The world's biggest advertising company WPP suffered a sharp drop in first-quarter underlying sales in North America as the loss of work from clients such as Ford took a toll on its most important market.
WPP, led by company veteran Mark Read following last year's departure of founder Martin Sorrell, said its US performance was disappointing but in line with expectations.
The company’s shares, which fell by more than 50 per cent between a peak in March 2017 and the end of 2018 before stabilising this year, rose 3 per cent in mid-morning trading after it reiterated its full-year forecasts.
WPP, the owner of agencies including JWT and Ogilvy, is in the middle of an overhaul following several profit warnings in 2017 and 2018 and the turmoil linked to Sorrell’s abrupt departure over a complaint of misconduct, which he denied.
With technology transforming the way advertising is made, placed and sold, clients want WPP to better integrate its agencies so it can produce faster offerings across multiple platforms, at a cheaper cost.
First-quarter results showed the British company has been particularly hard hit in the United States, where a weak competitive performance in recent years has been compounded by the loss of work from Ford and others in 2018.
Read has said the group failed to invest enough in recent years in the United States, where its business was also hit by big account losses from AT&T and VW in 2016.
Its US sales fell by 4.2 per cent in 2018 and were down 8.5 per cent in the first quarter of 2019.
The weak performance in the world’s biggest advertising market has meant WPP has fallen behind its nearest rivals in terms of growth, with US groups Omnicom and IPG performing more strongly.
Read said around three quarters of its businesses in North America has a different leadership from six months ago.
“It’s not going to be quick,” he told Reuters. “It takes time for people to have an impact on the business and on clients. (But) we’ve dealt with the losses. There is much less business under review than there was this time last year.”
Overall, WPP reported a drop in its main sales measurement of organic revenue less pass through costs of 2.8 per cent. It reiterated its full-year forecast of a fall of 1.5 to 2 per cent.
Read, a softly spoken executive who had worked alongside Sorrell for decades, set out a plan in December to hire more creative staff, including around 1,000 new jobs to improve its senior leadership in its New York agencies, in a bid to steer the company back to growth.
The company is also rolling out its most successful technologies across the whole group to help clients.
Analysts at Citi said that while the sharp drop in the United States would catch the attention, it confirmed its thesis that WPP’s problems were “narrow/deep rather than broad”.
“We think the market should take some comfort from the fact that the business excluding the US actually grew by 0.8 per cent in the first quarter,” it said.
To help fund the turnaround WPP has put its data analytics business Kantar up for sale and is looking for a partner to take a majority stake. It said on Friday it was pleased with the level of interest.
Sources familiar with the situation have told Reuters that private equity groups including CVC, Apollo and Bain are still in the process after submitting preliminary bids, while multiple parties have been knocked out of the process. – Reuters
