The advertising holding companies will begin reporting their
first-quarter results next week. According to a forecast report by Pivotal Research analyst Brian Wieser, the firms will generate similar (albeit slightly lower) organic growth compared to 2015 both
for the quarter and full year.
Wieser notes that Adland is confronting a number of issues including higher labor costs mandated by new U.S. government regulations that are expected to
kick in later this year. Potentially, those higher costs could impact holding company operating profits by 3% or 4%, Wieser reports. But the firms also have strategies to potentially offset the impact
including (in some instances) passing the increases along to clients, reducing the base salaries of some employees, relocating staff and outsourcing more aggressively.
“As a
result,” Wieser wrote, “we wouldn’t worry about the rule change too much, just yet, but we think that investors should be mindful of its potential.”
And, Wieser
noted, the issue of transparency as it affects advertiser-media agency relationships has also come into heightened focus over the past year — a focus that will only grow sharper in the near term
as the industry awaits the results of an inquiry into the issue by the Association of National Advertisers. The ANA probe is expected to be released publicly next month or shortly
thereafter.
The topic, he noted, “also plays into marketers’ interests in looking at bringing more media work in-house or otherwise taking control of the decisions that their
agencies make with respect to advertising and marketing technologies. As marketers’ concerns around global contracts between agencies and vendors are heightened, and as marketers concurrently
recognize they need to dictate the terms of how their data is managed, we see greater marketer involvement in this sphere.”
Weiser believes that Omnicom will report 4.5% organic
revenue growth for the first quarter (compared to 5.1% in the year ago period) and is forecasting (for now) a similar growth figure for the holding company for the full year (compared to 5.3% for
full-year 2015). His rating on Omnicom is “hold.”
Interpublic Group meanwhile, is expected to report 4.3% first-quarter organic growth (versus 5.7% growth for the year-ago
period) with forecasted full-year 2016 growth of 3.9% (versus 6.1% for 2015). His rating on IPG is “buy.”
Publicis Groupe, Wieser notes, is the holding company “facing
the most significant headwinds given some significant account losses in 2015” (including Coca-Cola and Procter & Gamble). The analyst said he disagreed with investor sentiment that the
company is “structurally challenged.” Instead, he believes, “most of the problems facing the core business can be characterized as cyclical.” Wieser is forecasting 0.6% organic
revenue growth for the Groupe in the first quarter, but expanding to 2.1% for the full year. That compares to 0.9% first-quarter 2015 growth and 1.5% full-year 2015 growth. The rating remains a
“buy.”
At WPP, Wieser wrote, “media agencies fared well with last year’s reviews providing some support for growth, and growth of the company’s Xaxis
business likely helps that division on a gross as well as net basis.” He’s predicting 3.7% net sales organic growth for WPP in the first quarter (that would be up from 2.5% in the year-ago
period) and 3.8% for full-year 2016. His rating on WPP remains a “hold.”