Interpublic Revenue Grows, but Net Income Declines as Europe Underperforms

'Strategic Cost Reductions' in Europe to Deal With Problem

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Total revenue at Interpublic rose 2.4% to $7.1 billion in 2013, the agency holding company said Friday. Organic revenue grew 2.8%, the company said. Fourth quarter organic revenue grew faster, at a rate of 3.7%.

But net income for the year was $259.2 million, down 40.4% from $435.1 million in 2012. Net income for the fourth quarter fell to $193.1 million, down from $313.3 million in the prior year, amounting to a 38.3% drop.

Interpublic, which owns agency networks like McCann and DraftFCB along with media agencies such as Initiative, is the fourth largest agency holding company by revenue, following WPP, Publicis Groupe and Omnicom. But Publicis and Omnicom are planning to merge, creating a new No. 1 that will last a longer shadow over the rest of the field.

Michael Roth, Interpublic's chairman and CEO, blamed the company's drop in profit on Europe, which has also been a weak spot for other agency companies reporting results this week.

"We are pleased to report a quarter of solid growth, led by outstanding U.S. performance. This brought our full year organic revenue increase to 2.8%," Mr. Roth said in a statement ahead of an earnings call with analysts. "Our results in Europe fell short of expectations, which had a major impact on overall profitability. We've taken strategic cost reductions targeted at this issue, which are reflected in a fourth quarter restructuring charge. Going forward, the strength of our agencies and our competitiveness on the new business front position us well for improved growth, so we are targeting a 3-4% organic revenue increase and 10.3% or better operating margin in 2014."

Company results include a $60.6 million charge for restructuring, primarily related to continental Europe, Interpublic said.

Mr. Roth said during the call with analysts that the restructuring was an "investment to align costs with revenue in Europe following a year of significantly lower-than-anticipated revenue."

"You will recall that on our previous conference call, in October, we indicated that we were considering Q4 actions to address this region," he said. "We anticipate savings from these actions of approximately $40 million in calendar year 2014."

The company has taken other steps in Europe as well, Mr. Roth said. "Business conditions remain challenging and we have taken important steps to strengthen our offerings in the market, including new senior hires and recent agency acquisitions, such as Profero, a leading U.K.-based global digital agency and Inferno, a respected integrated agency in London," he said.

Full-year organic revenue in the U.S. was up 3.7%, driven by net new business with clients won during the year and growth with existing clients, the company said. Organic revenue ticked up 1.7% abroad, it said, primarily in the Asia Pacific and Latin America regions but across marketing disciplines.

The company reported fourth quarter revenue of $2.12 billion, compared to $2.06 billion in the fourth quarter of 2012, with an organic revenue increase of 3.7% as revenue grew by 6.9% in the U.S. and by 0.5% internationally. Mr. Roth said that standout clients in the quarter came from the auto, retail, healthcare, and food and beverage categories.

The company saw strong U.S. performances from its media business, digital agencies and marketing services specialists in its Constituency Management Group, particularly the PR shops, which it said continue to gain market share. Its U.S. integrated independents such as Mullen, which won Acura last year, performed well, Interpublic added.

Mr. Roth also called out DraftFCB's CEO Carter Murray, who joined in September and has made a number of changes. "DraftFCB has also shown the positive impact of talent upgrades across the network, in offices such as Shanghai and New York, as well as capabilities, like strategic planning and a new agency CMO," he said. Mr. Murray recruited creative exec Lee Garfinkel to run the New York office and hired Publicis veteran Chris Shumaker as CMO. The agency recently picked up the Levi's account, which it is handling with House Worldwide, and said this mornign that it had picked up work for real estate website Trulia.

McCann has "become an attractive destination for top talent," Mr. Roth said, citing former CP&B chief creative Rob Reilly, who will join in March as global creative chairman, and touting assignments from existing partners like General Motors and newer assignments such as the U.S. Postal Service, Lockheed Martin and Zurich Insurance.

Mr. Roth said that the holding company is beginning 2014 with solid momentum in revnue. "Compared to this time a year ago, our businesses are also seeing an improved climate for marketing investment in many key consumer markets," he said.

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