Call it Publicis Groupe’s September Surprise. According to company CFO Jean-Michel Etienne, the Paris-based holding company had expected to
achieve more than 6% organic revenue growth for both the third quarter and the month of September.
Organic growth is a key performance indicator for advertising and marketing companies, and September turned out to be a big disappointment for Publicis Groupe. Organic revenue actually dropped for the month by 1.6%, dragging down the company’s entire third-quarter growth to just 2%.
“It was an unexpected decline,” Etienne told attendees at the UBS media conference in New York Tuesday morning. A number of factors led to the drop, but Etienne said the biggest surprise was the delay in the start of a number of projects the company believed would begin in September.
But for many client-specific reasons, much of the work did not kick in until
a month later. The October financials showed improvement, with organic growth up 7%. “That was most of the problem,” said Etienne. “The issue is now behind us.”
Others remain. Etienne cited continuing weakness in the company’s auto and retail businesses, due largely to the loss of General Motors and J.C. Penney assignments.
Also, much of Europe continues to be a drag on the company’s performance -- year-to-date organic revenues in the region are down 5.4%. “We are not expecting a recovery in Europe in 2013,” Etienne said.
On the positive side, digital and faster-growing markets are helping to offset weakness elsewhere. Digital assignments now account for about one-third of the company’s overall revenue; organic growth in that space was 7.5% for the first nine months of the year. Emerging markets were up 6.3%.
But most of the company’s growth from 2007 to 2011 came from acquisitions, Etienne noted. During that time, the company spent nearly $3.8 billion to acquire 70 agencies. On average, the profit margins of those agencies were 11% at the time of acquisition, and the company has boosted those margins to an average 17.3%. The company’s acquisition strategy, said Etienne, “is paying off.”
The company’s $530 million purchase of Amsterdam-based LBi is expected to close in January of next year, Etienne said. Going forward, the company expects to make “a lot more” smaller agency purchases. It purchased AR New York, an agency that specializes in marketing luxury goods. Terms were not disclosed.
As for 2013, Etienne said the company was still budgeting; he could not offer a specific growth estimate for the company.