IPG sees 'unbelievable' growth in Q4; didn't see CPG ding

Advertising holding company IPG posted a strong fourth quarter Wednesday, reporting organic growth of 7.1 percent in the quarter

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Michael Roth
Michael Roth Credit: Composite by Ad Age, Photo by Denis Doyle/Bloomberg

Advertising holding company Interpublic Group of Cos. posted a strong fourth quarter Wednesday, reporting organic growth of 7.1 percent in the quarter — a figure that outpaced those of competitors Omnicom and Publicis, who also reported earnings in the last week.

That organic growth figure doesn't include growth of Acxiom's Marketing Solutions business, which IPG officially acquired in October of last year.

The holding company saw organic growth for full-year 2018 of 5.5 percent, above its latest target of 4.5 percent. Fourth quarter 2018 net revenue was $2.41 billion compared with $2.13 billion the year prior; while full-year 2018 net revenue was $8.03 billion, compared with $7.47 billion the year prior. JP Morgan's Alexia Quadrani called the revenue growth in the quarter "unbelievable" and said the quarter was impressive.

"It's clear that despite a challenging revenue environment, we posted growth that was well ahead of the industry average," chairman and CEO Michael Roth said on the earnings call.

Future quarters, though, will reflect the loss of major accounts at the end of 2018 — notably McCann's loss of the U.S. Army account and UM's loss of Fiat Chrysler's media account. On the earnings call, Roth said the holding company expects to reduce headcount and exit real estate in the quarter due to those account losses.

"These cost actions will result in a charge to Q1 earnings, which has not yet been finalized, though we currently anticipate that it will be in a range of $30 to $40 million," he said.

One analyst asked about press around aggressive pricing from competitors and whether that was having an impact on where new business was going. Ad Age reported in December that FCA had sought extended payment terms of at least 120 days for its media agency (The account eventually landed with Publicis Groupe's Starcom).

Roth said that though companies that have "issues" might seek new business to signal strength, agencies have to be appealing enough to even get to the pricing stage.

"Let's not forget you don't get to pricing unless you have the capabilities to get there," he said. "When it comes down to pricing, there are circumstances where for strategic reasons, some of our competitors may view this as an opportunity to gain market share or put a win on the board. And sure, to the extent that some of our competitors are lacking revenue as reflected in their results, that's a way of doing it."

"I think we'll see it on their future performance in terms of how their growth goes and how their margin expansion flows through," he continued. "I think you'll be able to tell which of the businesses are doing it and which aren't. On a long-term basis, the rubber is going to hit the road. You can win a quick business by buying it, but it's going to be reflected in the margins."

Publicis Groupe, in its fourth-quarter earnings last week, said it saw "higher-than-expected attrition in traditional advertising" of $170.4 million last year, mainly from several consumer packaged-goods clients in the U.S.

IPG didn't appear to have that problem.

"We did have a pickup in consumer goods," Roth said. "Consumer goods is 8 percent of our business and we had some client wins, so we're fortunate in our clients in the consumer goods space which frankly accounted for good growth for us on a year-to-year basis."

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