Interpublic's Roth: Disconnect Between The Market, Business

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Interpublic Group CEO Michael Roth echoed the comments of other holding company CEOs this week, telling attendees at a New York media conference that his company was seeing "no major pullbacks" in ad spending from clients amid the turbulence buffeting the global economy.

"There's a disconnect between the market and business," he said, suggesting that while the market worries and speculates, businesses are holding firm to 2011 budgets.

Given what he's seen and heard from clients so far, Roth, speaking at the Goldman Sachs Communacopia Conference Thursday, said there was "no reason we can't achieve" previously issued financial guidance of attaining between 4% and 5% organic revenue growth and 9.5% profit margins for full-year 2011.

The U.S. ad market remains as stable as it has been all year, said Roth, while Europe remains somewhat soft. Other parts of the world continue to hum along at a double-digit growth pace, including India, China, Brazil and South Africa.

That said, as other CEOs at the conference noted, "there is uncertainty, so you have to be concerned." He added that during the last downturn, advertisers did not begin cutting advertising until well into the fourth quarter of 2008. There's no indication yet that the pattern will repeat.

A msjor difference between then and now is that advertisers did not have access to capital markets and were strapped for cash. That is no longer the case.

For IPG, the current concerns translate to paying strict attention to costs and headcount. Employees account for about 62% of company costs, and Roth said he wants that figure reduced to 60% "or better."

Roth said improving IPG's margins remains a key priority for the company, with a goal of reaching a 13% margin -- in line with what competitors are currently achieving -- by 2014. Roth cited the underperforming Lowe agency -- and what the company has done with it -- as one example of steps the company can take to help achieve that goal.

Interpublic has closed nearly 50 offices around the world, many of which were in the Lowe network. The agency, which was losing money, is now profitable again and is "on track" to reach the margin goals set by the company.

Another step the company is taking is maximizing cost efficiencies. Digital production in particular is very labor-intensive, and "a lot of it is going offshore," said Roth. RG/A, for example, has created a production facility in Romania. McCann Erickson has also created some production facilities outside the U.S., he noted.

Certain businesses are also higher-margin operations, like consulting businesses -- which presents opportunities for a number of IPG agencies, said Roth.

But the broader strategy, said Roth, revolves around an integrated offering that provides clients with everything from creative and media services to digital, mobile, social media and PR. If a particular agency or network needs to fill a gap in its offering for one or more clients, "it should be able to go to the holding company for it. That's what the holding company brings to the table."

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