WPP Cuts Forecasts Again on Lower Ad Spending -- Update

By Nick Kostov 

WPP PLC cut its annual sales forecast for the third time this year, as the world's largest advertising company struggles to boost revenue at a time when previously big-spending consumer-goods firms are ratcheting down marketing spend.

The London-listed company on Tuesday said it now expects sales growth excluding currency swings and acquisitions to come in "broadly flat" for the year and also lowered its profit-margin guidance. After achieving 3.1% comparable net sales growth last year, WPP initially targeted 2% growth for 2017 before cutting its forecast to 0-1% two months ago in a move that sent shock waves through the marketing industry.

Like other ad giants, WPP is grappling with the slowest revenue growth since the financial crisis as some of its largest clients like Procter & Gamble Co. and Unilever NV cut their advertising budgets. That slowdown in growth has led some investor to question the broader health of the agency business, with the emergence of new competitors and fast-changing technology also putting pressure on share prices.

WPP's closest competitors face similar headwinds. Omnicom Group Inc. reported a fall in its third-quarter revenue earlier this month, although its numbers beat estimates, while rival Publicis Groupe SA reported revenue below expectations after being hit by a slowdown in Europe, sending its shares sharply lower.

WPP Chief Executive Martin Sorrell -- known for giving colorful economic predictions -- said the low growth environment has led consumer-good companies to keep a tight lid on costs.

He added that low interest rates were driving capital into activist investing, which was putting pressure on companies to focus on short-term returns.

"The traditional view that innovation and branding is critically important is coming under focus from the zero-based budgeters and activists," Mr. Sorrell said.

Mr. Sorrell added that Facebook and Google weren't a threat to WPP's business, and were forecast to be WPP's top two destinations for investing its clients' money this year.

WPP said the weakest performance in the third-quarter came from the group's North America operations, where the company last year lost accounts with AT&T Inc. and Volkswagen AG. Comparable net sales fell 4.9% in the region, driven by weakness across all divisions. The U.K. was WPP's strongest region in the quarter, with comparable net sales up 2%.

Overall, comparable net sales -- a key measure used to judge the company's underlying performance -- fell 1.1% in the three months to Sept. 30, compared with a fall of 0.5% in the first half. The company reported a 1.1% rise in turnover for the period to GBP3.65 billion, as the Brexit-weakened pound meant its earnings overseas were boosted when converted into sterling.

WPP didn't break out profit figures for its third quarter. Its shares, which have fallen almost 30% this year, rose 1.5% on Tuesday.

Write to Nick Kostov at [e-mail]

(END) Dow Jones Newswires

October 31, 2017 08:31 ET (12:31 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.