Does WPP's Dip Herald a Slide in the Market?


LONDON -- WPP (ISE: WPP.L) revealed in its interim results today that it has cut its revenue forecast after a period of slow growth in the U.S. and Europe. Despite an increase in billings of 1.2% to 21.7 billion pounds, reportable revenues up 5.5% to almost 5 billion pounds and like-for-like revenue rising 3.6%, the numbers still represent a downplaying of the previous quarter's forecast. The group is the world's largest advertising company and is often seen as a sharp indicator of how the economy is fairing.

Headline profit before interest and tax was up more than 10% on the previous year at 570 million pounds, with the diluted earnings per share rising more than 13% to 25.8 pence. Dividends were also up 18% to 8.80 pence.

WPP generated the majority of its sales in Europe and the U.S., which both continue to languish in the European debt crisis. The markets of Southeast Asia, Latin America, and Africa are now the major driving forces, all showing double-digit growth.

In an effort to bolster its fortunes in the U.S., the company bought one of the largest independent digital advertising firms in the U.S., AKQA Holdings, in June for about $540 million. AKQA boasts clients such as Google and Diageo. The group in total completed 40 worldwide acquisitions, 20 of which were in new markets.

As in the first quarter, advertising and media investment management remains the strongest-performing sector. Revenues grew by 7% in the second quarter, compared with 8.4% in the first quarter, with like-for-like growth of 5.9%. Consumer insight revenues grew 3.1% in the second quarter, very similar to the first quarter. Public relations and public affairs revenues were up 5.8% in the second quarter, with like-for-like up 0.3%. These compare to 6.8% and 1.9%, respectively, in the first quarter. At the group's branding and identity, health care and specialist communications businesses (including direct, digital and interactive) revenues grew strongly at 8.3% in the second quarter, with like-for-like growth of 2.2%. This compares to like-for-like growth of 3.8% in the first quarter.

The market reaction to the results was disappointment, with the share price falling just over 3% to 806.5 pence.

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