WPP's Shares Tumble After Downbeat Quarter -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 26, 2018).

By Nick Kostov and Lara O'Reilly 

WPP PLC shares fell sharply Thursday after the world's largest advertising group reported disappointing quarterly results and cut its full-year guidance, underscoring the challenge facing new Chief Executive Mark Read.

Like much of the advertising world, WPP is wrestling with a shift to digital ads from print and TV, as well as tighter spending by clients with ad agencies and demand for new services such as data analytics.

However, WPP appears to be struggling to meet those challenges more than its rivals.

The British company, which owns agencies including J. Walter Thompson and Group M, said like-for-like net sales -- a key measure of its operating performance -- fell 1.5% for the quarter ended Sept. 30. That is far worse than the 0.4% rise expected by analysts and well below recent figures from rivals Omnicom Group Inc. and Interpublic Group of Cos.

"Clearly we've underperformed our competition in Q3. I can't sugarcoat the reality," Mr. Read said on a call with analysts. "I think there are issues in our sector, but the reasons we've underperformed are clearly related to WPP."

Investors took fright from the downbeat quarter. Mr. Read had nudged up full-year net sales guidance last month only to lower it again Thursday, saying the measure would fall as much as 1%, rather than rise modestly. WPP also said its profit margin would decline more than expected and warned of a tough 2019.

WPP shares, down about a third over the past 12 months, dropped more than 20% in early trading in London before closing down 14%. That was the stock's worst daily fall since 1998, according to FactSet data.

The downbeat update adds to pressure on Mr. Read, who took the helm in September after the departure of longtime CEO and founder Martin Sorrell in April. Some analysts now fear Mr. Read's turnaround plan could take longer than expected.

"A turnaround which could take at least three years is looking increasingly likely," Conor O'Shea, an analyst at broker Kepler Cheuvreux, said in a note.

Mr. Read said Thursday he still thought WPP could return to growth.

First, he will need to stop the drumroll of account losses in recent weeks. Ford Motor Co., one of the firm's largest clients, switched its creative duties to rival Omnicom this month, and companies including American Express Co., PepsiCo Inc. and Daimler AG's Mercedes-Benz have moved business away from WPP recently.

Mr. Read has sought to have greater oversight over some of that work, telling the network's media agencies to report to corporate HQ any pitches that could generate a minimum of $20 million in revenue.

He is also seeking to refine WPP's sprawling portfolio of assets, selling some to reduce debt and simplify its operations.

On Thursday, WPP confirmed it plans to unload a stake in its underperforming market-research unit Kantar Group. A sale of even part of the unit -- valued by analysts at between EUR3 billion and EUR4 billion ($3.4 billion and $4.6 billion) -- would be the largest sale since Mr. Read became CEO.

"Sentiment around WPP has been very weak, but hopefully this move will help restore some confidence and part-repair a creaking balance sheet," said Alex DeGroote, founder of media consultancy DeGroote Consulting.

The Kantar plan is part of a broader effort by Mr. Read to reorganize WPP's business in the hope of making it more nimble and investing in companies that appear to be tech-savvy. On Wednesday, WPP said it was consolidating its health care agencies into Ogilvy, Wunderman and the recently merged VMLY&R creative agency.

"We have great strengths within the group, we just need to do a better job at making it simpler for clients to access it," said Mr. Read, adding it would "take some time" to see the results of his strategy.

Again this quarter, WPP said a weakening of its businesses in North America and in its creative agencies dragged down the group's performance. In North America, like-for-like net sales dropped 5.3% on the comparable quarter a year earlier.

"We do have strong creative talent, we just need more of it," said Mr. Read, who said the company wouldn't rule out acquisitions in this area although such deals would most likely focus on technology.

Overall revenue declined by 0.8% to GBP3.76 billion ($4.85 billion) for the third quarter compared with GBP3.79 billion in the year-earlier period.

WPP also announced Thursday its longtime Finance Director Paul Richardson will retire in 2019.

The company is set to provide another strategy update in December.

Adria Calatayud contributed to this article.

Write to Nick Kostov at [e-mail] and Lara O'Reilly at lara.o'[e-mail]

(END) Dow Jones Newswires

October 26, 2018 02:47 ET (06:47 GMT)

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