Ad Agencies Making Up Lost Ground
Omnicom Group Inc., WPP Group and other advertising stocks have erased most, and in some cases all, the declines suffered after the Sept. 11 terrorist attacks, as investors bet ad spending will recover next year.
“People are looking through the current difficulties and are saying perhaps the worst is over,” said Chris Jeffrey, who helps manage $15.7 billion in securities, including WPP, at Royal London Asset Management in London.
European shares of Omnicom, owner of the company that created the “Whassup” commercials for Budweiser beer, dropped as much as 18% after the attacks. Those losses were erased and the stock is now 10% higher than on Sept. 10. WPP is down 3%, after dropping as much as 29%.
Terrorist attacks on the World Trade Center and the Pentagon led companies such as Singapore Airlines to cancel ads, worsening a slump in ad spending that began earlier this year as economies slowed. WPP said Thursday that the attacks cut third-quarter revenue by at least $30 million.
Even before the attacks analysts were predicting the worst year for ad spending in a decade. Zenith Optimedia Group forecast in August that 2001 expenditures in the U.S., Japan, Germany, Britain, France, Italy and Spain--which represent three-quarters of global spending--would decline 2.6%.
Yet not all the recent news has been bad. Omnicom said last week that third-quarter profit rose 7.8%, beating analysts’ estimates. France’s Publicis Group, whose clients include Heineken, said on Oct. 2 that it expects 2001 revenue to rise as much as 5.5%.
Its shares, which fell by a third after the attacks, are now up 11% since Sept 10. French rival Havas Advertising is up 7.8% in the period.
“Publicis has reiterated growth targets for the year, so to some extent the rise is warranted,” said David Doft, an analyst at ABN Amro in New York with a “hold” rating on Publicis.
As for Havas’ gain, “a rising tide lifts all boats,” he said.
Paris-based Publicis said it expects a full-year operating margin of 14%. Operating margin is the percentage by which revenue exceeds costs.
Some ad companies, however, have suggested there’s little reason to expect a rebound in 2002. Havas said it doesn’t expect a recovery in the ad market before 2003.
Martin Sorrell, chief executive officer of WPP, said he couldn’t say when a rebound will occur. WPP said Thursday that full-year revenue may fall 2% after third-quarter sales were hurt by the attacks and the slowing global economy.
Some shares haven’t rebounded. Cordiant Communications Group, which on Sept. 28 said full-year revenue will fall about 5% as clients pulled ads after the attacks, has dropped 44% since the day before the attacks.
Interpublic Group of Cos., the biggest advertising agency, is still down 11% since Sept. 10 after falling as much as 23%. Grey Global Group Inc. shares are down 9%.
Some analysts expressed surprise that other ad companies’ stocks had bounced back so fast.
“The market is buying, which is madness in my view,” said Nicola Stewart, a media analyst with Commerzbank Securities. “There will be another leg down in advertising.”
