WPP Says Worst of Crisis May Have Passed for Global Ad Group

(Bloomberg) -- WPP Plc said trading improved in July and it won more business than rivals, suggesting the worst impact of the coronavirus pandemic may have passed for the world’s biggest ad group. Its shares rose as much as 6.2%, their biggest gain in a month.

• “Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery,” Chief Executive Officer Mark Read said in a results statement.

Key Insights

• Global brands slashed spending on ads when the pandemic struck, forcing WPP to suspend shareholder payouts and take a hatchet to costs.
• Like-for-like revenue less pass-through costs fell 15% in the second quarter, less than the 19% decline forecast by analysts. With profits slumping, the company booked 2.7 billion pounds ($3.6 billion) of impairments in the first half.
• While the revenue drop narrowed to 9.2% in July, a sustainable ad market rebound depends upon how soon the pandemic subsides and consumer spending starts to recover.
• WPP’s fortunes also hinge on Read’s efforts to win back lost business and adapt the sprawling agency network to a new age of digital advertising driven by insights into consumer behavior online. The pandemic has skewed ad budgets even further towards digital marketing, where WPP has struggled to hold its own against Google and Facebook Inc.

Market Reaction

• Shares in the owner of agencies Ogilvy and Wunderman Thompson were up 5.1% as of 8:09 a.m. in London. The stock had slumped by more than a third since the pandemic-induced market slump began in mid-February, falling more than rivals such as Omnicom Group Inc. and Publicis Groupe SA.

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• Revenue in the U.S. was down 6.1% in July, improving from a 10% drop in the second quarter. Read said WPP led the industry with $4 billion worth of new business in the first half from brands including Intel Corp., HSBC Holdings Plc and Unilever Plc.
• WPP sees cost cuts at the upper end of an earlier estimated range of 700 million to 800 million pounds.
• It declared a 2020 interim dividend of 10 pence per share after cancelling the dividend for 2019 to cut debt. A share buyback is “still under review but intention to restart when environment stabilises,” it said.

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