QUESTIONS AND ANSWERS
. . . . Our first question is from Alexia Quadrani from J.P. Morgan. Your line is open.
Alexia S. Quadrani, J.P. Morgan:
Thank you, and thank you for all the detail on the results in the quarter. But, Michael, I was going to ask: if you were to highlight, really, what was the delta that caused the step down in Q2? Was it more intense pressure from the consumer group or a pullback in those one-offs that you described like digital and PR, more project-based sort of anomalies? I’m just trying to get a better sense of what really got worse to perhaps get better comfort on why this might somewhat correct itself in the back half.
Michael Roth, Chairman of the Board and Chief Executive Officer:
That’s a fair question, Alexia. And I thought I’d tried to address some of it. But let me take it through from the top. In many of these calls, you hear us talk about our top 20 clients. And with these top 20 clients, I’ve very proudly said that we’ve experienced unusually high growth versus our overall performance from these top 20 clients. At some points, it was double what we’ve reported. Sometimes, I actually gave out the number, which I shouldn’t have. I will tell you that for this quarter, particularly, our top 20 clients remained pretty much in line with our overall results. That’s what gives us some comfort with respect to the line of sight we see in the second half. These clients are in the financial position to invest in their media dollars and their advertising spend. And, frankly, they have to in the second half to maintain market share and grow their businesses. So, that will be a primary focus for our people, to get those top 20 clients performing the way they have in the past.
The second item, these digital projects, what’s happened to our business is, clearly, a lot of it is project-based, as you point out. And what’s interesting is our digital products are becoming much larger in scope. So what you see is projects that are inherently choppy because project business is exactly what it is: it’s projects. And because they’re larger in scope, when these projects run off, if you don’t have large projects to offset that, it gives us a much more choppy result on a quarter-to-quarter basis. So what we see is, in the second quarter, we were missing some of these large projects to replace the ones that have run off. But we do see line of sight in terms of our pipeline, where we believe our digital agencies, and our other agencies, should be able to capitalize in the second half.
The one that’s notable is our PR business. We said - the project business on the PR side for the second quarter was negative at Weber Shandwick. This is an anomaly, and we believe that for the second half, we’ll see a pickup in the PR business on the project-side business.
The other thing to focus on was our sectors. Tech & telecom, which has historically been a good driver for us, was down in the second quarter - we were cycling through a particular client loss, Sprint. But it is 20% of our overall mix, and we do see some recovery in the second half in tech & telecom.
And the other part of it is, as I indicated, Mediabrands continues to provide good growth and high margins for us given the fact that they’re highly competitive in the marketplace, and their clients are in the right sectors in terms of growth opportunity. And McCann had a solid result in the second quarter, which, obviously, is a big portion of our overall revenue.
On your question of the overall economy, we believe that the U.S. economy is fine. There is some question, and maybe some clients are holding back, but we do believe that what we do actually works in the marketplace, and clients have to spend in order to drive their business