IPG delivers good news for ad industry facing challenges

Ad holding company estimates 4% to 4.5% organic growth for the year

Ad holding company stocks have taken a beating over the past few weeks, but Madison Avenue investors got some good news on Tuesday as Interpublic Group of Cos. beat expectations for the second quarter and raised its forecast for the year.

IPG, which owns agency networks McCann WorldGroup, MullenLowe Group and IPG Mediabrands, estimates organic revenue growth for the year of 4% to 4.5%, a boost from the earlier projection of 2% to 3%. Organic revenue is a key metric that strips out acquisitions, dispositions and foreign-exchange fluctuation.

Organic revenue in the quarter increased 5.6% compared with the year-earlier period, due to strong performance across agencies and markets, the company said. IPG reported U.S. organic growth of 4.6% and international organic revenue growth of 7.2%. Total revenue increased 9.4% to $2.4 billion.

Net income increased 35% in the quarter, resulting in earnings of $0.43 per diluted share as adjusted for a non-operating loss of $19.8 million.

IPG shares were flat in late- morning trading.

The agency business has faced a number of challenges in recent quarters, including increased competition from consultancies, moves by marketing clients to cut agency costs and changing consumer behavior prompting clients to rethink their ad strategies.

IPG’s results may assuage some investors concerned about the future of the agency giants. Shares in Omnicom Group Inc., a rival ad titan, fell more than 8% last week after the company missed its secondquarter sales estimate due to lackluster performance in North America. Also last week, Publicis Groupe shares fell more than 8% after the company reported an organic revenue decrease of 2.1% in the latest quarter.

The organic growth at IPG is a sign that certain marketers “have in fact returned to growth mode in their engagements with us,” said IPG CEO Michael Roth during the earnings call. Much of the growth came from the company’s top 20 clients, which are spending again but not yet at the levels of a year or two ago, he said. That means there’s opportunity to continue to grow existing accounts and projects, he said.

Healthcare, which makes up about 24% of IPG’s business, was particularly strong, said Mr. Roth during the call.

The company is currently defending its large U.S. Army and Fiat Chrysler Automobiles accounts.

IPG, like its rivals, has been pushing to develop more sophisticated data and technology tools for clients, and is confident about the potential of its $2.3 billion acquisition of Acxiom’s marketing services business, said Mr. Roth. The deal is expected to close early in the fourth quarter.