WPP lowers profit outlook in ‘stark reminder’ about ad woes
Advertising company WPP reduces its target for earnings per share growth by about 40% to between 5% and 10%, from a previous 10% to 15% goal
London: WPP Plc lowered its long-term profit outlook as chief executive officer Martin Sorrell contends with tighter client ad budgets and mounting competitive threats, prompting the shares to slide to the lowest intraday since 2014.
The world’s largest advertising company reduced its target for earnings per share growth by about 40% to between 5% and 10%, from a previous 10% to 15% goal. London-based WPP reported a “slow start” to 2018 and a no-growth outlook for the year on the back of a tough 2017 where revenue and profit margins were also flat.
“Reading his statement there’s a real sense of shock and awe at what’s happened to his business model,” said Alex DeGroote, media analyst at Cenkos Securities.
“This is a stark reminder of the significant challenges WPP faces.”
Sorrell, who founded the company in 1986, is up against one of the biggest challenges of his career. Major customers such as Unilever Plc and Procter & Gamble Co. are holding back their marketing spending to cut costs, while digital players such as Alphabet Inc.’s Google and Facebook Inc. are cutting out advertising agencies that act as middle men and consultants like Accenture Plc and Deloitte Llp are poaching digital marketing work.
The shares dropped as much as 13.1% to the lowest intraday since November 2014. The stock was down to 1,229.50 pence as of 8:30am in London. WPP said like-for-like revenue last year was down 0.3%, in a statement. The ad giant said it’s accelerating a strategy reset to cope with continued weak ad spending by its clients, trying to break down silos among its various creative, ad buying, strategy and public relations businesses to draw on top talent and seamlessly serve clients.
After “not a pretty year” in 2017, WPP is “upping the pace” of its effort to combine its global team, Sorrell said.