August 9, 2019 / 7:22 AM / 16 days ago

New contract wins help WPP to improved second-quarter trading

LONDON (Reuters) - New client wins including Instagram and eBay helped WPP (WPP.L) report better-than-expected trading in the second quarter, giving a lift both to its shares and the boss of the world’s biggest advertising company.

Mark Read, who took over from founder Martin Sorrell last year, has been working to simplify the group by merging agencies and changing incentive schemes after clients complained the owner of Ogilvy, Grey and Finsbury had become too unwieldy.

The British company said on Friday its key sales measure - organic growth less pass-through costs - fell 1.4% in the second quarter, beating the 3% fall expected by analysts.

It was also an improvement on a fall of 2.8% in the first quarter and enabled WPP to reiterate its full-year outlook.

The stock, which had slumped earlier this week to a near four-month low, jumped as much as 10% in early trading and by 0845 GMT was up 6.3 percent at 973 pence.

“We believe that we have the right strategy,” Read told Reuters. “There will be twists and turns on the way but we set out a three-year plan and I would say we’re now more confident that it’s the right plan.”

WPP is in the middle of an overhaul after the loss of key clients and work led to several profit warnings in 2017 and 2018, the same year Sorrell quit over a complaint of misconduct, which he denied.

Shares in the company fell 60 percent between March 2017 and March 2019 as it lost work from clients including American Express, United Airlines and Ford - a partner for 75 years.

The stock is up 20 percent since then, slowly closing the valuation gap with U.S. rivals Omnicom (OMC.N) and Interpublic (IPG.N) which have performed more strongly in recent years.

“The investment case at WPP is all about the multiple where the significant discount the group suffers vs peers ... is entirely down to the perception that WPP’s growth has permanently diverged from the peers,” analysts at Citi said.

FILE PHOTO: Mark Read, CEO of WPP Group, the largest global advertising and public relations agency, poses for a portrait at their offices in London, Britain, July 17, 2019. REUTERS/Toby Melville/File Photo

“With this in mind we think results will be taken well,” noting WPP had been trading on just nine time prospective earnings against 11 to 13 for its rivals.

INCENTIVE SCHEMES

For the first half, group sales were down 2%, enabling WPP to reiterate its guidance for a full-year drop of between 1.5% and 2%.

A company veteran, Read was forced to act after clients complained that its 130,000 staff were too slow to provide content in a digital world.

He has responded by merging certain agencies such as JWT with its digital outfit Wunderman and changing incentive schemes, aiming to break down barriers and improve collaboration in a firm that was largely built by acquisitions.

A disposal program, including the planned sale of a 60% stake in market research arm Kantar, is set to raise 3.6 billion pounds ($4.4 billion), enabling it to reduce debt and return proceeds to shareholders.

WPP said clients had reacted well, helping it to lately win work from Centrica, InterContinental Hotels and Eurostar. Major packaged goods groups, which had curtailed their spending, are starting to invest more in the United States, he added.

With restructuring completed the group will focus on investing in technology and talent.

It is also making progress in the United States where it is seeking to improve its creative firepower following a particularly weak spell. While sales there were down 5.3%, that was an improvement on the 8.5% drop in the first quarter.

French rival Publicis (PUBP.PA) cut its 2019 revenue growth guidance in July after it endured a weak second quarter in the United States.

FILE PHOTO: Branding signage is seen for WPP Group, the largest global advertising and public relations agency at their offices in London, Britain, July 17, 2019. REUTERS/Toby Melville/File Photo

Read said WPP was not immune to global trade tensions but he believed it was on the right track to return to growth.

($1 = 0.8255 pounds)

Reporting by Kate Holton; Editing by James Davey and David Holmes

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