IPG Takes $60 Million Charge To Address Euro Woes

Interpublic Group took a $60.6 million charge against earnings in the fourth quarter for restructuring costs, primarily related to Europe, where the struggling economy has severely impacted IPG operations.

The $60.6 million is being used to align costs with revenue in the region following what IPG CEO Michael Roth termed a “year of significantly lower-than-anticipated revenue.” Thus, some “tough decisions” were made to cut staff across the region. Much of the charge is related to severance costs for departing staff, most of who will be leaving in the first quarter of 2014.

Roth said the steps taken in Europe would save the company roughly $40 million in calendar year 2014. It will take somewhat longer to recoup the entire charge, said Roth, because severance costs generally are higher in Europe than other regions, such as the U.S.

Europe appeared to be the holding company’s major problem in 2013. Continental Europe posted a 4.3% organic revenue decrease for the fourth quarter and a 5.9% decrease for the full year.

IPG’s net income for the fourth quarter was down 37% to $212.1 million, largely due to the problems in Europe and the steps the company took to address them.  For the full year, net income was down 38% to $288.9 million.

“Business conditions remain challenging, and we have taken important steps to strengthen our offerings in the market,” Roth said of the European region -- “including new senior hires and recent agency acquisitions,” such as UK agencies Profero and Inferno. In addition to staff cuts, the company has also hired new leadership in the region, across management, strategic and creative functions, Roth said.

Other regions performed well for the company -- most notably the U.S., where organic revenue growth in the fourth quarter was 6.9% and 3.7% for the full year. In the Asia-Pacific and Latin American regions, full-year organic growth was 6.4% and 10.2% respectively.

The company reported full-year revenue of $7.12 billion, up 2.4% with organic growth (which excludes the impact of acquisitions, divestitures and currency fluctuations) of 2.8%.

Revenue in the fourth quarter was up 2.9% to 2.12 billion, with organic growth of 3.7%, which Roth told analysts on a conference call Friday was the strongest quarter in two years, as measured by that metric.

By comparison, Omnicom Group earlier this week reported organic growth of 3.5% for the full-year 2013 and 4.2% for the fourth quarter. The comparable figures for proposed Omnicom merger partner Publicis Groupe, also reporting earlier this week, were 2.6% and 0.7%, respectively.

While IPG did not meet its profit-margin expansion goal in 2013, Roth said he was confident that IPG could boost that margin by 1% this year, while organic revenue growth in 2014 should exceed the growth achieved last year, with a target of between 3% and 4%. 

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