Publicis shortfall jolts Madison Ave as ad stocks fall

London

PUBLICIS Groupe SA has set off alarm bells on Madison Avenue as the ad industry's earnings season opens.

The French owner of Saatchi & Saatchi and Leo Burnett Worldwide had a surprise drop in fourth-quarter sales, blaming cuts in ad spending by consumer brands in the US. So-called organic revenue fell 0.3 per cent in the quarter, missing the 2.5 per cent gain that analysts had expected, going by a company-compiled consensus.

Conventional advertising has been in decline as consumers turn away from newspapers and traditional TV, forcing ad firms to market themselves as online data-mining experts who can help clients target shoppers more effectively.

Publicis' results suggest marketers at major brands have yet to fully embrace the company's strategy.

Longer-term success isn't guaranteed either: Alphabet Inc's Google, Facebook Inc and Amazon.com Inc own lots of consumer data and continue to grow quickly at the expense of traditional players in advertising.

Publicis' chief executive Arthur Sadoun said: "We clearly have a revenue attrition on traditional advertising from fast-moving consumer goods in the United States." Publicis now sees a "bumpy ride" in the first quarter as that loss of business is felt in the first months of 2019, it said.

The results are disappointing after a weak performance in the US, where clients are reducing the scope of work with agencies, said Conor O'Shea, an analyst at Kepler Capital Markets.

Shares of Omnicom Group Inc fell as much as 5.3 per cent Wednesday in New York; Interpublic Group of Cos dropped 5.6 per cent. Analysts at Deutsche Bank and JPMorgan cut their ratings on Publicis shares.

The company stuck by its target of 4 per cent organic revenue growth by 2020. Mr Sadoun said recent account wins from companies such as GlaxoSmithKline would boost results from the second quarter, but Bloomberg Intelligence analyst Matthew Bloxham called the 2020 goal a "stretch". Mr Sadoun said financial services and retailers were showing "perhaps more maturity" than consumer-goods makers in embracing the new paradigm. "Today,... for fast-moving consumer goods,... we're seeing bigger growth in our capacity to help our clients become more independent from Amazon," he said.

Since Publicis' investment in ad technology through its purchase of Sapient in 2015, Mr Sadoun has poured resources into businesses that make better use of data and devise digital offerings for clients.

Rival ad group Interpublic reports results next week; London-based WPP follows on March 1. Omnicom hasn't given a precise results date. BLOOMBERG