October 10, 2019 / 5:12 PM / 6 days ago

Publicis CEO under pressure following second sales target cut

PARIS (Reuters) - Publicis’ chief executive Arthur Sadoun appeared under pressure on Thursday following a second cut to the full-year sales target of the world’s third-biggest advertising group.

FILE PHOTO: The logo of Publicis group is seen at the high profile startups and high tech leaders gathering, Viva Tech,in Paris, France May 16, 2019. REUTERS/Charles Platiau

The change in company guidance reflected yet again the hardships that traditional ad groups face, with revenues being squeezed by competition from Facebook (FB.O) and Google (GOOGL.O) as well as tightening budgets by major clients.

Sadoun, who succeeded company veteran and current chairman Maurice Levy in 2017, has promised to offset the decline in ad spending by steering the business closer to consulting groups and offering clients technological tools on top of traditional creative marketing campaigns.

This strategy is taking more time than expected to bear fruit, as Paris-based Publicis (PUBP.PA) cut its full-year revenue target following poor third-quarter results hit by a fall in spending by U.S. clients and a disappointing performance by its digital arm.

Publicis also pointed to weaker revenue from media operations.

“We have taken the tough but necessary decisions needed to tackle the industry challenges we are facing head-on,” Sadoun, 48, said. “We are without a doubt at the hardest part yet of our journey and as is the case with any major structural change, things always get worse before they get better.”

TOUGH JOURNEY

The advertising group, which competes against bigger rivals WPP (WPP.L) and Omnicom (OMC.N), said it now expected sales to decline by about 2.5% on an underlying basis, compared to a previous outlook of a “broadly stable net revenue”.

This is the second cut to Publicis’ yearly financial guidance in 2019. Third-quarter sales fell by 2.7% on an underlying basis to 2.58 billion euros ($2.8 billion).

The company brought forward the publication of its third-quarter results by a week, after a negative analyst note hit shares, Sadoun said on a conference call.

The group now anticipates underlying sales in 2020 to evolve in the range of -2% to +1%, compared to an ambitious target of an increase in underlying sales of 4% - an objective that many analysts considered nearly impossible to attain.

The company maintained a solid full-year operating margin guidance of 17.3%, excluding transaction costs related to the $4.4 billion acquisition of data-focused marketing business Epsilon, prompting skeptical questions in a call with analysts.

Through Epsilon, Publicis hopes to beef up its data and tech expertise following the difficult absorption of digital ad business Sapient, bought in 2015.

Several analysts wondered how Publicis could keep such margin targets while cutting revenue guidance.

Sadoun replied that new offers led by Sapient created more value than traditional creative products.

($1 = 0.9079 euros)

Reporting by Mathieu Rosemain; Editing by Nick Zieminski and Alexandra Hudson

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