IPG expects 2023 to be flat following third quarter organic revenue decrease

Interpublic Group of Cos. posted an organic net revenue decrease of 0.4% for the third quarter, which CEO Phillippe Krakowsky attributed to factors including a "decrease in client activity" and underperformance of digital specialist agencies. The Verizon loss at McCann also impacted results. IPG also predicted approximately 1% organic growth in the fourth quarter and adjusted its full-year guidance to be flat for the full year. In the last quarter, IPG’s full-year guidance was between 1%-2%. Net revenue (which includes non-operating benefits such as foreign exchange rates and revenue from recent acquisitions) grew by 0.6% in the quarter to $2.31 billion. Check out the latest Ad Age events and award programs After first addressing the ongoing conflict between Israel and Hamas, Krakowsky started his investor call by stating that the holding company’s revenue did not “measure up to expectations.” Concern with macroeconomic conditions “The same factors that we’ve discussed as having impacted the first half of the year continued to weigh on the third quarter,” Krakowsky said. “These are, in order of magnitude, the decreases in client activity in the tech and telecom client sector—which have been evident across our industry this year—and the underperformance of our digital specialist agencies.” Decreases in both areas weighed on third-quarter growth by approximately 3.2%, Krakowsky said. While the holding company posted “strong growth” by its media offerings, it was “largely offset" by challenges in its digital agencies, Krakowsky added. A third factor Krakowsky called out: a “broad concern among marketers related to macroeconomic conditions.” “Economic concerns have translated into what is now an unmistakably more cautious tone in the business. We saw those headwinds take several forms, including pauses in certain planned activities, fewer and generally smaller project opportunities, and a slower-than-anticipated pace in conversion and onboarding of new business,” Krakowsky said. Although the numbers echo the same challenges IPG faced last quarter, Krakowsky mentioned some silver linings in the results and said that the company expects new business won in the first part of the year will be more visible in the results moving forward. Notably, IPG recently won General Mills’s global media account. “We did see progressively better performance from month to month during the third quarter, with growth in September," Krakowksy said. "We also saw aggregate growth among our top 20 clients in the quarter.” Six of IPG’s eight client sectors grew during the quarter. There was a slight revenue decrease in the retail sector and the telecom sector “decreased in the high teens,” said Krakowsky, attributing it to a “significant client loss at McCann.” WPP's Ogilvy was recently named the lead creative agency for Verizon, which had been a longtime client of McCann. Other IPG agencies on the Verizon roster include R/GA, Golin, MRM and Momentum. 'Ramp up the urgency' Krakowksy said the agency will be looking at structural solutions to improve growth in underperforming areas. He noted an urgency to find solutions for the digital agencies, which he said had been most impacted by the tech sector. “We clearly have to ramp up the urgency on this front and be open to a broader range of solutions. And of course, those are conversations that involve the leaders of those operations as you'd expect and that are ongoing,” Krakowsky said. Krakowsky added that looking at strong-performing assets in the health care and media space could provide a framework for those digital agencies. "If you look at our strongest performers across the portfolio ... whether it's health care or Mediabrands, you have a coordinated approach to how you go to market, you benefit from scale. You're looking for ways to share complementary skill sets and identify very clearly where the centers of excellence sit across multiple units. And I think it's all in the service of making it simpler for clients to engage with us,” Krakowsky said. FCB is standout Overall, IPG’s Integrated Advertising and Creativity-Led Solutions segment, which includes all its creative agencies, decreased by 4.1%. FCB was an exception in the quarter, with a strong performance due to the agency’s “strategy of incorporating data-informed, audience-led thinking into its core creative offering,” Krakowsky said. IPG’s Specialized Communications and Experiential Solutions segment grew 6.5% organically. IPG also saw growth in sports and entertainment, experiential and public relations. Its Media, Data, and Engagement Solutions segment grew organically by 50 basis points. The U.S., which compose 65% of IPG's revenue, saw an organic decrease of 1.2% in the third quarter. International revenue growth was 1.1%. Overall, Krakowsky admitted that while there were some highlights, particularly in the health care and media segments of the business, even those areas didn’t perform as expected. “While health care did grow in the quarter across the category, it was not at the level we had anticipated. However, with new business coming online stronger in Q4, we do see health returning to its more typical rate of revenue growth,” Krakowsky said. Subscribe to Ad Age Sign up now for the latest industry news and analysis Click here Krakwosky pointed to its merger of Matterkind and Reprise (both media agencies specializing in tech) into Kinesso (a tech-driven performance agency) as an example of what a simplified solution for clients could look like. He also pointed to continued investments in AI, which is led internally by an AI steering committee. AI “is an investment priority,” Krakowksy said. “There's so much demand for content at this point, given how many channels there are and how complex the consumer journey is across a just incredibly fragmented tech ecosystem, that we still see opportunities to also have it be a revenue generator.”

IPG expects 2023 to be flat following third quarter organic revenue decrease

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