Despite 13% Drop in Income, Management Sounds Upbeat Tone

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NEW YORK (AdAge.com) -- Even as it reported mixed second-quarter results, WPP Group management sounded its most optimistic note in two years.

The parent company of ad networks Ogilvy & Mather Worldwide and J. Walter Thompson Worldwide posted net income of $157.1 million for the first half, down 13.4% from the same period last year. But in a conference call with analysts today, management said U.S. revenue continues to grow and some markets in Europe are showing signs of improvement in recent months.

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ago? I'd say yes," WPP's chief executive, Martin Sorrell, said. "I don't want to give the impression that this is a frenetic pace. It isn't. But it's certainly a pickup from where we were."

Mr. Sorrell -- long considered the biggest bear in the business -- noted encouraging revenue trends for the first half of the year and July. U.S. revenue rose just above 1% on an organic basis after factoring out currency and acquisitions, which was offset by a similar decline in international revenue. Those results match the reports by other major holding companies earlier this month, which also saw the U.S. market grow in the second quarter.

Dollar fluctuations
Like most holding companies, WPP's revenue trends were affected by the continued weakness of the dollar against the British pound, which cost WPP more than four percentage points in revenue growth for the first half. Reported revenues dropped 2.5% to $14.3 million, but rose 1.8% after factoring out the exchange rate.

Total revenue was flat for the first half on an organic basis, and rose 2% in July, the company's group finance director, Paul Richardson, said.

Mr. Sorrell, who has repeatedly referred to this downturn as a business-to-business recession, noted that companies have begun to increase their capital expenditures. Merger and acquisition activity has also begun to perk up, another encouraging sign, he said. "In some ways, we are seeing the beginning of a business-to-business recovery," Mr. Sorrell said.

Boosting sales
Additionally, he noted clients have begun to focus on increasing sales, which bodes well for marketing spending.

"Clients are starting to focus more on the top line," Mr. Sorrell said. "There are some signs of an increase in innovation and new product activity."

Separately, Mr. Sorrell said the integration of Cordiant Communications Group is "going pretty well," after closing the deal to acquire the trouble ad company in early August. He said WPP has already consolidated the European business of Bates Worldwide into WPP's Red Cell unit, and into JWT in the U.S. and London, while leaving Bates on its own in Asia. The Healthworld health-care unit and design agency Fitch Worldwide will be retained as separate brands, positioned alongside WPP's existing firms.

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