October 20, 2011 / 5:51 AM / in 6 years

Publicis sees Q4 slowdown

PARIS (Reuters) - Advertising agency Publicis (PUBP.PA) said it expected its growth to slow in the fourth quarter, dragged down by Europe’s sovereign debt crisis and persistent worries about the U.S. economy.

The world’s biggest ad group by revenue posted forecast-beating 6.4 percent third-quarter organic sales growth on Thursday as revenue grew across all regions helped by strong demand for digital ads.

Chief Executive Maurice Levy said there was a climate of “uncertainty and worry” but said major clients were not slashing their ad budgets for next year.

“I don’t see any signs that we are entering into a recessionary cycle,” he said. “Some advertisers are being a bit more cautious, but the Olympic Games, European football championships and the U.S. presidential election are all going to be positives for consumer spending next year.”

Levy added that Publicis would end up with annual operating margins this year “comparable” to 2010 even after margins deteriorated in the first six months because of higher spending on salaries, technology and its expansion in digital ads.

Investors have been concerned about the company’s ability to keep improving profitability as it pursues growth in emerging markets and digital, pushing the shares lower after results in July showed an erosion.

“We should see margins improve in the second half of this year, which will allow us to erase the negative effects on our margins in the first half,” Levy said. “What happens in the last weeks of the year will be crucial.”

Shares of Publicis were down 3.6 percent by 0751 GMT, while the French blue-chip CAC 40 index .FCHI was down 1.4 percent.

UBS analyst Tamsin Garrity raised concerns in a note that the market consensus on annual margins was too ambitious since it implied that profitability in the second half would have to rise by up to 100 basis points.

“The stock has had a decent run into these numbers, so we see some risk investors take profits given the risk of news flow deteriorating,” Garrity said.

Revenue in the third quarter was 1.42 billion euros ($1.96 billion), giving organic growth of 6.4 percent, compared with a consensus forecast of 5.6 percent cited in analysts’ reports.

Quarterly profits were not disclosed.

    North America revenues grew 5.5 percent to 685 million euros, with Europe up 6.5 percent at 427 million in the third quarter, while Asia and Latin America expanded even more quickly.

    U.S.-based rival Omnicom (OMC.N) has already reported profits ahead of expectations, whetting investors’ appetites ahead of results from the world’s biggest ad agency, WPP (WPP.L), and U.S.-based Interpublic (IPG.N).

    With ad agency performance largely linked to the economic cycle, investors have been wary of the sector in recent months for fear that Europe’s sovereign debt crisis and persistent unemployment in the United States and elsewhere would slow consumer spending.

    Publicis shares are down about 9 percent since early July, while WPP’s are off 18 percent and Omnicom’s down 12 percent.

    Market research firms, including Publicis-owned Zenith Optimedia, predict the global ad market will grow roughly 5 percent next year.

    Levy said that pace sounded about right, adding that Publicis would aim to outperform the market in 2012 and 2013 both in terms of growth and profit margins.

    ($1 = 0.725 Euros)

    Additional reporting by Gwenaelle Barzic; Editing by James Regan and Will Waterman

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