WPP in a slump, lowest outlook in 20 years

WPP in doldrums, biggest share slump in 20 years

WPP Plc Chief Executive Officer Mark Read said the company is in the doldrums, bad news for investors with a cut to the ad giant’s outlook.

WPP is facing the biggest share slump in almost two decades.

The owner of Ogilvy, Grey and J. Walter Thompson now expects sales to fall this year and its profit margin to decline as it revealed a third-quarter earnings miss.

The shares dropped as much as 23 percent intraday to a six-year low, wiping out 3 billion pounds ($3.9 billion) of market value.

The turnaround promised by Read will take longer to deliver showing how tough it’s been for him to wrap his arms around challenges facing the world’s biggest ad group.

Read, took over from Sorrell as CEO in September.

He’s trying to reorganise a global network of hundreds of agencies built up by Sorrell over three decades, just as major clients cut spending and new digital rivals emerge.

Read said that WPP had been too slow to adapt to changes in the industry and had underinvested in key areas.

“Our industry is not in structural decline, it’s in structural change,” Read said in a phone interview. “Perhaps we’ve been slow to react to those changes in the last two years. We need to accelerate the pace.”

Investors have been skeptical of whether WPP can fend off various secular threats, such as consultants like Accenture Plc and Deloitte LLP winning marketing-related projects, Facebook Inc. and Alphabet Inc.’s Google working directly with brands and cutting out agency middlemen and advertisers bringing work in-house to save on costs.

WPP’s creative agencies are also suffering, which Read blamed on reduced demand for traditional ad work, like shooting TV commercials and designing newspaper ads.

Companies are instead investing more in digital creative projects, Read said, an area where WPP is less focused than its peers.

The third-quarter sales decline shows WPP is losing ground to its main competitors — Omnicom Group Inc., Publicis Groupe SA and Interpublic Group of Cos. — each of whom reported steady organic revenue growth this quarter.

In WPP’s biggest market, North America, like-for-like organic sales declined 5.3 percent, and there was also an unexpected slowdown in the U.K. and Western Continental Europe. The contrasting results “will raise questions over WPP’s specific issues,” Ian Whittaker, an analyst at Liberum, said in a note.

While Read has been offloading small positions WPP has held in other businesses for months, his first big move as CEO came Thursday with the announcement that the company plans to sell a stake in Kantar, its data and market research unit, to reduce debt.

The division, which accounts for about 15 percent of the group’s sales, has been seen by analysts as underperforming and the most likely large sale candidate. It is valued it at more than 3 billion pounds.

Investors will get a strategy update in December and Read offered hints on his plan, pointing to a simplified structure, investments in technology and talent, and a new culture.

Meanwhile its Chief Financial Officer Paul Richardson, who’s been in the role for 22 years, will retire in 2019.

 


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