Publicis says annual growth target will be hard to meet

PARIS Tue Jul 22, 2014 2:29am EDT

PARIS (Reuters) - French advertising agency Publicis warned it would be "very difficult" to meet its annual target of 4 percent organic sales growth after a second-quarter slowdown caused in part by the failure of its planned merger with Omnicom in May.

Publicis said on Tuesday its second-quarter sales fell 1.76 billion euros ($2.5 billion) from 1.79 billion a year earlier, missing an analysts' forecast of 1.88 billion euros, according to Thomson Reuters I/B/E/S.

Organic sales growth slipped to 0.5 percent from 3.3 percent in the first quarter, with growth in North America not enough to offset weakness in Europe and sluggishness in China and India.

Chief Executive Maurice Levy also blamed the strong euro for chipping away at Publicis' growth - currency effects stripped 148 million euros out of revenue in the first half.

Asked why Publicis was trailing rivals such as Interpublic, which posted organic sales growth of 4.7 percent in the second quarter, Levy admitted that trying to rescue the floundering Omnicom tie-up took up a lot of management's effort and time during the period.

Publicis is the world's third-largest ad agency after Britain's WPP PLC and its deal with number two Omnicom was supposed to create the world's largest agency, best-equipped to compete in the Internet era. They called it off in early May after a battle for control and divergent corporate cultures.

"There was a negative effect, which we had somewhat underestimated, from our intense concentration on the merger," said Levy. "But that's behind us now and we are focused on the future."

Forced to go it alone, Publicis said it was in the process of revising its business plan, unveiled last year, and would present a new one in mid-September. Omnicom reports second-quarter results later on Tuesday.

Publicis posted first-half operating profit of 435 million euros, down from 460 million euros a year earlier. The company's operating margin slipped to 13 percent, down from 13.7 percent.

First-half sales were nearly unchanged from a year earlier at 3.36 billion euros, while organic growth was 1.8 percent. Stripping out the effect of the strong euro, Publicis said organic growth would have been 5 percent.

But speaking at a press briefing, Levy said there is little Publicis can do to blunt currency effects since foreign exchange hedging tools are less effective in the global advertising business than in other industries, and agencies cannot raise prices and remain competitive.

Asked whether Publicis would still be able to deliver on its target of improving operating margins this year, Levy said the company planned to clamp down on costs so as to "come in as close as we can to our goal".

Publicis has seen its shares fall 11 percent this year, closing at 58.87 euros on Monday.

The leading ad agencies have fared differently with investors this year, with WPP shares down about 11 percent, Omnicom's down 2 percent, and Interpublic up nearly 12 percent - in part because of speculation it may be a takeover target.

The European media index has slipped 3 percent in the same period.

(Editing by Dominique Vidalon and Kenneth Maxwell)