Interpublic Loss Widens as Revenue Drops 11%

Holding Company Hurt by Troubled Auto, Financial-Services Clients

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NEW YORK ( -- Interpublic Group of Cos. today reported its earnings and revenue were down for the first quarter, in line with what rivals WPP and Omnicom are reporting in this bruising economy.

Michael Roth
Michael Roth
The holding company reported a first-quarter net loss of $73.6 million compared with a loss of $63.4 million in the same period a year ago. Revenue was down 11%, to $1.3 billion from $1.5 billion in the same period in 2008, due in part to Interpublic's troubled automotive and financial-services clients.

But in an earnings call this morning, Chairman-CEO Michael Roth said he was optimistic that the company, which has laid off nearly 3,000 people the past two quarters, will be positioned well for the economic turnaround. Mr. Roth said with diversified services and appropriate cost discipline, Interpublic has managed to alleviate some of the negative affects of the recession.

"While the auto and financial services were hard hit, other client industries were anywhere from down 1% to up in the single digits," he said. General Motors and MasterCard are two of the company's largest advertising accounts.

Inrerpublic is the parent of advertising, public-relations, media and sports-marketing agencies including McCann Erickson, DraftFCB, Lowe, Weber Shandwick, Initiative, Jack Morton and Octagon.

Cutbacks in ad spending
Organic revenue for the quarter also dropped 6% year over year, reflecting cutbacks in ad spending by marketers, but Mr. Roth said the retail and health-care sectors have been particularly resilient, thanks to clients such as Walmart, Kohl's, Johnson & Johnson and GlaxoSmithKline.

"It goes without saying that the tone we are hearing from our clients remains very measured and cautious," Mr. Roth said. But he added that there is a clear understanding that under-investing in marketing and advertising creates market-share loss in the long term.

Mr. Roth cited DraftFCB in the U.S., Lowe in the U.K. and McCann in continental Europe as three agencies that have performed well in this rough economic climate. A number of Interpublic agencies have secured some major wins in the past few months, including Initiative retaining Home Depot's $500 million media account; R/GA winning a $40 million project from Walmart; and DraftFCB, along with Initiative, securing the Miller Lite account.

Harris Diamond, head of Interpublic's Constituency Management Group, which oversees the holding company's PR, events, branding and sports-marketing agencies, said the group, which is responsible for about $1 billion of annual revenue, saw a 13.8% drop in revenue for the quarter. He said the PR practice exceeded expectations, and sports marketing did "pretty well," but the events division took a hit.

"Traditionally, in recessionary environments, PR has always been hit and hit hard. We were slightly down about a point, but it did exceed our expectations," Mr. Diamond told Ad Age. "But it's no surprise our events-management business is where we got hit. However, we are starting to see a leveling off in that sector. So all things being considered, and given the economic conditions out there, we felt reasonably OK with our results."

Tough environment to navigate
To combat the troubles facing the events industry, Mr. Diamond said, Jack Morton, one of the top agencies in that sector, has done a good job of implementing online digital capabilities for virtual meetings. As far as the sports-marketing division goes, "whether it's athlete representation, sponsorship or consulting, they have all seen good traction in the marketplace," Mr. Diamond said.

Despite a new-business pipeline that is much better than it was five months ago, the environment is still tough to navigate, Mr. Diamond said. "It's been the toughest six months I recall in the business, even as compared to other recessions. This has been much more widespread, and the level of overall uncertainty is much higher. The environment is still incredibly hazy, and even though the pipeline is a lot better than it was in December, I wouldn't overstate the issue."

Mr. Roth said he anticipates improvements in 2009, but "you have to assume some cautiousness in this environment." The company's goal is "to try and maintain this level of margin."

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Michael Bush contributed to this report.

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