WPP and Omnicom record increases for first quarter

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Agency holding companies, including lagging Havas, are all bullish about 2004 after reporting healthy first-quarter numbers, but they are still troubled by weakness in Europe and in the U.S. dollar.

WPP Group, Omnicom Group and Havas all posted growth in the first quarter. But in conference calls, executives noted results were affected by the continued weakness of the U.S. dollar against the euro and British pound, and key European markets-including the U.K., France and Germany-remain troubling.

"What you see in a way in the pattern of our business ... is increasing focus in the U.S. and Asia as the primary long-term engines," said WPP Chief Executive Martin Sorrell. He noted that Europe has several social and political issues affecting its performance, such as the expansion of the European Union.

WPP reported $1.75 billion in first-quarter revenue, up 5.7% from the year-ago period, or 4% after factoring out currency and acquisitions including the acquisition of Cordiant Communications Group last August. Unlike U.S. companies, European corporations only report full earnings for the half- and full-year periods.

All companies reported the dollar's weakness took a sharp bite from their growth rates, with the Europeans showing negative North American growth from the currency translation. Entering the recession, many companies had assumed an increased share of international business would help cushion the effects of the downturn, only to find the U.S. market recovered much more easily than its European counterparts.

weak dollar

The weak dollar contributed to increasing Omnicom's U.S. share of total business to 54.7%, vs. 45.3% for its international share, said Chief Financial Officer Randall Weisenburger. Omnicom reported net income of $135.6 million, up 17.4% from the year-ago period, on revenue of $2.23 billion, a 15.2% increase. On an organic basis, factoring out acquisitions and exchange rate fluctuations, revenue grew by 5.8%.

Growth came across the map, with European numbers hobbled slightly by weakness in France, Germany and the Netherlands, said president-CEO John Wren. Growth also came across all disciplines, including public relations agencies, where revenue grew 7.8% for the first quarter.

Havas also turned a corner in the first quarter, posting improved results helped by the sale of slow-moving units, but stunted by the strength of the euro against the dollar and restructuring expenses.

Havas posted an 11% drop in revenue to $433.6 million, but showed organic revenue growth of 0.7%, its first positive number since the fourth quarter of 2001.

Revenue grew across all regions, except North America and the U.K, but the U.S. should show improvement this year, as recent new-business gains translate into revenue, said Arnold CEO Ed Eskandarian. The company reported strong revenue growth in its French home market, thanks to strong new-business growth, but continued weakness in other European markets.

Chairman-CEO Alain de Pouzilhac said the company should show profit margins comparable to its competitors this year, thanks to new-business gains and profit improvements from an ongoing restructuring. Havas announced in September it would reorganize around its Euro RSCG network in an effort to reduce costs and improve operations and would divest underperforming units. Mr. de Pouzilhac said the divestiture process is nearly 80% complete.

Of the remaining agency groups, Publicis Groupe will report results May 5 and Interpublic Group of Cos. on May 30.

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