WPP shares plunges after group cuts sale target
WPP, the world’s largest advertising group, cut its sales target for the second time in six months yesterday after consumer goods giants curbed spending, putting its shares on track for their worst day in 19 years.
Facing its weakest underlying revenue growth since the financial crash in 2009, WPP saw its shares fall as much as 13 percent, wiping some $2.6 billion off its market value.
Much of the problem stems from a move by packaged goods groups including Unilever, Nestle and Procter & Gamble to respond to weak growth by cutting back on advertising products such as washing powder, drinks and food. Like its rivals, WPP has also been hit by an ultracompetitive environment in the United States where it lost two major contracts - VW and AT&T - meaning the group missed its first-half net sales target by some margin.
“It is difficult,” Chief Executive Martin Sorrell told Reuters. “Most of our shrinkage came in the second quarter and we couldn’t adapt fast enough for that. But we feel good about the way we’ve controlled the costs.”
Sorrell noted the growing influence of activist investors in the consumer goods sector, which he felt was adding to the pressure to rein in spending and boost margins. Consumer goods clients make up around a third of WPP’s revenue. Analysts at RBC said eight of the 10 consumer goods companies which detailed their marketing approach in the first half of the year reported a decline as a proportion of sales. Unilever, a WPP client which fought off a $143 billion takeover bid from Kraft Heinz in February, said it was looking to cut the number of adverts created by 30 percent. In the first half of the year, its spending with ad agencies fell by 17 percent.
GLOBAL GIANT
One of the best known businessmen in Britain, Sorrell built the advertising group from a two-man operation in a London office in 1985 to one that now dominates the industry with 205,000 people, including associates, working in 112 countries.
It provides advertising, data analytics and consultancy work to brands including L’Oreal, IBM, AstraZeneca and Vodafone. While it outperformed its peers for several years after the financial downturn, it has been showing signs of strain in the last year as rivals fight for every dollar of ad spend. On Wednesday it reported first-half like-for-like net sales down by 0.5 percent, below a consensus of 0.7 percent growth. It cut its full-year underlying net sales growth target to between flat and 1 percent, from a previous forecast of 2 percent. Like peers Omnicom and IPG, net sales were particularly weak in the U.S.. French group Publicis, recovering from several years of subdued trading, is one of the few ad groups to fare better in the U.S., posting decent results in July. —Reuters