Big gain in quarter for top holding companies

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Agency holding companies cruised through the first quarter at full sail and show no sign of losing their momentum.

The conglomerates each posted double-digit revenue growth and strong new-business gains for the quarter. The Big 3--Omnicom Group, Interpublic Group of Cos. and WPP Group--each had revenue increases of 20%, while smaller holding companies--such as Snyder Communications and Young & Rubicam--grew at only a slightly slower pace.

"No one's feeling any pain," said Lauren Fine, an analyst at Merrill Lynch & Co.

Even more impressive is that a large portion of the revenue increases came from account growth, not acquisitions, Ms. Fine added. She calculated Omnicom's revenues, excluding acquisitions, still grew 14.8%, while WPP's were up 14% and Interpublic's rose 13.3%.


Ad agencies had an outstanding new-business streak in the fourth quarter of 1999, which now shows in their revenues, Ms. Fine said. Those results are "remarkable," considering it is late in this economic cycle, she said.

"Clearly, industry conditions are very good," agreed Jim Dougherty, an analyst at Prudential Securities.

Omnicom's revenue rose to $1.38 billion, from $1.15 billion in 1999. Net income shot up 119% to $143.5 million during the quarter, due to the sale of part of the company's stake in interactive shop Razorfish. Adjusted for the $110 million gain from the Razorfish sale, net income still rose 22% to $79.7 million for the quarter.

Interpublic's revenue rose to $1.1 billion from $908 million in 1999 and net income rose 27% to $57.1 million, despite $36.1 million in restructuring costs from a merger with Lowe Lintas & Partners Worldwide. Interpublic agencies brought in $702 million in net new business during the quarter, a 17% increase from $601 million in 1999.

WPP's first-quarter revenue rose to $879.3 million, aided by the recovery of economies in the AsiaPacific region and Latin America. Net new business for the quarter rose to $878 million, up 19% from 1999.


Young & Rubicam, the subject of merger talk during the quarter, posted $448.3 million in first-quarter revenue, up 16.8% from 1999. Excluding acquisitions and adjusted for currency fluctuations, revenue still grew by 11.2%, thanks to more than $440 million in net new business, an 80% increase on the previous year.

Snyder Communications--whose own merger with Havas Advertising got a green light from U.S. regulators April 20--reported revenue rose 18% 1999, to $157.3 million, adjusted for the 1999 spinoffs of its Ventiv Health and units.

True North Communications won't report results until May 4, but a tally of analysts' expectations by Zacks Investment Research service puts its average expected earnings per share at $0.15, an increase of 53.3% over 1999.


True North had struggled with integrating its two networks, FCB Worldwide and Bozell Worldwide, since its 1998 merger with Bozell Jacobs Kenyon & Eckhardt. With the integration of FCB and Bozell into a single international agency, new business has picked up and results have improved, Ms. Fine said.

"They're back on the map. They're invited to pitches and morale is back," she said.

The federal government reported Gross Domestic Product and wages up 5.4% and 1.4%, respectively, in the quarter, the highest quarterly growth in more than 10 years. Fueled by higher wages and low unemployment, consumer spending rose 8.3% in the quarter, the biggest jump in 17 years.

Investors in agency stocks were concerned about whether the conditions of 1999 would continue, but the economy's fundamental strengths are expected to persist, Mr. Dougherty said.

In December, Robert Coen, McCann-Erickson Worldwide's senior VP-forecasting, projected that U.S. ad spending will rise 8.3% this year. Spending will hit $233 billion, thanks to the continued growth of the economy, the Olympic Games and the election, Mr. Coen said. He also projected Internet ad spending will grow by 75% to $3.2 billion as the industry continues to grow.


The healthy trends online and offline are expected to continue, in spite of stock market swings and interest-rate hikes expected in the next two months, industry observers said.

"My guess is the next quarter will still look good. I don't see any cliffs out there," Ms. Fine said.

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