Publicis Sinks After Scrapping Target on Weak U.S. Ad Spending

(Bloomberg) -- Advertising group Publicis Groupe SA plunged after dropping its revenue target for the year as it weathers a prolonged decline in TV and billboard work for consumer goods clients in the U.S.

A push into digital marketing by the Paris-based agency network wasn’t enough to revive growth in the second quarter, when a 0.1% rise in sales missed analyst forecasts. Publicis also reported another drop in traditional marketing in North America, where the company gets more than half of its business.

The shares fell as much as 8.1% in early Paris trading on Friday, the most since February 7. U.K.-based rival WPP Plc dropped as much as 2.1% in London.

“We need to fix this,” Chief Executive Officer Arthur Sadoun said on Thursday. “We are talking about clients who are very satisfied with our job, with whom we’re gaining market share but who are reducing ad spend.”

Publicis was expected to achieve second-quarter revenue growth of 0.7%, according to the average analyst forecast in a company-compiled consensus. It said it now expects full-year revenue to be “broadly stable,” after previously aiming to beat last year’s organic revenue growth of 0.8%.

Not all advertising groups are feeling the same pain as Publicis in North America, where its sales fell 1.7% in the quarter. Omnicom on Wednesday reported 3.2% organic growth in the U.S. in the same period.

On Thursday, shares of Omnicom Group Inc. had slid as much as 2% after the news in New York, and Interpublic Group of Cos. fell almost 3%. Omnicom closed roughly flat and Interpublic finished trading down about 1.1%.

Epsilon Deal

Publicis has lost almost of a fifth of its market value in the past year, with much of the drop coming after a previous revenue miss in February that it blamed on the spending cuts by U.S. clients.

Since then, Sadoun has accelerated his push into new ad technologies with the $4.4 billion purchase of Alliance Data Systems Corp.’s digital marketing unit Epsilon. The deal brings a trove of consumer data from loyalty programs to email campaigns so that Publicis can target consumers more effectively online.

Analysts at Liberum led by Ian Whittaker lowered their recommendation on Publicis to a hold from a buy after the results, citing the weakness in North America is the biggest concern in a note to clients on Friday. Investors will get more clarity on the U.S. market when WPP -- which has previously signaled weakness there -- reports results on Aug. 9.

What Bloomberg Intelligence Says:

“Publicis needs to push harder and faster into the $1.5 trillion business-transformation market to help combat a steep erosion in sales from traditional ad services.”
--Matthew Bloxham, telecom analyst
Click here to read the research

Revenue from new digital activities, which Publicis calls its “strategic game changers,” grew 21% in the second quarter, slowing from 27% growth reported in the previous three months.

“We’ve made the choice to transform ourselves. And this has hurt us on the short term because it takes time,” Sadoun said. Overall growth, while in the lower range of expectations, “is based on solid foundations,” he added.

To contact the reporter on this story: Angelina Rascouet in Paris at arascouet1@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Tara Patel

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