UPDATE 1- Publicis sees better Q4 after Q3 sales fall

* Organic revenue down 7.4 pct, slightly below expectations

* Q3 sales 1.047 billion euros

* CEO says does not expect negative surprise on FY margin

* Sees $13 million in cost cuts in Razorfish acquisition

By Leila Abboud

PARIS, Oct 27 (Reuters) - Advertising group Publicis PBP.PA said the worst of the economic downturn was over, forecasting a better fourth quarter and a return to growth in the second half of 2010, after posting lower third-quarter sales.

The world's third largest advertising group in terms of revenue said third-quarter sales were down 5.3 percent at 1.047 billion euros compared with the same period last year. On an organic basis, revenues declined by 7.4 percent, compared with an 8.4 percent decline in the second quarter, and a 4.4 percent decline in the first.

The 12 analysts polled by Reuters had expected revenues to drop by 6.9 percent in the third quarter to 1.06 billion euros.

"I think the fourth quarter will be better than the third, both for Publicis and the market," Chief Executive Maurice Levy told reporters. "The recovery will be slow, but all the signs we have are going in the right direction."

Levy also said he was "pretty confident" that the company, which competes with WPP Plc (WPP.L) and Omnicom Group (OMC.N), would not see full-year margins deteriorate more than it had previously forecast.

Operating margin reached 16.7 percent last year, and Publicis has said the margin would not shrink by more than 200 basis points.

Publicis' sales come after several of its rivals have stumbled this quarter. Havas (EURC.PA) posted a bigger-than-expected decline in organic sales of 9.3 percent last Thursday, disappointing markets [ID:nLM703445].

Omnicom also reported a 10.7 percent decline in organic revenues last Wednesday as key clients cut back on ad spending and predicted further drops in the fourth quarter. [ID:nN21478284]

WPP, the world's biggest advertising group in terms of revenue, will publish its results this Friday.

STRATEGY MAINTAINED

CEO Levy said that Publicis' strategy of expanding into higher-growth digital ads and emerging markets remained unchanged and on track.

With the recent acquisition of U.S.-based on-line ad agency Razorfish, Publicis will achieve its target of earning a quarter of its revenues from digital ads by next year. Publicis bought Razorfish from Microsoft Corp (MSFT.O) for 369 million euros in shares and cash. The deal closed on Oct. 13.

Publicis said it expected to reduce costs by $13 million during the integration of Razorfish. Levy confirmed that the deal is likely to be 1 to 2 percent dilutive next year and accretive in 2011.

Levy said Publicis did not have any large merger and acquisition targets on the horizon, despite having room to do acquisitions, given its credit rating and financial position. He said Publicis was interested mostly in smaller deals that would allow it to grow in emerging markets or in on-line ads.

"There are a few attractive targets that are very precious for their characteristics, but they are all relatively modest in size," he said, without giving specifics. (Reporting by Leila Abboud and Cyril Altmeyer; editing by Karen Foster)