Earnings report: Havas reports 8.1% decline in revenue for first quarter

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The first-quarter earnings season limped along as two more agency holding companies reported lower revenue but higher hopes for a recovery.

Havas Advertising posted $458.6 million in revenue in the first quarter, down 8.1% from the first quarter of 2001, or down 5.5% in organic growth (growth adjusted for currency and acquisitions). Meanwhile, Grey Global Group reported improved profits even as it showed a 6.3% drop in both revenue and billings.

While both had lower revenue, they scored in the middle of the agency pack in first-quarter organic revenue growth. Jacques Herail, Havas' chief financial officer, noted that while Havas fell short of Omnicom Group's 3.7% organic growth, it was ahead of WPP Group's 9% organic drop and Interpublic Group of Cos.' 13.8% drop.

Havas' North American revenue-46.9% of its total-was down 8.2% on an organic basis, while Europe-46.2% of revenue-was down 4.7%; Asia Pacific and Latin American revenue were up 12.2% and 5.9%, respectively. Traditional advertising revenue fell 8.1% to $168.1 million; media and marketing services revenue dropped 4% to $290.5 million.

Havas, parent of Euro RSCG Worldwide and Arnold Worldwide Partners, reported $517.1 million in net new business for the quarter, 53% of which came in marketing services. Chairman-CEO Alain de Pouzilhac noted that does not include Euro RSCG's recent win of the $430 million Reckitt Benckiser account.

In a conference call with analysts, Havas executives affirmed they expect an advertising rebound later this year and are concentrating on integrated-marketing offerings to gain more share of existing clients' budgets. Bob Schmetterer, Euro RSCG chairman-CEO, said the company is "perhaps more focused on organic growth this year."

Mr. de Pouzilhac said Havas is "not focused on major acquisitions" this year, which addressed rumors that management felt pressured to seek deals after rival Publicis Groupe in March agreed to acquire Bcom3 Group.

"We are ruling out any major acquisitions this year to stay focused on our clients and on our new business," Mr. de Pouzilhac said.

That comment was well received by analysts, some of whom upgraded the stock after the call. Tom Deitz, at Merrill Lynch & Co., London, upgraded Havas on what he called a "valuation call." He noted its stock price had been depressed by speculation that it would spend on a large acquisition-which the company has now denied-and by troubles at WorldCom, a client that he estimated represents 1% of Havas' revenue.

Grey, which had been rumored as a possible Havas target, reported first-quarter net income of $4.3 million, a sharp upswing from the $245,000 posted a year ago. Earnings per share jumped to $2.92 on a diluted basis from 27 cents in 2001. Revenue and billings fell 6.3% to $285.6 million and $1.9 billion, respectively. Management attributed the improved income to cost controls over the last year.

Grey's stock hit a 52-week high of $751 on May 10. That is just short of its all-time high of $759.71 hit March 7, 2001, when rumors of Interpublic's acquisition of True North Communications fueled interest in Grey as a possible takeover candidate.

Such spikes happen occasionally to Grey's stock, mainly due to institutional-investor activity, said Abe Jones, managing director of Ad Media Partners, a New York investment bank.

Grey's stock is thinly traded, since most is in the hands of management. With such a small float, even small transactions tend to move the price sharply.

contributing: lisa sanders

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