Interpublic Reports Dip in Operating Profit Despite Revenue Gain

Income for Second Quarter Rises, but Reduced Client Spending, Staffing Costs and a Weak June Cut Into Margins

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Interpublic Group of Cos. reported that second-quarter profit was up to $104.6 million, from $82.5 million in the year-ago period. But operating profit was down, to $174 million from $177 million in the same period, which the advertising holding company attributed to higher staffing costs, reduced spending from the packaged goods, technology and telecom sectors and a weaker-than-expected June.

Interpublic's second-quarter revenue was $1.74 billion, up 8% from the year-ago period.

"For the rest of the year we don't expect to see that mismatch between revenue and expenses," said Interpublic CEO Michael Roth. "June was a bit of a surprise to us here." Mr. Roth, who appears to have successfully navigated the fourth-largest agency holding company out of serious financial ills in recent years, continually emphasized Interpublic is still on track to hit organic growth targets of 4%-5% for the full year.

Overall, worldwide revenue grew in June, the largest month in the quarter, but outside North America, especially in Brazil, revenue for the month was not as strong as expected.

For the first half of the year, profit is up to $128.7 million, compared to $117.8 million in the 2010 period. Revenue in the first half was up 9% to $3.22 billion compared to the year-ago period.

"Overall the tone of the business continues to be solid," Mr. Roth said. "Obviously there's an overhang with what's been happening in Washington and the global economy in general, but I've been meeting with clients and they still believe they need to invest in their brands."

Interpublic creative agency DraftFCB and media network Mediabrands were the strongest contributors to revenue growth in the quarter. Mr. Roth noted a pickup in new-business activity, especially in media. Contributors to revenue growth were the automotive and health-care sectors.

Mr. Roth was not explicit about McCann Worldgroup's performance during Interpublic's earnings call today. In the midst of a turnaround, a rash of top-tier talent have been leaving the network, including John Kottmann, McCann Erickson's former exec VP-chief strategy officer and co-director of planning; and Lee Daley, global chief strategy officer for the agency. That's after Interpublic has brought on high-profile and likely highly compensated executives to right the ship after a period of decline.

"The key for us in the case of both McCann and the organization as a whole is to balance investment and return," Mr. Roth said, later hinting at a couple account wins for McCann that can't yet be announced.

As competitor Publicis Groupe continues to be on a buying spree, having recently acquired digital agency Rosetta and social-media shop Big Fuel, Mr. Roth said Interpublic is also active in the market and has a few deals in the pipeline for shops in emerging markets. On the digital front, however, Mr. Roth emphasized his investments to expand existing digital agencies R/GA, Huge and MRM globally, "without paying huge premiums to bring them into the fold."

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