Waiting for a 'new normal'

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The ad industry will settle into a "new normal" late this quarter or early next year after advertisers assess where they stand, said Omnicom Group President-CEO John Wren. Meanwhile, the agency companies grapple with uncertainty-with mixed results financially.

Omnicom, announcing solid third-quarter results last week, vowed it will meet Wall Street's fourth-quarter expectations. But WPP Group said it "will be very difficult" to hit its 2001 profit-margin goal.

In conference calls with analysts, Mr. Wren and WPP Chief Executive Martin Sorrell both noted new-business flows appear to be improving in the fourth quarter and said agencies are practicing tight cost controls.

For the third quarter, Omnicom revenue increased 8.3% to $1.57 billion from $1.45 billion in the same quarter last year-including 4.5% organic growth-and net income rose 7.8% to $92.4 million from $85.7 million. WPP reported revenue grew 41.3%, to $1.41 billion from $1.01 billion in 2000; excluding acquisitions and currency fluctuations, revenue fell by more than 6%.

The third of the big three, Interpublic Group of Cos., postponed its earnings release from last week to Nov. 13 (AA, Oct. 22). French rivals Havas Advertising and Publicis Groupe will report in mid-November.

Clients appear to be assessing the immediate impact of the Sept. 11 attacks and how to proceed, Mr. Wren said. Many new-product introductions planned for the third quarter were pushed to the fourth quarter and early 2002, he said. "It's all there; it's just a matter of when [they] pull the trigger," he said.

Mr. Sorrell said the revenue impact in the fourth quarter is still hard to quantify, given the slowdown among clients.

"Clients are like rabbits caught in the headlights," Mr. Sorrell said, with many unable to make marketing plans as they process the effects of the uncertainty unleashed by the attacks.

WPP said fallout from the attacks cut its September revenue by at least $30 million; if that continues for the fourth quarter, it said 2001 revenue, excluding acquisitions, could be down 2%. WPP warned "it will be very difficult" to meet its 2001 operating-margin target of 15%. WPP is continuing to watch costs; it cut staffing by almost 6% from Jan. 1 to Sept. 30. Mr. Sorrell said some rival companies will account for a wide range of Sept. 11-related losses as "exceptional items" on their third-and fourt-quarter financial reports, which improves their net totals.

Recent reports of mail-borne anthrax contamination have only extended the uncertainty. Both Messrs. Sorrell and Wren noted anthrax fear is affecting direct mail, which had been one of the few bright spots in advertising.

Mr. Wren noted that even in the middle of industry layoffs and its own at shops such as TBWA Worldwide and Goodby, Silverstein & Partners, San Francisco, Omnicom is hiring 150 people in Chicago to service the consolidated PepsiCo account.

Mr. Wren said there are signs the account-review freeze is thawing (AA, Oct. 22). In the first three weeks of the fourth quarter, Omnicom brought in $650 million in new business (including $400 million from PepsiCo), which put it near its quarterly goal of $1 billion.

Omnicom will meet its fourth quarter analysts consensus estimates, Mr. Wren said. He cautioned there will be some revenue impact from the recent events, and the effect of anthrax scares on direct mail is still unknown.

The quarterly report only reinforced Omnicom's popularity on Wall Street; the company beat most analysts' earning estimates by 1 cent to 2 cents a share. Credit Suisse First Boston's David McMurry raised his estimate for Omnicom's 2001 per-share earnings 2 cents to $2.70 and Merrill Lynch & Co.'s Lauren Rich Fine commended the company for an "amazing" quarter and affirmed her recommendation of its stock among agency holding companies.

"Uncertain environment separates good from bad management, and stellar from average assets," she wrote in her recommendation. "We continue to recommend staying with this winner."

WPP's Tempus tumult: See P. 37

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