WPP Plunges as Flat Sales Forecast Piles Pressure on CEO Read
(Bloomberg) -- WPP Plc shares tumbled as much as 17% after the advertising giant forecast a fourth year with no sales growth, piling pressure on Chief Executive Officer Mark Read to turn the business around.
The outlook for flat like-for-like revenue less pass-through-costs in 2020 was worse than analysts had expected, and contrasts with more upbeat comments from rivals such as Omnicom Group Inc. Marketing budgets for consumer goods are set for a boost this year from the Tokyo Olympics, Euro 2020 soccer tournament and golf’s Ryder Cup.
Read is trying to stabilize WPP after major clients pulled business from its agencies. The growing importance of digital marketing platforms has brought new competition from consultancies such as Accenture Plc and tech giants including Alphabet Inc.’s Google and Facebook Inc.
Read said the group is getting encouraging signs from big marketing teams, with budgets being maintained and increased this year, and that WPP’s operations are improving.
“We see 2020 as the year of transition to growth,” he told Bloomberg in a phone interview. “Being flat in 2020 is solidly on the path to getting back to growth in 2021.”
WPP shares were down 15% as of 10:58 a.m. in London, touching their lowest level since 2012. Paris-based rival Publicis Groupe SA fell 2.7%.
Competition for work with big consumer brands in North America remains intense and the London-based group suffered a loss of momentum at the end of 2019 -- with fourth-quarter like-for-like sales down 1.6%, worse than the 0.8% decline forecast by analysts in a company-compiled survey. The fall was particularly steep in its specialist agencies division, down 7.4%, after losing work from top client Ford Motor Co. in 2018.
WPP said the 2020 revenue forecast excludes any impact on its business from the coronavirus. Analysts had been forecasting revenue growth of 0.4% this year.
“There’s obviously been an impact on our businesses in China and Hong Kong,” Read said of the coronavirus, noting that 5% of the company’s sales are generated in China. “Our people have behaved extremely resiliently. They’ve been working from home since the Chinese New Year.”
WPP’s intraday share drop was the biggest since October 2018, when the company missed earnings forecasts and Read, a few weeks into his job as CEO, cut its sales outlook.
His job appears to be safe for now.
“Clearly when the share price goes down there’s more pressure, but he’s at the beginning of a process to transform the business,” said Sarah Simon, an analyst at Berenberg in London. “It’s just that it’s happening a bit more slowly than the market started to think.”
Some of WPP’s traditional customers are trying to do work such as creative campaigns in-house, challenging its model of providing a wide range of marketing services under one roof.
Read’s response is a three-year plan to simplify the sprawling network of advertising agencies amassed by predecessor Martin Sorrell and invest in data and technology to meet clients’ growing appetite for digital services.
His strategy has focused on merging units, such as combining the under-performing creative agency J. Walter Thompson with the more digitally-focused outfit Wunderman.
©2020 Bloomberg L.P.