IPG Doubles Net Profit, Gets S&P Upgrade

In the wake of its strong 2011 earnings performance, which it disclosed last Friday, the Interpublic Group of Companies has received key upgrades from Standard & Poor's and Deutsche Bank. IPG nearly doubled its net profit for the year to $552 million with a healthy 6.1% organic revenue increase.

S&P revised its outlook on the advertising and marketing services holding company from “stable” to “positive”-- citing, among other indicators, the company’s steadily rising pre-tax profit margin and its reduced debt level. It noted that the company’s pre-tax margin rose to 11.9% in 2011, “up meaningfully from 10.7% in 2010,” while net debt dropped from four times total assets to 3.5 times total assets.

S&P said it believes that IPG has a chance of sustaining its momentum this year, leading to another upgrade. IPG, in order to gain the upgrade, would have to achieve a pre-tax margin of greater than 12% in 2012, along with a slightly lower debt level, “consistent organic growth and a resumption of net new business wins.” 

advertisement

advertisement

It will not necessarily be easy. The economy, which is hard to predict, could be a factor. As the financial ratings company pointed out, IPG’s current margin is still below its key competitors, while there is an ongoing industrywide effort by clients to reduce the compensation they pay to service providers. In addition, S&P noted the difficulty in forecasting ad-spending levels by clients.

But IPG is “satisfactorily” positioned to make headway, S&P stated, citing its “broad business mix of traditional advertising and marketing services,” as well as its margin progress to date and “the increased client relationship opportunities provided by the holding company structure.”

Deutsche Bank upgraded its rating on IPG from a “hold” to a “buy,” based on “increased evidence that IPG is securely on track to peer level margins despite micro and macro headwinds.” At the same time, Deutsche said IPG is returning cash to shareholders, “creating one of the best earning stories in media.”

Next story loading loading..