Publicis Tumbles as Revenue Shortfall Jolts Madison Avenue

(Bloomberg) -- Publicis Groupe SA is setting off alarm bells on Madison Avenue as the ad industry’s earnings season gets under way.

The French owner of Saatchi & Saatchi and Leo Burnett Worldwide suffered a surprise drop in fourth-quarter sales, blaming cuts in ad spending by consumer brands in the U.S. So-called organic revenue fell 0.3 percent in the quarter, missing the 2.5 percent gain that analysts had expected, according to a company-compiled consensus.

Publicis shares slumped as much as 14 percent at 9:54 a.m. in Paris, their biggest intraday fall since the day after the Sept. 11 terror attacks in 2001. U.S. rivals Omnicom Group Inc. and Interpublic Group of Cos. fell at least 5 percent after the results late Wednesday, while London-based ad group WPP Plc fell 6.3 percent.

Publicis Tumbles as Revenue Shortfall Jolts Madison Avenue

Conventional advertising has been in decline as consumers turn away from newspapers and traditional TV, forcing ad companies to market themselves as online data-mining experts who can help clients target shoppers more effectively.

Publicis’s results suggest marketers at major brands have yet to fully embrace the company’s strategy. The Paris-based group counts Campbell Soup Co. and JM Smucker Co. among its consumer-goods clients.

Longer-term success isn’t guaranteed either: Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc. are growing quickly at the expense of traditional players in advertising by harvesting unprecedented quantities of consumer data and using it to target ads.

“We clearly have a revenue attrition on traditional advertising from fast-moving consumer goods in the United States,” Chief Executive Officer Arthur Sadoun told reporters Wednesday. Publicis now sees a “bumpy ride” in the first quarter as that loss of business is felt in the first months of 2019, the company said.

The results are disappointing after a weak performance in the U.S., “where clients are reducing the scope of work with agencies,” said Conor O’Shea, an analyst at Kepler Capital Markets.

Publicis stuck by its target of 4 percent organic revenue growth by 2020 and Sadoun said recent account wins from companies such as GlaxoSmithKline Plc and Fiat Chrysler Automobiles NV would boost results from the second quarter.

“There’s still a lot of work to be done to reach the 2020 revenue-growth target,” said Bloomberg Intelligence analyst Matthew Bloxham, calling the 2020 goal a “stretch.”

Financial Services

Sadoun said financial services and retailers were showing “perhaps more maturity” than consumer-goods makers in embracing the new paradigm, “but it’s coming.”

“Today, for instance, for fast-moving consumer goods -- and it’s quite promising -- we’re seeing bigger growth in our capacity to help our clients become more independent from Amazon,” he said.

Publicis made one of the industry’s boldest bets on ad technology with the $3.7 billion purchase of Boston-based Sapient in 2015. Since then, Sadoun has poured resources into what he calls “strategic game changers” -- businesses that make better use of data and devise creative digital offerings for clients.

That part of the business grew 28 percent last year to represent 12 percent of revenue. The company said it wants that to grow to 30 percent by 2020.

“Tomorrow, I think players in traditional marketing will get closer to consultants and system integrators,” Sadoun said. “The holy grail is personalization on a large scale.”

Publicis announced 400 million euros ($455 million) in share buybacks, using money left over after it made fewer acquisitions than it budgeted for in 2018. The company named Publicis Media CEO Steve King to a new role of group chief operating officer.

Rival ad group Interpublic reports results next week, with WPP following on March 1. Omnicom hasn’t given a precise results date.

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