WPP Dives After World's No.1 Ad Group Cuts Guidance -- Update
25 October 2018 - 8:04PM
Dow Jones News
By Nick Kostov and Lara O'Reilly
WPP PLC shares tumbled as much as 20% in early London trading
after the world's largest advertising group cut its full-year
guidance and posted disappointing third-quarter results,
underscoring the challenges facing new chief executive Mark
Read.
The British company, which owns agencies including J. Walter
Thompson and Group M, said like-for-like net sales--a key measure
of its operating performance--fell 1.5% for the quarter ended Sept.
30. Analysts had expected a 0.4% rise.
The company said it now expects annual like-for-like net sales
to fall by between 0.5% and 1.0%. Previously, the company had
expected like-for-like net sales to show trends similar to the
first half, when like-for-like revenue rose 1.6% on the
year-earlier period and comparable net sales were up 0.3%.
WPP warned on its Thursday earnings call that 2019 would also be
challenging.
Most recently, London-listed shares of WPP were down 15% at
899.30 pence. The FTSE 100, of which WPP is a component, was 0.4%
lower.
Mr. Read took WPP's helm in September, after the company was
rocked by the sudden departure of longtime CEO and founder Martin
Sorrell in April.
On Thursday, Mr. Read said WPP could return to growth, despite
the disruption hitting the ad industry, with increased competition
from consulting firms, marketers cutting back on the fees they pay
ad agencies and changes in consumer behavior.
"We are clearly underperforming our competition, it's something
we are aware of and it reinforces our determination to take action
to invest in the business and make the changes we need to make," he
said.
First, he will need to stop the drumroll of account losses in
recent weeks. Ford Motor Co., one of the firm's largest clients,
switched its creative duties to rival Omnicom Group Inc. in October
and companies including American Express Co., PepsiCo Inc. and
Daimler AG's Mercedes-Benz have moved business away from WPP
recently.
The company is selling assets to reduce its debt-to-earnings
ratio and simplify its sprawling operations. In Thursday's
statement, WPP confirmed it will seek to unload a stake in its
underperforming market-research unit Kantar Group, in what would be
the largest sale since Mr. Read took over as CEO. Analysts at
Kepler Cheuvreux valued the unit at between EUR3 billion ($3.4
billion) and EUR4 billion in December.
"Sentiment around WPP has been very weak, but hopefully this
move will help restore some confidence and part-repair a creaking
balance sheet," said Alex DeGroote, founder of media consultancy
DeGroote Consulting.
WPP's peers reported sales numbers that were well received by
the market last week, with organic sales growth for the
third-quarter ranging from 1.3% at French rival Publicis Groupe SA
to 5.4% at Interpublic Group of Co.
Mr. Read said Thursday that the issues WPP is experiencing "are
company-specific to some extent."
He has been reorganizing WPP's business in the hope of making it
more nimble and investing in companies that appear to be
tech-savvy. On Wednesday, WPP said it was consolidating health care
agencies into Ogilvy, Wunderman and the recently merged VMLY&R
creative agency.
"We have great strengths within the group, we just need to do a
better job at making it simpler for clients to access it," said Mr.
Read, adding it would "take some time" to see the results of his
strategy.
Again this quarter, WPP said a weakening of its businesses in
North America and in its creative agencies dragged down the group's
third-quarter performance. In North America, like-for-like net
sales dropped 5.3% on the comparable quarter a year earlier.
"We do have strong creative talent, we just need more of it,"
said Mr. Read, who said the company wouldn't rule out acquisitions
in this area although such deals would most likely focus on
technology.
Overall revenue declined by 0.8% to GBP3.76 billion ($4.85
billion) for the third quarter compared with GBP3.79 billion in the
year-earlier period.
WPP also announced Thursday its longtime Group Finance Director
Paul Richardson will retire in 2019.
The company is set to provide another strategy update in
December.
Adria Calatayud contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com and Lara O'Reilly at
lara.o'reilly@wsj.com
(END) Dow Jones Newswires
October 25, 2018 04:49 ET (08:49 GMT)
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