*Q2 profit drops on weaker advertising spending
*Cuts full-year outlook, expecting slowdown to continue
*To acquire U.S. advertising firm McGarry Bowen
*Dentsu shares close up 6.7 pct ahead of announcement
(Adds company comments, background)
By Mariko Katsumura and Nathan Layne
TOKYO, Nov 12 Dentsu Inc (4324.T), Japan's
largest advertising company, cut its annual profit outlook by 20
percent and said it would buy a U.S. ad agency as it seeks growth
outside the stagnant and mature domestic market.
Dentsu's slump reflects the pain being felt across the
corporate sector. Its clients are cutting their advertising
budgets as high raw materials prices, a stronger yen and a
faltering economy eat into their profits.
Dentsu said it would buy McGarry Bowen, the 38th largest
advertising agency in the United States, for an undisclosed
amount as it aims to beef up its presence outside Japan, which it
still counts on for more than 90 percent of its sales.
But the move will do little to close the gap with larger
rivals Omnicom Group (OMC.N) and WPP Group (WPP.L) in terms of
global reach and comes as Dentsu faces a market slump that could
stretch well into next year.
Macquarie Securities analyst George Hogan said Dentsu's
forecast for parent billings to decline 3.5 percent in the
October-March second half could prove optimisitic, as it would
mark an improvement following a fall of 6.4 percent in the first
"The general feeling is that actually the economy has started
to dip down and things are getting worse not better," said Hogan,
adding that the Japanese TV and advertising market could decline
well into the first half of next financial year.
Dentsu, which ranks fifth in the global advertising market,
cut its operating profit forecast for the full year to March to
45.3 billion yen ($463.1 million), short of the consensus of 51.2
billion yen in a poll of 13 analysts by Reuters Estimates.
It lowered its annual sales forecast to 1.95 trillion yen
from 2.06 trillion yen, as growing economic uncertainty prompts
companies to roll back advertising spending through television,
newspapers, radio and magazines.
For the July-September quarter, Dentsu said its operating
profit came to 13.1 billion yen ($134 million), down about 18
percent from 15.9 billion yen a year earlier, despite a boost
from the 2008 Beijing Olympic games.
Asatsu-DK (9747.T), Japan's third-largest advertising
company, also lowered its outlook on Tuesday, predicting
operating profit would fall by nearly two-thirds to 2.7 billion
yen in calendar 2008. [ID:nT12AD3TB]
"Japan's economic situation is really severe. Consumer
spending is weak and financial market turmoil is casting a pall
over the real economy," Dentsu's Managing Director and Chief
Financial Officer Setsuo Kamai told a news conference.
Dentsu, whose global competitors also include Interpublic
Group (IPG.N) and Publicis (PUBP.PA), said acquiring McGarry
Bowen would bring it clients and talented staff. The company has
235 employees and revenue of about $57 million.
"At best I think it's a toehold. It's not a foothold. It
doesn't at all put them in a position to compete on equal grounds
with guys like Omnicom and WPP," Macquarie's Hogan said.
Dentsu's shares, owned 16 percent by foreign investors, have
lost about one-third of their value since the start of this year.
The stock closed Wednesday up 6.7 percent at 165,700 yen
prior to the announcement on a report in the Wall Street Journal
on the McGarry Bowen acquisition. That outperformed a 1.3 percent
decline in the benchmark Nikkei average .N225
(Reporting by Mariko Katsumura; Editing by Michael Watson)