UPDATE 1-WPP, Publicis see positive ad trend, hard bargains

Wed Nov 17, 2010 1:51pm EST

Related Topics

* WPP's Sorrell says October a bit better

* American growth to slow, other regions to compensate

* Publicis CEO Levy says to continue outperforming market

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BARCELONA, Spain, Nov 17 (Reuters) - Leading advertising agencies WPP (WPP.L) and Publicis (PUBP.PA) said positive trends bode well for end-of-year ad revenues but customers continued to drive hard bargains and U.S. strength seemed unsustainable.

They said although U.S. and European companies had been reporting strong results, boosting their ability to invest in marketing, they were still reluctant to commit to spending, meaning ad growth may slow next year as comparatives harden.

WPP Chief Executive Martin Sorrell said October had been marginally stronger than the preceding months. "I would describe it as a smidgeon of sequential improvement," he told an investor conference in Spain on Wednesday.

Publicis CEO Maurice Levy said: "The indications we have for November and December are relatively good."

He said Publicis should continue to outperform the market until at least 2013 -- thanks in part to its leading position in digital media, which is growing faster than most other media.

But he added, speaking by telephone to Morgan Stanley's annual technology, media and telecoms conference in Barcelona: "As always, we know that some clients can cancel last minute in order to adjust their final result and their balance sheet."

Sorrell tweaked his 2011 sales forecast higher, saying WPP's operational businesses now expected growth of 3-4 percent, at the upper end of a previous range of 2-4 percent -- which would still be below this year's growth to date of about 4.5 percent.

"America cannot continue at this rate of growth," he said. Although Sorrell said other, fast-growing regions would compensate for any slowing in the U.S. market, he said customers were still extremely cost-conscious.

"We still see procurement as aggressive as it was," he said. "Uncertainty is still there."

Levy said that as far as Publicis could see 2011 would continue the growth trend, but he declined to say what rate of growth he expected.

FAST, SLIM AND STRONG

Both agencies said they were raising compensation for staff after two savage years of cuts, as employees regain confidence in the possibility of finding jobs elsewhere and advertising companies have to compete again for talent, their main capital.

Levy said Publicis was reinstating bonuses, while Sorrell said WPP was hiring again after slashing its workforce by 12 percent last year, although he would be watching the numbers very closely in relation to revenue growth.

Sorrell also said WPP would give more consideration to dividends, acknowledging that investors cared more about payouts in such times of lower growth.

"There's obviously some room for us to increase the dividend and I think we'll probably put greater weight on that than we have in the past," he said, adding that WPP would continue to seek out small, targeted acquisitions.

Levy said Publicis, which is still absorbing the digital agency Razorfish it bought from Microsoft (MSFT.O) last year, would also consider returning cash to shareholders, though it would prefer to use its cash for acquisitions.

"Obviously the best use of the money would be to make the right acquisition, but I would not make an acquisition for the sake of making an acquisition," he said.

"Being fat is not an objective; being slim, fast and strong -- that is an objective."

(Reporting by Georgina Prodhan; Editing by Erica Billingham)

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