Publicis declines as sales warning shows deepening ad woes

Paris-based ad-agency said it expects a fall of 2.5 per cent in annual revenue

Publicis says that a 2.7 per cent drop in third-quarter organic sales was worse than expected. Reuters

Publicis Groupe fell as much as 14 per cent after it cut its 2019 revenue forecast for the second time in three months amid a continued squeeze on traditional advertising by US consumer-goods companies.

The Paris-based ad-agency network’s push into digital marketing isn’t happening fast enough to offset the decline in TV and billboard work, and Publicis said that a 2.7 per cent drop in third-quarter organic sales was worse than expected.

“The cost of our transition is hurting short-term organic growth,” chief executive Arthur Sadoun said in a results statement brought forward from the scheduled release date. “This is leading us to take a very cautious approach and reset our guidance for revenue this year.”

In its third gloomy earnings report this year, Publicis said it now expects a fall of 2.5 per cent in annual revenue, compared to a previous forecast for “broadly stable” sales. Prior to that it had been aiming to beat last year’s organic growth of 0.8 per cent.

The sales drop in the third quarter, especially in Europe, "reveals just how little visibility advertising agencies have of their clients' spending plans, and the vulnerability of a business model heavily skewed to project-based work," said Bloomberg Intelligence analyst Matthew Bloxham.

The shares traded in Paris were down 11.4 per cent on Friday. The drop was the most since February 7, the day the company reported a surprise drop in fourth-quarter sales.

After this warning Publicis may still be vulnerable to a “fuller reset” in the next 12 months, Morgan Stanley analyst Omar Sheikh said in a research note.

Old-fashioned advertising has been in decline as consumers turn away from newspapers and traditional TV, forcing ad companies to market themselves as online data-mining and business strategy experts who can help clients target shoppers more effectively. That’s put them in direct competition with the US tech giants Facebook and Alphabet’s Google.

Publicis said a handful of mainly US clients had cut spending on traditional advertising, and media sales were weaker than expected. It also pointed to difficulties at the Sapient digital marketing division acquired in 2015. A shift in the US from pure digital marketing to broader “business transformation” services has hit the unit’s short-term growth, Publicis said.

The results offer a gloomy start to the industry’s quarterly results, with investors looking out for any signs of a slowing US economy. Omnicom has said it expects organic revenue growth of 2 per cent to 3 per cent this year after a series of account wins in 2018.