Interpublic Shows Improved Quarterly Results

Earnings Loss Narrows as Execs Point to Restructuring Plan

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NEW YORK ( -- Interpublic Group of Cos. seemed to turn a corner in its second-quarter results, with reduced losses and restructuring charges as well as its first organic revenue growth since 2001.

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 0.6%, the first increase since the recession started in the first quarter of 2001. Organic revenue growth of 2.3% in the U.S., where 56% of Interpublic's total revenue comes from, offset a 6% drop in European organic growth.

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

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 ad network McCann Erickson Worldwide, Mr. Bell said European results will likely struggle for some time, until changes made as part of the restructuring take hold. Separately, Asia rose 17.6% and Latin American revenue fell 4.7%, a slowdown executives blamed on drops in the Brazil and Venezuela markets.

The quarterly results still reflected an $80 million charge related to Interpublic's exit from its motor sports business, but the charges related to the restructuring are tapering off, said Chief Financial Officer Robert Thompson. Interpublic only booked $2 million in restructuring charges during the quarter and expects less than $3 million in the third quarter, he said.

Employee headcount
Analysts noted the company's employee headcount has been creeping upward in recent quarters; executives countered that employment highlights the company's growth and new-business wins. But they would not rule out future layoffs. Mr. Thompson said the company would "look at markets that aren't growing and be more aggressive in terms of headcount reduction."

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

Breaking up IPG?
Mr. Bell admitted one of Interpublic's main targets is to close the gap with its rivals, but 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 that option, given its already decentralized nature.

Mr. Bell said, "The breakup of the company is not in our horizon, nor do we think it's appropriate. We think our assets are strong, our position is strong and we are focused on doing the ... work that is necessary."

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