Interpublic to cut costs as Europe advertising declines

Fri Jul 19, 2013 11:30am EDT

(Reuters) - Interpublic Group of Cos (IPG.N), home to advertising agencies McCann Erickson and Draftfcb, said it would focus on cutting costs after reporting a lower-than-expected second-quarter profit due to steep declines in ad spending in Europe.

While Europe remained weak, the No.2 U.S. advertising company gained from a rebound in its home market, where revenue rose at double the pace of its overall revenue growth.

The improving U.S. ad market helped larger rivals Omnicom Group (OMC.N) and Publicis Groupe (PUBP.PA) report better-than-expected earnings this week.

Interpublic said it added 200 employees in the quarter, during which it won large accounts for e-commerce giant Amazon (AMZN.O) and General Motors' (GM.N) Cadillac brand.

But the increased hiring hit profit -- operating expenses rose 2.7 percent, led by a 2.9 percent rise in salaries and related expenses.

"We have done extensive work to lower our expense base in Europe and will continue to manage expenses to the revenue reality we face," Chief Financial Officer Frank Mergenthaler said at a post-earnings conference call.

Interpublic said it still aimed for a margin improvement of 50 basis points for the full year. The company's operating margin fell to 10.0 percent in the latest quarter from 10.3 percent a year earlier.

Interpublic's net profit available to shareholders fell 19 percent to $79.9 million, or 18 cents per share, from $99 million, or 22 cents per share, a year earlier.

Provision for income taxes rose by $12 million to $62 million, as the company's effective tax rate rose to 41.9 percent from 32.3 percent.

Interpublic's revenue from the United States rose 4.8 percent, accounting for about 57 percent of total revenue. Revenue rose 2.4 percent to $1.76 billion.

Analysts on average had expected earnings of 22 cents per share on revenue of $1.75 billion, according to Thomson Reuters I/B/E/S.

Shares of the company were down 2.6 percent at $15.38 in early trading on the New York Stock Exchange.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)

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