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WPP goes through rough patch
WPP plc signalled that things will get worse before improving under a turnaround pledged by new chief executive officer Mark Read, as the world's largest advertising company cut its sales outlook and revealed a big earnings miss. The shares slumped 18 per cent.
WPP now expects sales to fall this year and its profit margin to decline, continuing a string of bad news that's hammered its stock.
The company has been too slow to adapt to structural changes in the ad industry, it's underinvested in key areas and it's become too complicated, Mr Read said on Thursday in a trading update.
Mr Read, who took over permanently as CEO in September, is contending with a weakening of the company's business in North America and contract losses from key clients including Ford Motor Co, as he tries to reorganise an unwieldy global network of hundreds of agencies built up over three decades by founder Martin Sorrell.
Major clients are cutting back their spending, or doing more advertising work in-house to save on costs.
He pledged "decisive action and radical thinking" as he continues on a restructuring started in April, when he stepped in on an interim basis with Mr Sorrell's sudden resignation.
While Mr Read has been offloading small positions WPP has held in other businesses for months, his first big move as CEO came on Thursday, when he confirmed that WPP will sell a stake in Kantar, its data and market research unit, to reduce debt.
Kantar, which accounts for about 15 per cent of the group's sales, has been seen by analysts as underperforming and the most likely large sale candidate.
Liberum has valued it at more than £3 billion (S$5.3 billion).
As Mr Read tries to improve WPP's business prospects, he also needs to fill the role of a key deputy, his finance chief.
WPP said on Thursday that chief financial officer Paul Richardson, a key ally of Mr Sorrell who's been in the role for 22 years, will retire in 2019.
WPP shares fell as much as 18 per cent, the most intraday in almost 20 years, bringing the decline this year to 34 per cent and reducing the company's market value to £11.3 billion.
WPP, which is the biggest ad group by sales, saw its market value dip below rival Omnicom Group Inc this month.
WPP's like-for-like organic sales declined 1.5 per cent in the third quarter, a miss versus the 0.3 per cent growth expected by analysts, according to a Bloomberg News compiled consensus of five estimates.
WPP also cut its full-year revenue guidance, expecting sales to be down between 0.5 and one per cent. It had previously guided to growth of about 0.3 per cent.
Profitability at WPP is also under pressure - it now expects the full-year operating margin to be down in the range of one to 1.5 margin points. It previously said it would be down about 0.4 margin points. BLOOMBERG