- Interpublic Group missed its earnings estimates with revenue drops in Q2 (down 1.7%) and H1 (down 0.6%) this year, as reported by The Wall Street Journal and Adexchanger. The drop was directly attributed to the consumer packaged goods (CPG) sector by IPG CEO Michael Roth. “All of us are contending with significant pressure from our consumer goods clients,” he said during an earnings call. “The trend is not new, but reductions intensified in Q2.”
- The ad agency holding group also experienced client losses as well as slowdowns in telecom, tech and financial services.
- Another factor cited by Roth as negatively impacting results is a slowdown in project-based work, typically large-scale digital projects or PR. When there are no large projects to offset the slowdown the result is choppier quarter-to-quarter earnings, he explained.
IPG along with the other Big Four agency holding groups WPP, Omnicom and Publicis Groupe, are facing tough times for a number of reasons, including a shifting role for agencies as digital marketing continues to grow as well as a PR problem related to allegations of a lack of transparency around billing practices and a lack of workforce diversity.
However, IPG's Roth specifically called CPG clients for having a disproportionate impact on earnings, pointing to challenges that sector is facing from digitally native competitors and retailers’ private labels. In response, CPG companies like P&G, Unilever and others have undertaken a number of cost-cutting moves that are directly impacting agencies, reduced media spending, agency roster consolidations and zero-based budgeting models. P&G has been particularly vocal about digital advertising and how it intends to spend its marketing dollars more wisely this year. Roth's statements that the reductions intensified in Q2 suggests the crucial second half could be tough for the ad industry.
The lackluster earnings report joins other recent signals that ad sector is facing a slump, including that Facebook's ad growth continued to slow in Q2 while Omnicom and Publicis Groupe had to dig deep into their most recent quarterly reports to find bright spots. Industry stalwarts will be closely watching quarterly results from the major digital platforms over the next couple of weeks to see if the slump is impacting them as well or if some dollars are migrating from agencies to working directly with Google, Facebook and others. Google was the first of the bunch to release results on Monday and the news was good, with Google's ad revenue topping $22 billion on strength in mobile search and YouTube.
IPG’s disappointing earnings report won’t be welcomed by its industry peers or by Wall Street. Earlier this month major public holding companies including Publicis, WPP, Omnicom and IPG were all downgraded to “hold” while an analyst note described the current business climate as a “difficult time for the agency holding companies.” IPG’s shares fell 15% on yesterday’s news.