The Interpublic Group of Companies, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware	1-6686	13-1024020
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
1114 Avenue of the Americas, New York, New York		10036
(Address of Principal Executive Offices)		(Zip Code)
Registrant’s telephone number, including area code: 212-704-1200
(Former Name or Former Address, if Changed Since Last Report)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	THE INTERPUBLIC GROUP OF COMPANIES, INC.
Date: May 5, 2010	By:	/s/ Nicholas J. Camera
		Nicholas J. Camera      Senior Vice President, General Counsel and      Secretary

 

 

 

 

 

 

FOR IMMEDIATE RELEASE

New York, NY  (April 29, 2010)

 

 

·	First quarter revenue increased 1.2% as reported and organic revenue decrease moderated to 2.9% from the first quarter of 2009, reflecting broader economic stabilization

·	Salaries and related expenses decreased 1.7% as reported and 5.7% organically from the same period last year, demonstrating effects of company’s cost actions in 2009 and lower severance in Q1 2010

·	Seasonal operating loss of $59.4 million therefore improved from an operating loss of $81.9 million a year ago

·	Balance sheet and financial flexibility remain strong, enhanced by augmented $650 million credit facility with extended maturity and launch of tender offer for preferred shares

·

Revenue

o	First quarter 2010 revenue was $1.34 billion, compared to $1.33 billion in the first quarter of 2009, with an organic revenue decrease of 2.9% compared to the prior period.  Organic growth in the U.S. was 3.0%.

·	Operating Results

o	Operating loss in the first quarter of 2010 was $59.4 million, compared to operating loss of $81.9 million in 2009.

o	Operating margin was (4.4)% for the first quarter of 2010, compared to (6.2)% for the first quarter of 2009.

o	Operating results include $5 million expense related to transition to inflationary accounting for operations in Venezuela

·	Net Results

o

First quarter 2010 net loss attributable to IPG was $64.6 million and net loss available to IPG common stockholders was $71.5 million, or ($0.15) per basic and diluted share.  This compares to net loss attributable to IPG a year ago of $67.0 million and net loss available to IPG common stockholders of $73.9 million, or ($0.16) per basic and diluted share.

 

 

Philippe Krakowsky (212) 704-1328

Jerry Leshne (Analysts, Investors) (212) 704-1439

Cautionary Statement

 

 

 

·	potential effects of a challenging economy, for example, on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;

·	our ability to attract new clients and retain existing clients;

·	our ability to retain and attract key employees;

·	risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;

·	potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;

·	risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and

·	developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.

 

 

 

		Three Months Ended March 31,
		2010				2009			Fav. (Unfav.) % Variance
Revenue:
United States	$	803.1			$	781.4				2.8%
International		538.2				543.9				(1.0)%
Total Revenue		1,341.3				1,325.3				1.2%
Operating Expenses:
Salaries and Related Expenses		979.3				996.5				1.7%
Office and General Expenses		421.1				410.9				(2.5)%
Restructuring and Other Reorganization-Related Charges (Reversals)		0.3				(0.2)				N/A
Total Operating Expenses		1,400.7				1,407.2				0.5%
Operating Loss		(59.4)				(81.9)				27.5%
Operating Margin %		(4.4)%				(6.2)%
Expenses and Other Income:
Interest Expense		(32.6)				(34.8)
Interest Income		6.5				12.3
Other Income, Net		0.5				4.9
Total (Expenses) and Other Income		(25.6)				(17.6)
Loss before Income Taxes		(85.0)				(99.5)
Benefit of Income Taxes		(15.3)				(25.4)
Loss of Consolidated Companies		(69.7)				(74.1)
Equity in Net (Loss) Income of Unconsolidated Affiliates		(0.6)				0.5
Net Loss		(70.3)				(73.6)
Net Loss Attributable to Noncontrolling Interests		5.7				6.6
Net Loss Attributable to IPG		(64.6)				(67.0)
Dividends on Preferred Stock		(6.9)				(6.9)
Net Loss Available to IPG Common Stockholders	$	(71.5)			$	(73.9)
Loss Per Share Available to IPG Common Stockholders – Basic and Diluted	$	(0.15)			$	(0.16)
Weighted-Average Number of Common Shares Outstanding – Basic and Diluted		471.3				464.0

 
 

 

Mr. Roth:

 

Certainly, the tech and telecom spilled over there, frankly, which gets us to the question of McCann.  And McCann U.K. is a very solid offering.  They’ve had some business wins there, and we made some changes there in personnel, and we are pleased with what we’re seeing there.  So I think the effect of tech and telecom and the one-time events that we’re referring to are the key to it.  And the rest is going to be just general economic environment.

 

Mr. Mergenthaler:

 

There are no other events out there, Craig, that are worth calling out.  So it’s client-specific by market.

 

Mr. Huber:

 

And then lastly, please, in China what — as you mentioned a couple of few multinationals there —was that the entire reason for the decline over in China?

