February 27, 2009 / 4:33 PM / 9 years ago

UPDATE 2-Interpublic tops expectations, eyes more cost cuts

* Q4 rev $1.901 bln versus Wall Street view $1.905 bln

* Says next several quarters will be “very challenging”

* Sees more personnel cost cuts in Q1

* Shares up nearly 6 pct (Adds comments on cost cuts, margins, clients)

By Yinka Adegoke

NEW YORK, Feb 27 (Reuters) - U.S. advertising company Interpublic posted a higher-than-expected quarterly profit, and said it expected to cut more personnel costs in the current quarter as marketers reduce spending in the weak global economy.

Interpublic Group of Cos Inc (IPG.N) stopped short of saying it would slash jobs, but talked about lowering salary expenses as it tries to maintain its profit margin targets.

Chief Executive Michael Roth said on a conference call on Friday that clients are being very measured and cautious in their approach to spending and that Interpublic is very focused on managing costs.

“As the revenue declines persist, we will be taking actions in the first quarter; obviously salary is an important part of that,” said Roth. He said some of the company’s agencies had already announced staff cuts this quarter.

Shares of the company rose nearly 6 percent in morning trading as cost-cutting measures in the fourth quarter helped profit beat Wall Street forecasts.

Fourth-quarter net profit applicable to common shareholders rose to $217 million, or 39 cents a share, from $162.7 million, or 31 cents a share, a year earlier.

Excluding the reversal of net tax valuation allowances, profit was 30 cents a share, above the 28 cents a share expected by analysts, according to Reuters Estimates.

Interpublic, the parent of advertising agencies like DraftFCB and McCann-Erickson, said revenue fell 4.1 percent to $1.901 billion, in line with the average Wall Street estimate of $1.905 billion.

The effect of foreign currency translation on revenue was a negative 4.2 percent, and the impact of net acquisitions was a positive 2.4 percent, resulting in an organic revenue decrease of 2.2 percent, Interpublic said.


Chief Financial Officer Frank Mergenthaler said “the next several quarters will be very challenging”.

The company said it expects to be able to maintain its profit margin target for 2009 if revenue declines in the 2 to 3 percent range. “If the revenue deteriorates at a greater rate than that we will be hard pressed to maintain our margins,” said Roth.

The impact of the economic downturn on advertising and marketing services’ budgets has varied across sectors and countries.

“Certain geographies especially within Asia and Latin America may see lower growth in 2009 than in recent years,” said Roth. “Conversely we’re seeing softness in a number of the larger developed European markets, which means we’ll have to manage very conservatively in light of likely revenue decreases.”

Interpublic said it has limited exposure to the financial sector, but General Motors (GM.N) is one of its single largest clients. Roth said Interpublic’s GM business is currently worth around $150 million.

The broad economic troubles come just as Interpublic recovers from its own problems, ranging from major client losses to questions about its accounting. Recently, it won a number of big accounts, closed the books on a probe by regulators, and significantly cut costs.

Shares of the company were up 5.9 percent at $3.77 in late morning trading on the New York Stock Exchange. (Editing by Jeffrey Benkoe, Dave Zimmerman)

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