Publicis Declines as Sales Warning Shows Deepening Ad Woes

(Bloomberg) -- Publicis Groupe SA fell as much as 14% after it cut its 2019 revenue forecast for the second time in three months amid a continued squeeze on traditional advertising by U.S. consumer-goods companies.

The Paris-based ad-agency network’s push into digital marketing isn’t happening fast enough to offset the decline in TV and billboard work, and Publicis said late Thursday that a 2.7% drop in third-quarter organic sales was worse than expected.

“The cost of our transition is hurting short-term organic growth,” Chief Executive Officer Arthur Sadoun said in a results statement brought forward from the scheduled release date. “This is leading us to take a very cautious approach and reset our guidance for revenue this year.”

In its third gloomy earnings report this year, Publicis said it now expects a fall of 2.5% in annual revenue, compared to a previous forecast for “broadly stable” sales. Prior to that it had been aiming to beat last year’s organic growth of 0.8%.

The sales drop in the third quarter, especially in Europe, “reveals just how little visibility advertising agencies have of their clients’ spending plans, and the vulnerability of a business model heavily skewed to project-based work,” said Bloomberg Intelligence analyst Matthew Bloxham.

The shares traded at 37.68 euros ($41.5) at 10:01 a.m. in Paris, down 11.4%. The drop was the most since Feb. 7, the day the company reported a surprise drop in fourth-quarter sales. Friday’s decline of as much as 4.8% at London-based WPP Plc was also the most since that day.

After this warning Publicis may still be vulnerable to a “fuller reset” in the next 12 months, Morgan Stanley analyst Omar Sheikh said in a research note.

‘Hardest Part’

Old-fashioned advertising has been in decline as consumers turn away from newspapers and traditional TV, forcing ad companies to market themselves as online data-mining and business strategy experts who can help clients target shoppers more effectively. That’s put them in direct competition with the U.S. tech giants Facebook Inc. and Alphabet Inc.’s Google.

Publicis said a handful of mainly U.S. clients had cut spending on traditional advertising, and media sales were weaker than expected. It also pointed to difficulties at the Sapient digital marketing division acquired in 2015. A shift in the U.S. from pure digital marketing to broader “business transformation” services has hit the unit’s short-term growth, Publicis said.

The results offer a gloomy start to the industry’s quarterly results, with investors looking out for any signs of a slowing U.S. economy. Omnicom has said it expects organic revenue growth of 2% to 3% this year after a series of account wins in 2018.

Sadoun pointed to a 17% jump in net revenue in the third quarter as a sign that clients were latching onto the company’s new digital expertise. He said Publicis had won new work with big companies such as Novartis AG, BT Group Plc and LVMH.

“We have taken the tough but necessary decisions needed to tackle the industry challenges we are facing head-on,” he said. “We are without a doubt at the hardest part yet of our journey and, as is the case with any major structural change, things always get worse before they get better.

©2019 Bloomberg L.P.

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