July 19, 2018 / 10:13 AM / in 4 months

Publicis shares slump after unexpected drop in second-quarter sales

PARIS (Reuters) - France’s Publicis Groupe SA reported an unexpected drop in second-quarter sales that caused its shares to fall sharply, pointing to the steep underperformance of its U.S. healthcare communications business.

The world’s third-largest advertising group said net revenue fell 2.1 percent to 2.2 billion euros ($2.56 billion), excluding the impact of acquisitions and foreign exchange, compared to a consensus estimate for growth of 1.1 percent.

However, Publicis affirmed its full-year targets, citing growth in its operating margin and earnings per share over the first half of the year.

Nevertheless, the company’s shares fell sharply in early session trading, with Publicis down 9.4 percent by 0707 GMT - the worst performing stock on France’s CAC-40 benchmark index. Shares in its UK rival WPP also fell 3.9 percent.

The discrepancy between the results and Publicis’ outlook may unnerve investors who have become wary of the ad industry as it faces challenges online from technology companies such as Alphabet Inc and lower spending from large advertisers.

Omnicom Group Inc, the world’s second-biggest advertising group, on Tuesday reported slightly lower-than-expected second-quarter organic growth, sending its shares down by about 9 percent.

“We were not expecting this sudden dip,” Chief Executive Arthur Sadoun told reporters in a briefing, in reference to the group’s healthcare business.

Publicis Health Solutions, a little-known subsidiary that provides sales resources to clients, accounted for the bulk of the revenue decline in the first half, reducing it by 30 million euros to 4.3 billion.

When asked if the business was up for sale, Sadoun said it was “under strategic review.”

CURRENCY SWINGS

The Paris-based group stressed the negative impact of currency swings, as the United States accounts for half of its business.

It also blamed the cost of implementing new data protection legislation in Europe, compelling it to review contracts with clients and publishers.

Publicis affirmed that it can achieve higher year-over-year growth and operating margin in 2018 and stuck to the strategy it laid out in March.

Under the plan Sadoun presented a few months after replacing company veteran and current Chairman Maurice Levy as CEO, the group is targeting underlying sales growth of 4 percent in 2020 by focusing on its digital arm Publicis.Sapient and fostering greater collaboration between its many agencies worldwide.

This was instrumental in gaining new global clients in the first quarter such as Daimler’s Mercedes-Benz brand, Carrefour and Marriott International, Publicis has said.

The market remains tough, Sadoun acknowledged, with added uncertainty caused by the abrupt resignation of WPP Plc founder and CEO Martin Sorrell from the Publicis’ archrival in April.

“We’re convinced that we have the right business model,” Sadoun said.

“And at the same time, we still have 90 percent of our business that needs improvement. It’s just the beginning.”

($1 = 0.8584 euro)

Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by Richard Chang

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