Interpublic Group net revenues fell 1.6% in the first quarter to $1.97 billion as the COVID-19 crisis morphed into a global pandemic.
Organic revenue growth for the period was 0.3%. The company’s shares were up as high as 5% in Wednesday morning trading.
Given the health crisis, those results were not unexpected, and as IPG CEO Michael Roth told analysts on an earnings call today, the worst is yet to come. He termed first-quarter results “solid” under the circumstances.
“The second quarter should be the worst of the quarters,” Roth said, with recovery beginning late in the third quarter and gradually improving going forward. Roth cautioned, however, that the situation is very fluid and visibility is low.
But while the second quarter “isn’t going to be pretty,” it will be manageable, Roth said. On the call, he outlined a number of measures the firm is taking to manage through the health crisis and be ready for the turnaround.
He stressed that “there is no one-size-fits-all approach to the appropriate combination of cost actions,” that agencies and specialist companies within the group are taking. Pay cuts (up to 25%) and furloughs are being implemented where possible and layoffs are taking place only as a last resort, he said. “Staff reductions will be unavoidable in the face of the pressures most every business is facing.”
Hiring freezes and other steps have also been imposed.
While the company has taken a number of corporate cost-cutting steps including compensation cuts for the executive leadership team and a delay in certain capital expenditures, the existing shareholder dividend remains in place for now, but will continue to be evaluated. The firm has also taken steps to maintain liquidity (it had $1.55 billion in cash on hand at the end of Q1) and its balance sheet.
Not surprisingly, the Asia Pacific region — where the COVID-19 virus was first discovered — was the hardest hit in terms of organic revenue, which was down 5.3%. The good news is that most of the company’s employees in China have returned to work at their offices after working from home during most of the first quarter.
In the U.S. organic growth (which strips foreign exchange and M&A impact) was 0.8%, versus 5.7% a year ago. On average, markets outside the U.S. posted a 0.7% organic revenue decline versus 7.7% growth a year ago.
Roth noted that while the impact of the crisis is profound, the company continues to work closely with clients to create new work, with over 95% of employees working from home.
And some categories remain strong including healthcare, the company’s largest segment representing about 28% of its business.
Categories including technology, telecommunications and others have shown strength during the crisis. Other sectors including consumer goods and ecommerce-focused retailers have remained stable. Unsurprisingly, areas like travel and hospitality have been hit the hardest.
And despite the crisis, the new business pipeline has remained open in March and April. Roth noted several wins, including Shinola (UM), new assignments from Pernod Ricard (Initiative), Mike’s Hard Lemonade (FCB NY) among others.
“What is noteworthy is that all these accounts were won — or retained — after the onset of the health crisis and demonstrate how, even when working remotely, we are able to move the business forward,” said Roth.
The company has begun to look at when and how employees will return to the office via a new steering committee. Roth noted that changes in the company’s business model will be a likely result of the crisis. For example work-from-home models could become permanent for some parts of the business — a survey showed that many employees like working that way.
“As we look forward from the present day, and the far-reaching dislocation of the current crisis, it is likely that many new consumer and business models will emerge,” said Roth. “Some of these, for example, will involve an acceleration of trends in technology and media that had already been underway. There will be enduring transformations of social and commercial norms, and how consumers relate to brands, media and one another. We are looking forward to helping our marketers adapt.”