 

Mr. Roth:

 

Certainly that’s a key component of it.  We did win some recent  — it hasn’t been publicized — we did win some business out of China.  Again as I indicated in my opening remarks, we are smaller compared to our competitors there.  We have over 1000 people there, we service our multinational clients there.  We have strong offerings, both Lowe, Draftfcb, Weber Shandwick, McCann Worldgroup.  So we do have strong offerings in China, and it’s going to be a focus on us for the balance of this year to see what we can do to bolster our offerings.  Obviously our media business as well, but we have to bolster our offerings in China, and it’s a key priority for us in 2010.

 

 

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Mr. Huber:

 

Great.  Thank you.

 

Mr. Mergenthaler:

 

You’re welcome.

 

 

Operator:

 

Our next question comes from James Dix with Wedbush. . . .

 

James Dix, Wedbush Securities:

 

Good morning, gentlemen.  Just if you could give little more color into the sequential improvement you saw in your organic growth.  I don’t know whether you have this number, but if you stripped out the tech and telecom category, how much would you have improved in the first quarter from the fourth, because a lot of people have been trying to compare the relative improvements in the various agency holding companies and trying to gauge what the overall industry inflection is?  And then I have one follow-up on that.

 

Michael Roth, Chairman of the Board and Chief Executive Officer:

 

I’m glad you asked that question, that was a point that we were discussing.  On the U.S. side, if you stripped out — just in the first quarter — if you stripped out the tech and telecom, we would have been over 5% organic growth in the U.S.  So one of the questions was, how are we comparing to competitors, and so if you pull that out, we are quite competitive in the U.S., and we’re excited about this number.  On the global basis —

 

Frank Mergenthaler, Executive Vice President and Chief Financial Officer:

 

About 1% organic growth.

 

Mr.Dix:

 

Do you know what those figures would have been in the fourth?

 

Mr. Mergenthaler:

 

We do not.

 

Mr. Roth:

 

No.

 

Mr. Mergenthaler:

 

We do not.  Due to the seasonality of the business that’s the tough time.

 

Mr. Roth:

 

Yeah, I mean, I understand it’s picking and choosing, but the fact is, it has such an impact on us — and will continue to have an impact on us for the rest of 2010 — I think it’s fair for us to break that out.

 

 

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Mr.Dix:

 

Okay.  And just one follow-up.  Just looking at Europe in particular, do you have a breakdown as to what your revenue exposure is from Portugal, Ireland, Italy, Greece and Spain — I won’t use the acronym — and do you have any sense as you look forward in the year?  How do you see the progression of other markets returning to growth, now that you’ve seen it in the U.S.?  Just who do you think is going to be next?  Any color you can give on kind of geographic recovery.

 

Mr. Roth:

 

Well, certainly U.S.  The question was would the rest follow the U.S., and obviously, we have a bias on the U.S. a bit, but clearly Latin America, India, China, and particularly in Brazil, we’ve seen some strong numbers, and we believe that will continue to be strong, and, frankly, Europe — Western Europe — will lag that growth.

 

Mr. Mergenthaler:

 

And when you look at that, without disclosing specific countries, our largest markets are the U.K., France, Spain, Germany and Italy.  So the other markets you are referring to are at the lower end of the size scale for us.

 

Mr.Dix:

 

Okay.  Would you say that on a consolidated basis under 5% for those countries?

 

Mr. Mergenthaler:

 

Yeah, that’s fair.

 

Mr. Roth:

 

That’s fair.

 

Mr.Dix:

 

All right, thanks very much.

 

Mr. Mergenthaler:

 

Thank you.

 

Mr. Roth:

 

Thank you.

 

 

Operator:

 

Our next question comes from Dan Salmon with BMO Capital Markets.

 

Daniel Salmon, BMO Capital Markets:

 

Thanks, guys, for taking my question.  I am just going to ask for, Frank, sort of broad outlook on a few expenses and cash flow items, namely stock comp, capex and severance.

 

 

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Frank Mergenthaler, Executive Vice President and Chief Financial Officer:

 

On the expense line items, we are one quarter in; when we look at how we performed versus our budget, we’re pleased.  We saw base salaries down organically north of 6%.  We saw a little creep in temporary labor, but that’s reflective of some of the new business pipeline we’re seeing, so we’re going to continue to monitor that.  We’re seeing normalcy come back into incentive compensation; that gives you some view that the operators feel as though their operating plans for the year are still on track.  So all in all I think we feel pretty good about the expense line, but as Michael made in the opening comments, we need to be continue to be diligent about it.  I think on the stock-based comp number, I’m not sure I have that in front of me, and on the capex number for the year, working capital of probably $100 million is a good number to model.

 

Mr. Salmon:

 

And on severance, specifically — obviously down considerably there to 10 million — are there any major sort of management moves in specific regions or agencies that would cause that to change?

 

Mr. Mergenthaler:

 

As of now the 1% of revenue which we kind of guided people to still seems like a reasonable number.

 

Mr. Salmon:

 

That’s great.

