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March 23, 2006
Will IPG Ever Emerge From The Accounting Sewer that Is Phil Geier's Legacy?
IN the 1990s, the word around Wall Street was that IPG chairman and CEO Phil Geier was a sort of Zen master of business, the ad industry, financial management, etc. If Phil was doing it, it must be okay. IPG was on lists of stocks to buy and hold hold hold for the long term.
Interpublic Group this week reported a net loss of $289 million for 2005, an improvement from a net loss of $558 million for the previous year. IPG ended last year with revenue of $6.3 billion, down 2 percent from 2004.
IPG also re-stated downward its net income results for the first three quarters of 2005, which had been reported in September. The $14.1 million restatement stemmed from the "accounting for a number of smaller items identified as part of the company's extensive 2005 financial review process," IPG said.
IPG CEO Michael Roth described 2005 as "challenging and complex." he added: "The organic revenue decline was marginal and we will continue cycling through a number of client losses during the next two to three quarters." Major losses booked in the second half of 2005 included Bank of America and General Motors' media duties.
For the fourth quarter of 2005, IPG recorded a net loss of $34 million, down from a net profit of $125 million in the same period a year earlier.IPG attributed the loss, in part, to a $92 million asset impairment charge related largely to a write-down of goodwill at Lowe. The Lowe charge was triggered by account losses.
In addition, IPG says it won't achieve compliance with the federal Sarbanes-Oxley accounting standards in 2006, as previously suggested. IPG is still trying to implement new financial procedures and controls, and as such, continues to have material weaknesses.
And in another set-back, another financial mind at IPG said, "No mas." Nick Cyprus, controller and chief accounting officer at IPG, announced his departure. IPG has had to change accountants and CFOs as often as I change my cat's litter box. Okay...I exagerate, but you get the idea.
IPG is still bailing water from the disastrous management of Geier in the last fouyr years or so if his tenure at IPG during which he assembled hundreds of businesses around the world seemingly without a clue as to how the financial management and reporting structures of ad agencies and other small firms in the Eastern block, Italy, Spain, South America and Asia were all going to funnel back to the U.S. in any kind of legitimate way.
In other words...do you have any idea how many ways the owner of a Turkish ad agency has to game the books? Now multiply that by hundreds and you start to roughly see the awful challenge CEO Roth has to put this thing back together.
A five-year trajectory of IPG stock: It was at a moribund $35 five years ago. It's at $10.28 today. Some stock to hold.
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