UPDATE 2-Publicis growth picks up pace on North America, online

Thu Jul 18, 2013 3:58am EDT

* Europe remains weak spot

* Tweaks annual organic growth target to 3.6 pct

* Q2 organic sales growth 5 pct

* H1 sales rise 8.7 pct to 3.35 bln eur

* H1 op profit 462 mln eur vs poll avg 440 mln

* Operating margins rise to 13.8 pct

By Leila Abboud

PARIS, July 18 (Reuters) - France's Publicis said the pace of sales growth accelerated sharply to 5 percent in the second quarter, helped by robust demand for online marketing services and strength in North America.

The world's third-biggest advertising agency narrowed its annual target for organic growth to 3.6 percent from between 3.2 and 3.6 percent.

The pick-up seen at Publicis, which comes after a relatively slow first quarter, may bode well for the results of market leader WPP and number two Omnicom, due in the coming weeks.

Market researchers have predicted global advertising spend will growth 3 to 3.5 percent this year.

Publicis shares were up 2.9 percent at 59.34 euros by 0732 GMT, the biggest gainers on France's blue-chip CAC 40 index .

"Organic growth is back to levels that make investors comfortable about the sustainability of margin expansion," said Claudio Aspesi, an analyst at Bernstein Research.

"The stock has already done very well in 2013, but with improving performance and outlook it is natural that investors will like the story even better."

First-half sales rose 8.7 percent to 3.35 billion euros ($4.39 billion), in-line with analysts' expectations. Revenue was 1.79 billion in the second quarter.

Operating profit rose 11.6 percent to 462 million euros, ahead of the Thomson Reuters I/B/E/S average of 440 million.

The operating margin was 13.8 percent in the half, an improvement from last year's 13.4 percent, helped by continued cost cuts in everything from real estate to technology.

Growth was strong in North America and emerging markets, including Brazil, China, India and Russia, while European sales contracted by 1.1 percent in the second quarter.

"The results are good but it has not been easy and we must remain vigilant since there is a lot of uncertainty in the world economy," said Publicis Chief Executive Maurice Levy.

"Emerging markets are in slight retreat, the U.S. is holding up well, while Europe remains in search of growth."

Levy said most sectors, including autos, banks, telecoms and technology, and consumer goods, had maintained or boosted marketing budgets in the second quarter.

DIGITAL PAY-OFF

The exception was Publicis' healthcare business, which has shrunk in recent quarters because of big pharma companies' struggles with patent expiries and slow new drug approvals.

Levy said the pharma business would likely return to growth in the third quarter, however.

Across the board, major companies spent more on so-called digital advertising and services than old-fashioned print and television ads, Levy said.

Boosted by a billion euros of acquisitions in the past two year, the agency has expanded into social media services, buying ad space for brands online in real-time auctions, and designing campaigns for the web.

Publicis said it now earns almost 37 percent of sales from such digital activities.

Its larger rival WPP is also well positioned in the area.

Bernstein's Aspesi wrote in June that WPP and Publicis had "significant leadership positions" in both emerging markets and digital, giving them an advantage over U.S. peers Omnicom and Interpublic Group.

Publicis shares have risen 28 percent this year to close at 56.57 euros on Wednesday, compared with a 14 percent rise for the Stoxx 600 European Media index.

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