 

Michael Roth, Chairman of the Board and Chief Executive Officer:

 

And the other side is that if we start seeing that we are — a particular region or discipline is not performing the way we are — I think we have indicated a pretty good example of — we’ll be quick to take actions to reflect our cost base in that area.

 

Mr. Salmon:

 

Got you.  Thank you very much.

 

Mr. Mergenthaler:

 

You’re welcome.

 

 

Operator:

 

Next question, Matthew Walker with Nomura. . . .

 

Matthew Walker, Nomura International:

 

Thanks very much.  Good morning.  Just a few questions, please.  First, in terms of the U.K. and Europe, in which quarter would you be expecting a return to organic growth?  The second question is on tech and telecom.  Is that the effect from one client or how many clients is that the effect from?  And then lastly on your margin expectation,

 

 

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you said that the business is off to a stronger start overall then you expected.  Would you be willing to say that you could do better than 8% margins for this year?

 

Michael Roth, Chairman of the Board and Chief Executive Officer:

 

Let me answer that one first.  What we said was we expect — this is the first quarter, so we are not about to — as I always say — raise flags and say happy days are totally here again.  So right now what we say is that we should be able to do 8% or better given a flat or slightly up organic, and obviously if we do better on the revenue side we would hope to be able to do better on the margin side.  We can’t tell you specifically when Western Europe is going to turn positive.  The issue is the way we look at is, on a global basis, obviously things are better, and we would hope to see us return to growth sooner rather than later than when we had said before.  But I can’t tell you specifically — maybe you can tell me — when is Western Europe going to turn positive.  But I think overall the trend is what we say, and that’s what we are comfortable with.

 

Frank Mergenthaler, Executive Vice President and Chief Financial Officer:

 

On the tech and telecom question, it’s not just one account.

 

Mr. Roth:

 

Right.

 

Mr. Mergenthaler:

 

Probably six to seven accounts, of which more than half of it relates to one account.

 

Mr. Roth:

 

Right.  It’s three big accounts — bigger accounts — I think is the way to look at it.

 

Mr. Walker:

 

Thanks very much.

 

Mr. Roth:

 

Thank you.

 

 

Operator:

 

Our last question comes from Tim Nollen with Macquarie. . . .

 

Tim Nollen, Macquarie Bank:

 

Hi, thanks, it’s Tim Nollen at Macquarie.  I have two questions, please.  First is on the Chevrolet loss: could you explain a bit more what that was?  My understanding was there were a number of Chevrolet brands on the creative side.  So it sounds like a pretty big loss, and if that’s the case, do you feel like you have been able to offset that

 

 

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with some other wins you had in auto recently or conversely does it position you for some other potential wins in autos?  And secondly on the new or extended credit facility, you’ve got a slide showing the 335 million — I guess that’s the one that’s now been replaced — what are the new covenants if they are different, and if you could comment on any use of cash, please?

 

Michael Roth, Chairman of the Board and Chief Executive Officer:

 

Let me address Chevy.  The Chevy loss was actually North America, and it was the creative in North America.  As I indicated, we retained the dealership business.  So the — in order of magnitude we had said it’s not a significant number compared to our overall revenue.  I know it sounds like it’s big, but if you look at it from a North American point of view — and the fact that it’s narrowed to those different projects —look, we don’t like to see being lost at all, but it’s not significant, and, frankly, the numbers that have been out there with respect to the estimated revenue impact are, frankly, a little bit high.  Especially since we’ve retained the dealership business, which initially there was a question as to whether that business went over, and we’ve had confirmation recently that is their intention to keep the dealership business with Campbell-Ewald.  So the number is not that significant.

 

The other question had to do with covenants, I think we put it in the —

 

Frank Mergenthaler, Executive Vice President and Chief Financial Officer:

 

It’s all in the 10-Q we just released —

 

Mr. Roth:

 

And, frankly, we incorporated that in the Q, and, frankly, we’ll leave it to you to looking at those numbers in our Q.

 

Mr. Nollen:

 

Okay.

 

 

 

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Michael Roth, Chairman of the Board and Chief Executive Officer:

 

Well, thank you all for participating.  Obviously a lot has happened in the first quarter.  We’re excited about all the opportunities that we have, and, frankly, we appreciate the support and we look forward to our next call in the second quarter.  Thank you very much.

 

Operator:

 

This concludes today’s conference.  We thank you for your participation.  At this time you may disconnect your line.

 

*           *           *           *           *

 

 

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Cautionary Statement

 

This transcript contains forward-looking statements.  Statements in this transcript that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements.  These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent Annual Report on Form 10-K.  Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

 

Forward-looking statements involve inherent risks and uncertainties.  A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.  Such factors include, but are not limited to, the following:

 

·	potential effects of a challenging economy, for example on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;

 

·	our ability to attract new clients and retain existing clients;

 

·	our ability to retain and attract key employees;

 

·	risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;

 

·	potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;

 

·	risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and

 

·	developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.

 

Investors should carefully consider these factors and the additional risk factors outlined in more detail in our most recent Annual Report on Form 10-K under Item 1A, Risk Factors.

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