Fourth Quarter Outlook: Cloudy With a Chance of Retail, Food Spending
The ad economy is poised for a boom in the fourth quarter -- that is , if you are in the local TV business in a swing state. You're not? Well, fasten your seat belt. You're in for a bumpy ride for the remainder of the year.
Perhaps the best way to describe the prospects for the fourth quarter is uneven. While advertisers are continuing to spend, they are doing so inconsistently and opportunistically.
The country's second-largest advertiser, General Motors, for example, is trimming its budgets overall but spending for launches such as for the upcoming Cadillac ATS. After reviewing the earnings calls of 100 different advertisers, Barclays analyst Anthony DiClemente concluded that some of the country's biggest packaged-foods marketers have expressed intentions to boost ad spending -- to take advantage of lower commodity costs.
"You're going to see Heinz spend in marketing like you've never seen us before," Meg Nollen, senior VP-investor relations, told analysts in August. And on Friday, Tony Vernon, CEO of Kraft Foods' new standalone North American grocery business, pledged to increase ad spending by squeezing costs in areas such as the supply chain. "We can and we must do more to support our brands," he said, though he didn't provide concrete percentage increases.
Fresh off spending $83.8 billion in a back-to-school outlay, according to a National Retail Federation estimate, retailers are looking to economize for the crucial holiday season. And marketers like McDonald's in highly competitive categories feel they have no choice but to keep up their outlays to fend off rivals hungry for market share. "There is an increase in terms of marketing spend by many of the folks in our competitive set, and we have to clearly be able to make sure that our strength of voice and share of voice is still resonating with consumers," said McDonald's president and chief operating officer during a second-quarter earnings call.
All told, it is this year's mega events, the Olympics and the elections that have largely provided momentum. The watchword for the fourth quarter is caution, with the industry casting leery glances toward Washington.
"Advertisers are putting money away to deal with the fiscal cliff," one magazine executive said.
The cliff referred to is a combination of tax hikes and spending cuts slated to simultaneously take effect on Jan. 1 - -including a package the Congressional Budget Office projects will shrink the economy by 1.3% in the first half of next year -- unless Congress does something.
"Maybe on Dec. 31, everyone in Congress smokes cigarettes together and gets it done, but Fortune 500 and Fortune 1,000 companies can't bank on that ," the executive said. And failing a resolution, "advertising is an easy thing to cut."
TV is getting more than its fair share of ad dollars -- local, thanks to political spending, and national venues as well, said Ed Atorino, a media analyst for Benchmark Co., who thinks consumer-products companies are moving some money previously earmarked for social media into TV. "A lot of companies tested it and it turned out, particularly for some, [that ] it helps out brand identity but it doesn't really sell stuff."
Facebook will collect only $4.2 billion in global ad revenue this year, eMarketer said in August, reducing its estimate from $5 billion. Still, that has other media players feeling encouraged. "It's the first time you've heard anything bad about Facebook in four years," one media seller said. "That's a good thing for anybody who's not Facebook and trying to get advertising."
Digital display advertising hasn't experienced a bounce yet this year. Investments in this category by domestic automakers have been soft, according to a senior sales executive at one of the country's biggest websites. And the fourth-quarter outlook within the crucial retail advertising sector is still uncertain, with one digital executive noting that more and more digital buys occur within the quarter. "Forty percent of retail money comes in Q4," he said. "It's a make or break quarter."
Retail marketers are, however, spending on search advertising. Kevin Lee, CEO of search specialist Didit, exepcts 20% growth, helped by Google's turning what were formerly free product listings into paid ads. "Google is taking what used to be free clicks and putting them into a monetized stream," he said.
And while the forecasts for Facebook might have been reduced, social media advertising is providing bright spots for the industry. Jeff Lanctot, global chief media officer at Razorfish, said LinkedIn, specifically, has made great strides in landing pieces of digital budgets. "They've gotten much more mature in their approach to advertisers," he said. In its most recent earnings statement, LinkedIn reported revenue from its marketing products rose 64% from the same quarter last year, to $63.1 million.
Print advertising is expected to not fare as well. Most magazine publishers are anticipating a flattish final quarter in comparison with 2011's fourth quarter results, when ad pages declined 8%.
"Pharma has been bad throughout the calendar year," said Dick Porter, president-media sales at the Meredith National Media Group, which sells ads for brands such as Better Homes and Gardens and Family Circle (see P. 24). He did, however, say beauty was strong -- at least at his company.
One prominent magazine executive said financial advertisers appear to be providing his business the closest thing to a bright spot in the quarter. "If there's more spending anywhere, I would say there's some more in financial, particularly credit cards, to support what they hope will be a good holiday season for them," he said.
Hearst Magazines' November issues just closed with double-digit ad-page gains, based on strong participation from beauty, luxury and food marketers, according to Michael Clinton, president for marketing and publishing director, who also noted resurgent auto spending in enthusiast magazines.
New auto launches and some food companies' "considering putting more weight back into media" might help strengthen the advertising numbers too, but marketers on the whole aren't making sudden changes in speed or direction, the executive said. The bad news from his perspective? "I'm not seeing overt gas," he said. And the not so bad? "I'm not seeing brakes that are unexpected, given what's going on," he added.
Contributing: Ad Age Staff