WPP Tumbles After New CEO Outlines Painful Turnaround Effort
(Bloomberg) -- WPP Plc Chief Executive Officer Mark Read is off to a disappointing start for investors with a cut to the ad giant’s outlook, triggering the company’s biggest share slump in almost two decades.
The owner of Ogilvy, Grey and J. Walter Thompson now expects sales to fall this year and its profit margin to decline as it revealed a third-quarter earnings miss, continuing a string of bad news that’s hammered the stock. The shares dropped as much as 23 percent intraday to a six-year low, wiping out 3 billion pounds ($3.9 billion) of market value.
The grim forecast means a turnaround pledged by Read will take longer to deliver and shows how tough it’s been for him to wrap his arms around challenges facing the world’s biggest ad group since taking over from founder Martin Sorrell in April.
Read, who stepped in when Sorrell abruptly resigned and took up the permanent CEO post in September, is contending with weaker business in North America and contract losses from top clients including Ford Motor Co. He’s trying to reorganize an unwieldy global network of hundreds of agencies built up by Sorrell over three decades, just as major clients cut spending and new digital rivals emerge.
WPP has been too slow to adapt to changes in the industry, has underinvested in key areas and has become too complicated, Read said Thursday in a sales update, pledging “decisive action and radical thinking.”
“Our industry is not in structural decline, it’s in structural change,” Read said in a phone interview. “Perhaps we’ve been slow to react to those changes in the last two years. We need to accelerate the pace.”
WPP Needs to Speed Things Up After Sales Shock: Street Wrap
Investors have been skeptical of whether WPP can fend off various secular threats, such as consultants like Accenture Plc and Deloitte LLP winning marketing-related projects, Facebook Inc. and Alphabet Inc.’s Google working directly with brands and cutting out agency middlemen and advertisers bringing work in-house to save on costs.
WPP’s creative agencies are also suffering, which Read blamed on reduced demand for traditional ad work, like shooting TV commercials and designing newspaper ads. Companies are instead investing more in digital creative projects, Read said, an area where WPP is less focused than its peers.
The third-quarter sales decline shows WPP is losing ground to its main competitors -- Omnicom Group Inc., Publicis Groupe SA and Interpublic Group of Cos. -- each of whom reported steady organic revenue growth this quarter. In WPP’s biggest market, North America, like-for-like organic sales declined 5.3 percent, and there was also an unexpected slowdown in the U.K. and Western Continental Europe. The contrasting results “will raise questions over WPP’s specific issues,” Ian Whittaker, an analyst at Liberum, said in a note.
While Read has been offloading small positions WPP has held in other businesses for months, his first big move as CEO came Thursday with the announcement that the company plans to sell a stake in Kantar, its data and market research unit, to reduce debt. The division, which accounts for about 15 percent of the group’s sales, has been seen by analysts as underperforming and the most likely large sale candidate. Liberum has valued it at more than 3 billion pounds.
Investors will get a strategy update in December and Read offered hints on his plan, pointing to a simplified structure, investments in technology and talent, and a new culture. He’ll be trying to improve WPP’s business prospects with a deputy on his way out, however. Another Thursday announcement by the company: Chief Financial Officer Paul Richardson, who’s been in the role for 22 years, will retire in 2019.
WPP pared some of the morning losses to trade down 15 percent as of 2:42 p.m. in London. That brings the decline this year to 33 percent and the company’s value to 11.3 billion pounds. WPP, the biggest ad group by sales, saw its market capitalization dip below that of rival Omnicom this month.
By the Numbers
- Like-for-like organic sales declined 1.5 percent in the third quarter, missing the 0.3 percent growth expected by analysts, according to five estimates compiled by Bloomberg.
- WPP also cut its full-year revenue guidance, expecting sales to be down between 0.5 percent and 1 percent. It had previously guided to growth of about 0.3 percent.
- The full-year operating margin is now expected to be down in the range of 1 to 1.5 margin points. WPP previously said it would be down about 0.4 margin points.
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