Analysts skeptical: Interpublic makes some progress

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Interpublic Group of Cos. seemed to turn a corner in its second-quarter results, but still trails rivals and may have to make more operational changes to further improve.

In a conference call, President-CEO David Bell pointed to the organic growth as evidence that a labored year-old restructuring plan is working. But he cautioned that "we've consistently communicated that there would not be linear improvement every quarter."

Some analysts were skeptical, however. Lauren Rich Fine, advertising analyst at Merrill Lynch & Co., said the results were disappointing and noted Interpublic still trails its peers.

Mr. Bell admitted one of Interpublic's main targets is to close the gap with its rivals, adding the company is working to shore up trouble spots such as its European operations and weakness in the domestic operations of its Foote Cone & Belding network.

But he quashed talk of breaking up the company, a topic that has been floated among financial insiders as a possible solution to its woes. Smith Barney analyst William Bird wondered if the company may consider it, given its already decentralized nature.

"There are enormous consolidations to be made in a number of key areas" at the holding company, Mr. Bell said. But he added that "the breakup of the company is not on our horizon, nor do we think it's appropriate. We think our assets are strong, our position is strong."

Interpublic posted a net loss of $5.4 million for the quarter, down from $13.5 million in 2003. Revenue increased 3% to $1.54 billion for the quarter, thanks to strong performance across the board in the U.S., offsetting weakness in Europe. On an organic basis-factoring out currency exchange rates and acquisitions-revenue was up 0.3%, the first increase since the recession started in the first quarter of 2001. Organic revenue growth of 2.3% in the U.S.-which makes up 56% of Interpublic's total revenue-offset a 6% drop in European organic growth.

Revenue increased 3.1% in the U.S. during the quarter, while European revenue was up 1%. Although there is "some gathering of steam at McCann Erickson Advertising," Mr. Bell said European results will likely struggle for some time. Separately, Asia rose 17.6% and Latin American revenue fell 4.7%.

The quarterly results reflected an $80 million charge related to Interpublic's exit from its motorsports business, but the charges related to the restructuring are tapering off, said Chief Financial Officer Robert Thompson.

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