [direct-marketing agency] Draft had a good year and we're excited about that. But we're still in turnaround phase."

Merrill Lynch maintained its sell rating, with analyst Lauren Rich Fine writing in a research report: "Until IPG has demonstrated a sustained ability to win large, new accounts, there will be financial instability, in our view. ... IPG shares still strike us at too rich at the current valuation."

Structural changes

Mr. Roth hinted that some structural changes may be in the offing when the company holds an investors and analysts meeting early next year. "I think it's clear that there are opportunities for us out there to be more efficient in how we compete on a global basis and that's where we're spending a lot of our time."

There is already a great degree of speculation around the future of its Lowe Worldwide unit, which has been ravaged in recent years by fleeing clients and management turmoil.

In the earnings call, Mr. Roth did not indulge any of that speculation when prodded by an analyst, saying that Lowe is "alive and well" and a "work in progress." An agency spokeswoman last week said its New York office had laid off 5% of its staff, or 24 out of 462 employees, following the loss of clients A&P, Macy's and Century 21. She said no additional rounds of layoffs are expected.

Contributing: Bradley Johnson

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