IPG Reports Sharp Drop In Q3 Organic Growth

Interpublic Group reported an expected dip in organic growth (which excludes the impact of M&A and currency fluctuations) in the third quarter to 1.4%, down from 5% in the year ago period. The company attributed most of that decline to big client losses that occurred late last year including Fiat Chrysler, U.S. Army and Volkswagen U.S.

The company posted an organic revenue decline in the U.S. of 0.6% as a result of those losses which the company said will continue to impact growth until mid-2020. In an investor call to discuss Q3 results earlier today IPG CEO Michael Roth said it was the first time he could remember the U.S. market posting negative organic growth in a quarter.

That said, the company is net new business positive so far this year and Roth told analysts on the call that he is confident IPG will end the year achieving its growth goal of between 2% and 3% and will do it on the “high end” of that range.

“Overall, our performance, taking into account the headwinds and industry-leading comps from last year, along with positive net new business this year, demonstrates that our business remains highly competitive and on the right track,” Roth said. He also noted that despite some economic uncertainties clients generally did not appear to be paring back ad spend budgets.

And investors did not seem concerned about the organic growth dip as IPG shares were up more than 2% in Tuesday morning trading.

Overall revenue was up 8.7% to $2.06 billion in part due to last year’s Acxiom acquisition. That unit’s growth was up about 5% in Q3. In the fourth quarter, marking the first anniversary of the transaction, Acxiom will start to contribute to the holding company’s organic growth figures.

IPG’s net income was up about 3% in Q3 to $168.4 million.

For the first nine months of the year, reported revenue was up 10.2% to $6.19 billion with organic growth of 3.5%. Net income was up 12% to $331.7 million.

Last week during the Omnicom Q3 earnings call CEO John Wren, discussing the growing importance of data management capabilities for clients said, “This can’t be achieved by buying legacy platforms,” a pointed reference to Publicis Groupe’s recent Epsilon deal and Interpublic’s acquisition of Acxiom.

But Roth responded today noting that Acxiom is an important draw for many clients and that it will continue to grow as an asset over time.  “Acxiom now has a prominent seat at the table with our top open architecture clients,” he said, a reference to the company’s market approach that draws on talent around the holding company to service accounts.

In the pursuit of “people-based marketing” strategies and the accountability that comes with those strategies, said Roth, “we feel very strongly that what is worth owning is the highest level of capability and expertise in data management. That is a significant and increasingly necessary differentiator in today’s world. It makes a company like ours a more strategic business partner for our clients.”

Responding to a question about succession plans at the company and the recent promotion of Phillipe Krakowsky to IPG Chief Operating Officer, Roth confirmed that “it positions him in a strong way in terms of succession.”

As for his own timing in the CEO role, Roth quipped, “I’m on the back nine,” adding that he’d be around to complete the commitments he has made to the company’s board of directors.

Commenting on data and privacy regulation Roth said that federal legislation would be less complex than a maze of laws at the state level. “The more unified the better,” he said.

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