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Advertising groups issue dire slowdown warnings
October 28, 2008 / 9:09 PM / 9 years ago

Advertising groups issue dire slowdown warnings

LONDON/NEW YORK (Reuters) - Three of the world’s largest ad groups have issued dire warnings about an industry slowdown, as economic upheaval throws planned spending on advertising from TV commercials to Web searches into doubt.

The forecasts from Publicis, Interpublic Group and Aegis on Tuesday followed solid-third quarter results by each of the groups, showing they have so far weathered the storm.

But with economic troubles deepening, the advertising market is now at risk of suffering its biggest slowdown since 2001.

France’s Publicis, the world’s third-largest ad group by market capitalization, reported third-quarter results in line with expectations but forecast a difficult end to 2008 and worse for 2009.

U.S.-based Interpublic Group, the world’s fourth-largest, posted higher-than-expected quarterly profit and strong organic growth, but warned that the financial crisis had jeopardized marketing budgets.

Britain’s smaller peer Aegis completed the trio, reporting solid organic growth before saying it could no longer predict how much companies would spend on advertising and was therefore cautious on its full-year outlook.

“We believe our industry will face a difficult end of 2008 and a marked slowdown in 2009,” Publicis Chairman and Chief Executive Maurice Levy said.

Interpublic Chief Executive Michael Roth said the group was still set to achieve its 2008 financial goals but noted that the impact of the “increasingly unsettled and volatile business environment” on the sector was not yet clear.

Last week, Omnicom Group, the world’s largest advertising company, said retail and automotive clients were beginning to push back and even cancel some advertising plans.

The results follow moves by leading media buyers, such as ZenithOptimedia, to slash global advertising spend forecasts for 2008 and 2009.

STATE OF PLAY

At 1338 GMT, shares in Publicis were up 3.5 percent at 16.35 euros ($20.34), having recovered from an earlier fall, while shares in Aegis fell 9.1 percent to 57.75 pence ($9.00) in a higher market.

Shares in IPG were up 11 percent at $4.56, recovering a small portion of the 50 percent the stock lost in the last month on fears about the state of the advertising market.

WPP, the world’s second-largest ad group which reports on Thursday, was up 3 percent after initially falling on the European companies’ outlooks.

Publicis, whose clients include food group Nestle, energy giant Total and airline Emirates, pledged to tap the digital sector and emerging countries to grow market share and protect its margins.

Its sales rose 5.1 percent at constant exchange rates, with organic growth of 3.9 percent. The company said the third quarter had ended with higher organic growth than expected given the global financial crisis.

Interpublic posted third-quarter organic revenue growth, a closely watched figure that excludes the impact of recent acquisitions and foreign currency, of 7.6 percent and a rise in revenue of 11.5 percent to $1.74 billion.

Aegis, which posted 9-month organic revenue of 7.3 percent, said it would manage its cost base tightly and said it still expected to benefit from the strength of the euro and the U.S. dollar in relation to sterling.

“Clearly slowing growth is not intrinsically positive, but it is no surprise and we believe that these (Publicis) results and comments should prove reassuring relative to some concerns in the market,” UBS analyst Alastair Reid wrote in a note.

Reid described the Aegis organic growth as robust but forecast full-year growth of 4.9 percent, implying a significant sharp slowdown in the fourth quarter.

“Aegis currently trades on around 7.5 times 2009 earnings, broadly inline with Publicis,” he said. “Whilst this appears inexpensive ... we believe that with consensus earnings downgrades coming through and the lack of visibility for the company, the stock is likely to come under further pressure near-term.”

Additional reporting by James Regan and Cyril Altmeyer in Paris; Editing by Erica Billingham

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