PARIS (Reuters) - Advertising agency Publicis, which is merging with larger rival Omnicom, achieved 3.3 percent revenue growth on a comparable basis in the first quarter, helped by strong digital sales and an uptick in China and Europe.
Publicis, the first major ad group to post results for the period, said revenue was 1.6 billion euros ($2.21 billion). The average estimate of analysts was 1.62 billion and organic growth of 3 percent, according to company-provided figures.
Chief Executive Maurice Levy said he was optimistic that the Omnicom deal, which will create the world’s biggest ad group ahead of current leader WPP, would close in the third quarter once final antitrust approval was secured in China.
Levy also confirmed Publicis’ annual goals for organic sales growth of more than 4 percent and improved operating margins, adding that first-quarter margins were “slightly better”, without providing a comparable 2013 figure.
“Organic growth will not accelerate in the second quarter because of tough comparables, but it will in the third quarter,” he said. “Europe remains fragile in my view, while China should see mid-single-digit growth, and digital double-digit growth.”
Publicis shares rose 3 percent by 0708 GMT (3.08 a.m.), making it the biggest gainer on France’s blue-chip index.
Analysts called the quarter reassuring, and the results helped boost WPP shares by 0.7 percent as London’s FTSE fell 0.2 percent.
“There had been some concern around weakness in China therefore we would expect results to be taken well,” Tamsin Garrity, analyst at UBS, wrote in a research note.
Publicis and its peers, which include Japan’s Dentsu and Interpublic Group, are set to benefit from a global economic recovery this year because big corporations’ spending on marketing correlates with economic growth.
Market researcher Zenith Optimedia, owned by Publicis, has forecast ad spending will grow 5.5 percent this year, up from 3.9 percent in 2013, helped by the Winter Olympics in Russia, the soccer World Cup in Brazil, and U.S. mid-term elections.
Much of the growth is coming from advertising online and on mobile phones - areas where Publicis is strong - while spending on marketing in magazines and newspapers continues to decline.
Publicis, which had been trailing rivals’ growth in recent quarters because of weak performance in emerging markets, turned things around in the first quarter after meager growth of 0.7 percent in the fourth quarter.
China, the third-biggest ad market globally behind the United States and Japan, swung from a 10.8 percent drop in sales in the fourth quarter to 0.2 percent growth.
The luxury sector in China - a big market for Publicis - has been hard hit by a government crackdown on graft and an effort to curb gift-giving to public officials.
In Europe, organic growth stood at 2.1 percent, with variations persisting between countries. Germany saw 10 percent growth, Italy and Spain returned to growth for the first time since 2011, and Britain slipped 1.6 percent because of what Levy described as delayed spending by some customers.
North America’s organic sales growth was 4.3 percent.
Despite brighter growth prospects, investors have sent Publicis and WPP shares lower this year over concerns about profit margins and the impact of currency fluctuations.
In February, WPP lowered its 2014 margin target to 0.3 points of growth, excluding the impact of currency swings, which could still take a toll on the group if sterling rises against emerging market currencies.
Levy sought to calm investor concerns by repeating a pledge to improve operating margins this year and saying he was “not very worried” about the currency issue because of recent signals from Mario Draghi, Europe’s top central banker.
Draghi said last week that any further strengthening of the euro would need to be met by looser monetary policy so as to ward off the threat of deflation.
“Historically, Publicis does not do financial hedging to protect itself from currency effects because we have local costs and local revenues,” explained Levy.
“I think Draghi has the means to act and that he will do so if he thinks countries are trying to regain competitive edge with monetary policy.”
Publicis shares closed at 63.05 euros on Wednesday, down 5.2 percent this year, compared with a 5.9 percent increase in the Omnicom share price. The European media index was down 4.4 percent year-to-date, while WPP was down 9.8 percent.
Omnicom and Interpublic are slated to publish results on April 22, and WPP on April 25.
($1 = 0.7243 euro)
Editing by James Regan and Dale Hudson