Bloomberg News

Publicis Shares Drop on Lower Forecast for Ad Industry Growth

October 20, 2011

Oct. 20 (Bloomberg) -- Publicis Groupe SA, the third- largest advertising agency, said that growth in the industry may decline this quarter, hurt by a slowing global economy. The company’s shares fell the most in a month in Paris trading.

The ZenithOptimedia unit, which buys ad space for clients, has cut its industry growth forecast for 2011 from 4.1 percent to 3.6 percent. The slowdown might appear in the fourth quarter, Paris-based Publicis said in a statement today. Publicis shares fell as much as 4.3 percent, the biggest intraday decline since Sept. 22.

“In the weeks to come, the next four or five weeks, clients may cut more heavily because if the sales and the profit are not there, they will cut massively the media expenditures,” Chief Executive Officer Maurice Levy said in a video on company’s website. “This is a phenomenon that we are familiar with because every year they are using marketing expenditures as an adjustment to their profit.”

Publicis, which owns the Leo Burnett and Saatchi & Saatchi ad agencies, made acquisitions in China and Brazil and expanded its digital marketing business to tap high-growth markets. Still, investors may be concerned that the industry faces slower growth in 2012 and emerging economies will be affected, said Simon Wallis, an Amsterdam-based analyst for ING Bank.

“The economic data in developed markets has been weak and there’s a risk that the weakness impacts some of the emerging markets,” said Wallis, who recommends investors buy shares of Publicis and doesn’t own any. “The agencies have gotten both an emerging market and a digital angle, which are two of the factors that have been helping them do better than most.”

Publicis traded 3.7 percent lower at 33.62 euros as of 10:43 a.m. The stock has dropped 14 percent this year.

Contract Wins

Third-quarter revenue grew 7.5 percent to 1.42 billion euros ($1.94 billion), the company said in today’s statement. Analysts in a Bloomberg survey had estimated sales at 1.4 billion euros. Excluding acquisitions, revenue rose 6.4 percent.

The company, whose clients include Microsoft Corp. and Walt Disney Co., last month won a deal valued at as much as 400 million euros annually to handle the marketing for chocolate maker Ferrero SPA.

In the third quarter, Publicis also won business from fast food chains Burger King Holdings Inc., McDonald’s Corp. and Yum! Brands Inc.’s Pizza Hut, as well as Carlsberg A/S, Mars Inc. and Nestle SA’s Nescafe.

“We are well on the way to fulfilling our goals for the digital sector and emerging markets,” Levy said in the statement. The company posted growth in all regions and expects “healthy growth” for the rest of the year, although an economic slowdown linked to sovereign debt concerns is now “visible to all,” he said.

Bellwether Report

Industrywide, marketing spending increased in the third quarter as companies promoted new products and offerings, according to the Bellwether Report, an advertising budget survey produced by the Institute of Practitioners in Advertising.

Still, companies are increasingly pessimistic about their outlook as economies worldwide struggle with debt and jobless rates that threaten the economic recovery, IPA President Nicola Mendelsohn said in the report.

Levy said in July that the company would prioritize margins, which declined in the first half amid the acquisition and hiring spree.

London-based WPP Plc and Omnicom Group Inc., headquartered in New York, are the largest and second-largest ad companies.

Omnicom said third-quarter sales advanced 13 percent from a year earlier to $3.38 billion.

(Publicis will hold a conference call at 12 p.m. Paris time to discuss results. To access the call, go to www.media-server.com/m/p/o4332mox.)

--Editors: Robert Valpuesta, Kenneth Wong.

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus