Interpublic Group Of Companies Q1 2010 Earnings Call Transcript
Interpublic Group of Companies (IPG)
Q1 2010 Earnings Call
April 29, 2010 8:30 am ET
Executives
Frank Mergenthaler - Chief Financial Officer and Executive Vice President
Michael Roth - Chairman, Chief Executive Officer and Chairman of Executive Committee
Jerome Leshne - Senior Vice President of Investor Relations
Analysts
Daniel Salmon - BMO Capital Markets U.S.
Peter Stabler - Crédit Suisse First Boston, Inc.
Alexia Quadrani - JP Morgan Chase & Co
Matthew Chesler - Deutsche Bank AG
James Dix - Wedbush Securities Inc.
Presentation
Operator
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Good morning, and welcome to the Interpublic Group First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to introduce Mr. Jerry Leshne, Senior Vice President Investor Relations. Sir, you may begin.
Jerome Leshne
Good morning. Thank you for joining us. We have posted our earnings release and our slide presentation on our website, interpublic.com, and we'll refer to both in the course of this call. This morning we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9:30 am Eastern. During this call we will refer to forward-looking statements about our company, which are subject to uncertainties in the cautionary statement included in our earnings release and the slide presentation and further detailed in our 10-Q and other filings with the SEC. At this point, it is my pleasure to turn things over to Michael Roth.
Michael Roth
Thank you, Jerry, and thank you all for joining us as we review our results for the first quarter of 2010. As is customary, I'll begin by covering the headlines relating to our performance. Frank will then take us through the financial results in detail. After his remarks, I'll return with some agency-specific observations and closing comments before we move on to the Q&A.
Well, as reported, revenue increased 1.2% in the quarter, and the organic revenue decline moderated to 2.9%. We were pleased to see another quarter of significant sequential improvement in our organic revenue change, which further supports our belief that the broader economic conditions have stabilized and we'll keep seeing progress as we move through 2010.
Importantly, revenue performance improved as the quarter unfolded. March was significantly stronger year-over-year than January or February. In the U.S., where we had seen over a year of quarterly decreases, our business grew 3% organically in Q1 as clients begin to increase investment in marketing activity. This was evident at a broad cross-section of our agencies.
Turning to our key client sectors, it's also worth noting that looking at our standard client industry breakouts, we saw five of the seven client sectors that we track grow in the first quarter compared to a year ago. So it's fair to say that the improved tone of the business that we shared with you on our last call has begun to translate into revenue improvement in a number of markets and industry sectors. This gives us greater confidence that 2010 will be a year in which we can achieve organic performance that is flat to slightly positive and deliver on our stated goal of operating margins of 8% or better.
Since there will be so many moving parts to the economic situation, it's worth looking at our client sector results in more detail. In the Auto sector, revenue increased by over 20% during the first quarter, excluding the benefit of currency. This is, of course, significant because of auto size in our mix and the severe decreases our entire industry experienced last year.
On balance, we like what we are seeing in terms of how our agencies are performing in the category. We've had major wins in media with Chrysler and BMW; at MRM, which is building out the digital marketing infrastructure for GM globally; at Deutsch L.A. which won the very competitive Volkswagen review; and Draftfcb, which won Volkswagen's CRM business. We were sorry to see Chevrolet impact its 91-year relationship with Campbell-Ewald, but change is the name of the game at GM these days, and we have to respect that. CE will continue to work on Chevy Dealer business and other GM products such as OnStar, and will handle Chevy national assignments for the balance of this year. Of course, all of our agencies, notably McCann Worldgroup, will keep looking for other ways to build on the already existing important GM relationship going forward. It's interesting to note that during the first quarter, CE represented a very small contributor to our more than 20% growth in the sector, and for the full year, 2010 will remain on course to show growth in the Auto sector.
We also had double-digit increases with our largest Financial Service clients as a group. While a smaller sector, Financial Services also had turned negative early in the recession, but it now appears to be well underway to recovery.
As we previously indicated would be the case, the Tech and Telecom sector continued to weigh significantly on our top line in Q1 due to lost assignments from some large clients to the first half of 2009, which had a disproportionate effect on certain world regions. This is worth repeating, because the Tech and Telecom sector was responsible for our entire revenue decrease in the first quarter. Without that impact, our overall organic revenue performance would have been up slightly. Revenue from new business wins played an important part in the Q1 results as we won a number of sizable new assignments in the latter part of last year. While it's true that we had a few client losses that made news in recent weeks, our pipeline is strong, and we remain net-new-business positive on a trailing 12-month basis through the end of the first quarter.
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