Publicis Reports Weak Organic Results, Strong Structural Developments

by Joe Mandese, Jul 26, 2007, 8:30 AM

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Chairman-CEO Maurice Levy struck a defensive note upon announcing Publicis' first half results this morning, asserting that the Paris-based agency holding company's tepid organic growth rate does not properly reflect its dynamic digital transformation; strong, but as yet unaccounted for new business gains; and tough comparisons with strong first half 2006 results.

"The figures for the first half of 2007 are a study in contrasts: growth that hardly corresponds to Publicis Groupe's potential alongside excellent performance with respect to margins and cash-flow," Levy stated, adding, "As anticipated by the Groupe, performance in the second quarter was hindered by slower economic growth in the United States and the fear of a significant depreciation of the dollar. The result was modest growth to which we are not accustomed and that does not reflect the Groupe's capabilities.

Publicis' total first half revenues rose 6% during the first half, but organic growth after factoring out things like its acquisition of Digitas, was up only 1.6%. Because organic growth is a key metric used by Wall Street to measure the underlying vitality of ad agency holding companies, Levy went out of his way to dispel its significant for Publicis' first half results, noting that "a combination of factors interfered with" Publicis' results. He said higher than normal growth during the first half of 2006 created a tough base for comparing first half 2007 results, though he did indicate there were some genuine problems in Publicis' healthcare and events divisions due to troubles among pharmaceutical account that led to the "cancellation of substantial campaigns."

On the bright side, Levy said none of the problems were of a "structural nature" and that following its acquisition of Digitas and other digital assets, Publicis is well positioned for strong growth in the near future. Additionally he noted that Publicis had new business wins of $3.5 billion during the half, which will result in revenue gains later.

Levy reaffirmed Publicis' focus on the digital sector, including the integration of Digitas and the launch of new digital media platforms including Blogbang and Honeyshed, a branded entertainment venture with Droga5 that has been described as "MTV meets QVC" on the Internet.

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