Interpublic Net Income Rises Double Digits as Revenue Climbs

IPG Reports Solid Growth on Heels of Elliott Management Settlement and Board Shakeup

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CEO Michael Roth
CEO Michael Roth

Total revenue at Interpublic Group of Companies increased 5.8% last year to $7.54 billion, the company said Friday. Organic revenue, excluding events such as acquisitions and currency fluctuations, increased 5.5%.

The advertising holding company includes creative agency network McCann Worldgroup, media agency UM and PR giant Weber Shandwick.

Its revenue for the fourth quarter rose 4% from the quarter a year earlier to $2.2 billion as organic revenue increased 4.8%, Interpublic said. Account wins in the quarter included Sprint, Grupo Bimbo, Sherwin Williams and Reckitt Benckiser.

Full-year net income totaled $505.4 million, up 74.9% from $288.9 million, Interpublic said, while net income for the fourth quarter was up 56.2% to $331.3 million.

The company reported fourth-quarter earnings of $1.14 per basic share. Analysts had expected $2.19 billion in revenue and 58 cents earnings per share.

Operating margin expanded to 10.5% for the year and to 19.6% for the most recent quarter.

"We are pleased to report strong 2014 results that reflect significant progress in the marketplace and exceeded our growth and margin targets," CEO Michael Roth said in a statement. "Equally important is the 120 basis points improvement in operating margin that we delivered. This is an area on which we remain closely focused, and represents significant opportunity as we drive toward our goal of fully-competitive 13% operating margins."

Toward that end, Mr. Roth acknowledged the potential for structural changes. When asked on a conference call to disucss the results whether there will be an effort to consolidate agencies "if the business doesn't pick up," he said that was possible. "We're looking for efficiencies," he said.

He also shed some light on how the company is reducing costs through other means. For Kraft, McCann sought out efficiencies through a new way of working with production facilities globally. He didn't go into detail, but said the model is improving margins at the shop, among others.

The company grew in all of our major markets, with the exception of continental Europe. "The U.S., China, India and Brazil were important markets in which we saw notably strong performance," Mr. Roth said on the call. Organic revenue in continental Europe, which accounts for about 11% of the company's business, decreased 4.1%.

Interpublic also reported growth from all major disciplines in the quarter. Mr. Roth said that IPG saw "solid progress at McCann and FCB, as well as strong financial performance from its media operation." Top performing shops included McCann, FCB, Lowe & Partners, Mediabrands, Huge, R/GA, Weber Shandwick, Golin, Octagon and Futurebrand.

Weber Shandwick got a significant shout-out. "The evolution of that agency into a digital and strategic leader across all disciplines has been remarkable," Mr. Roth said.

On the media front, programmatic ad technology continued to be a focus, but Mr. Roth warned against "losing sight of the fact that what we ultimately provide to marketers is a consultative service and insights."

"We're seeing a tremendous focus on allocating media dollars and where it should go," he said. "We've certainly seen an impact on TV," he added, referring to networks' recent difficulties as more marketers shift media budgets toward digital. As a result, IPG and Mediabrands will continue to invest in tools for planning and real-time buying, including programmatic tech, he said.

The company did better than in 2013, for which it had reported organic revenue growth of 2.8% and a decline in net income of more than 40%.

But last year was also unpredictable for the holding company, which last week announced that it would replace two directors on its board with three new directors. The move appeared to be a win for activist investor and IPG shareholder Elliott Management, which last summer disclosed it had taken the equivalent of a 6.7% stake in the company and sought "constructive dialogue" with IPG's board on "steps to maximize shareholder value." People familiar with Elliott expected the firm to push for an IPG sale.

"Looking to 2015, we believe the tone of the business is solid, yet there remains macro uncertainty relating to both the currency environment and Europe," said Mr. Roth in the statement.

For 2015, the company is targeting 3% to 4% organic revenue growth, and another 80 to 100 basis points of operating margin expansion, he added.

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