Publicis hit by 'wait-and-see' advertisers

Fri Oct 26, 2012 8:32am EDT

PARIS (Reuters) - Europe's weak economy took a heavy toll on third-quarter growth at advertising agency Publicis, which joined rivals in saying that demand would be extremely difficult to predict.

What had been hailed as a banner year for the advertising industry is ending on a sour note.

The expected boost from big promotional campaigns alongside the Euro 2012 soccer tournament, Olympic Games and U.S. presidential election has been tempered by tough business conditions that led companies to cut marketing spending sharply in September.

"Since the end of the summer, advertisers have increasingly adopted a wait-and-see attitude, cancelling or postponing campaigns," Chief Executive Maurice Levy said on Friday after the company reported weaker-than-expected third-quarter sales.

Echoing competitors WPP and Omnicom, French agency Publicis said that predicting advertising demand for the rest of this year and 2013 would be extremely difficult.

"We have some good indications for October. November and December will be months of adjustment for advertisers, who will modify budgets based on the economic situation."

Adrien de Saint Hilaire, an analyst at Exane BNP Paribas, said that neither Publicis, WPP, nor Omnicom had really explained why demand had fallen off so sharply in September. "High uncertainty and volatility means that advertisers could well cut again in November-December," he said in a note to clients.

However, Bernstein analyst Claudio Aspesi, who rates Publicis and WPP "outperform", said: "The sudden slowdown obviously caught management at both WPP and Publicis by surprise, but the businesses remain flexible and able to adapt to shocks."

Advertising spending generally tracks economic growth, so slowdowns in world markets tend to have a knock-on effect for advertising agencies.

The economic effects are being amplified by the changes to the way corporations spread the word about their products. The increased focus on the internet means that advertising budgets can be tweaked in an instant, rather than the weeks it used to take to craft a magazine or newspaper campaign.

"Today things happen very fast and companies can cut or spend almost overnight," Levy said. "This is a more reactive market that is taking shape, and that showed in the September slowdown."

SEPT SLOWDOWN

Publicis shares were up 0.9 percent at 41.26 euros at 1220 GMT, having fallen 1.2 percent on Thursday after WPP's results.

Third-quarter sales at Publicis rose to 1.6 billion euros ($2.1 billion). Organic growth was 2 percent, far below the company's earlier forecast of 4.1 percent and analysts' estimates of between 2.9 percent and 4.5 percent.

Despite the September slowdown, Publicis confirmed its goal of stable operating margins this year and improving margins by 200 to 400 basis points in the medium term.

WPP also posted weaker-than-expected growth in the quarter and reduced its growth forecast for the year to between 2.5 percent and 3 percent, against the 3.5 percent predicted in August.

The assessment follows similarly downbeat comments from rival Omnicom, which said last week that a high level of uncertainty among clients was making it hard to make forecasts for the next few quarters.

Market research group ZenithOptimedia scaled back its target for growth in global advertising spending this year to 3.8 percent from the 4.3 percent it predicted in June, blaming Europe's debt crisis.

($1 = 0.7716 euros)

(Editing by David Goodman)

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