• by Steve McClellan  @mp_mcclellan, July 25, 2017

Interpublic reported a 1.7% decline in revenue for the second quarter to $1.88 billion. Organic revenue growth was just 0.4%. Operating income fell 8% to $224.5 million and net income plummeted 40% to $94.7 million. 

A number of factors contributed to what CEO Michael Roth acknowledged was a disappointing quarter. The firm cited unfavorable currency fluctuations, losses on the sale of some “non-strategic” agency assets, less-than-anticipated client spending and the effects of some client losses, including Fiat, TD Bank, Sprint and USAA. 

Roth told analysts and investors on a call Tuesday morning that the company is still targeting full-year organic growth of 3% to 4% albeit on the low end of that range. 

To achieve that, Roth said, will take a combination of rigid cost controls, already being put in place (and including some staff count reductions) and greater spending by its major clients in the second half of the year. “As you’d expect, we have intensified our plans to bring expenses fully in line with revenue in the second half,” he said. 

Roth also noted that if the company does not achieve 3% organic growth, he still believes that the full-year company goal of expanding its operating profit margin to 12.5% (an improvement 0.5%) is attainable. 

“We have just completed the mid-year update with our agency leadership teams and the tone and substance of those business reviews says that these goals remain achievable,” said Roth. 

Roth said the company was not relying on new business prospects to achieve company performance targets. Rather, he added, he believes big clients will spend more in the second half. He said they “have to” if they expect to “maintain market share and grow their business.” 

Major project work should also pick up in the next two quarters, Roth said, based largely on conclusions reached with leadership teams for the mid-year update. A number of projects anticipated in the first half did not materialize. 

Roth also said that the firm is not as pessimistic about the U.S. economy as others. “The U.S. economy is fine,” he said. “This is not 2008 or anything like it.” He said he thought that some consumer goods companies were “over reacting” in their spending cuts so far this year amid worries about the economy. 

Those cuts accounted for about .8% of the revenue hit that IPG experienced in the quarter. In addition to the economy, consumer goods clients are dealing with issues such as challenger brands and private-label offerings. “Clients have to focus on their brands,” he said, and figure out how to generate more consumer support for them. “That’s where we can help,” he added pointing to the investments the firm has made in data and consumer insights. 

Roth said Mediabrands and McCann were both bright spots in terms of performance so far this year. The company’s PR business was “disappointing” in Q2 although Roth said he believes that performance was “an anomaly. The second half should reflect a stronger pipeline in these project-base businesses.” 

Roth also downplayed the competitive impact of consultancies, which he said “remain largely at the periphery of our commercial markets.” 

First-half revenue, impacted by similar factors was down 0.6% to $3.64 billion. Organic revenue growth for the half was 1.5%. By comparison last week Omnicom reported 3.5% organic growth for the second quarter and 3.9% growth for the first half. Publicis Groupe, also reporting last week, posted 0.8% second-quarter organic growth and 0.2% growth for the half. 

By region, IPG in the U.S. posted 0.7% organic growth in the second quarter, while international regions as a whole were flat. The UK was up 1.9% while continental Europe showed a decline of 2.5%.

IPG shares were down about 11% to $22.78 in mid-day trading on news of the Q2 results.