Publicis' fall on surprise sales slump adds to industry woes

London

PUBLICIS Groupe plunged the most in almost three years after posting a surprise sales decline in the second quarter, adding to evidence that the advertising industry is mired in a slump sparked by the shift to digital media.

Organic revenue, a measure that strips out the effects of deals and currency swings, slipped 2.1 per cent in the period, the company said on Thursday.

A volatile US health-care business and new data-protection regulations in Europe contributed to the sluggish results.

The Publicis downturn brings a fresh headache to chief executive officer Arthur Sadoun, who took the helm from Maurice Levy just over a year ago.

He's already facing upheaval in the advertising industry stemming from increased competition with consulting companies like Accenture and technology giants such as Alphabet's Google.

The results were "very disappointing," Conor O'Shea, an analyst at Kepler Cheuvreux, said by e-mail.

Factors such as the data-protection regulations disruption and the healthcare business are potentially temporary, he said, but the "credibility of the unchanged second-half outlook at the moment is low".

The stock fell as much as 11 per cent in Paris, the steepest intraday decline since Oct 22, 2015, and was trading 8.2 per cent lower at 53.54 euros at 9.20 a.m. London-based rival WPP fell 2.7 per cent.

The news from the Paris-based company followed disappointing sales from US rival Omnicom Group this week. Its results marked the "worst organic growth in North America since the recession", according to Goldman Sachs Group, and sent stocks sliding across the industry.

Analysts had expected organic growth of 1.1 per cent last quarter. But the company's business with health sales representatives - mostly in the US - was particularly "volatile," Sadoun said. It trimmed 30 million euros ($35 million) from revenue in the first half, Mr Sadoun said, adding that Publicis has launched a strategic review of this "non-core" asset.

Revenue also was hurt by the adoption of European data-protection rules, also known as the General Data Protection Regulation. That implementation temporarily suspended "several" campaigns amid uncertainty surrounding the collection of consumer consent over the Internet.

However, Mr Sadoun was confident the company is on the right track to deliver on its plan laid out at its investors' day earlier this year.

"We are committed to transform Publicis," he told reporters in Paris. "We are on track to deliver organic growth and expand our margin in 2018."

Publicis' operating-margin rate rose to 14.3 per cent from 13.7 per cent a year ago. Mr Sadoun was also upbeat about the 27 per cent growth of its "strategic game changers", which include data and digital business-transformation units.

That segment represents 10 per cent of its total revenue, but will eventually be the "core" of its offer in the future, Mr Sadoun said.

Publicis also won a few contracts from WPP during the first half, notably Marriott International and Procter & Gamble in Australia.

The ad industry was shaken by the abrupt departure of WPP founder Martin Sorrell earlier this year following allegations that he misused company funds.

Publicis has also gained accounts from Omnicom during the period, notably Daimler and Campbell Soup, Mr Sadoun said. BLOOMBERG