Interpublic Group of Companies (IPG)

Q3 2010 Earnings Call

October 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

Peter Stabler - Crédit Suisse AG

Daniel Salmon - BMO Capital Markets U.S.

Benjamin Swinburne - Morgan Stanley

Alexia Quadrani - JP Morgan Chase & Co

Tim Nollen - Macquarie Research

David Bank - RBC Capital Markets Corporation

James Dix - Wedbush Securities Inc.

Brian Shipman - Jefferies & Company, Inc.

John Janedis - UBS Investment Bank

Matthew Chesler - Deutsche Bank AG

Presentation

Operator

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Good morning, and welcome to the Interpublic Group Third Quarter 2010 Earnings Conference Call. [Operator Instructions] Now I'd like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

Jerome Leshne

Thank you. 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 a.m. Eastern.

During this call, we will refer to forward-looking statements of 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 for joining us this morning as we review our results for the quarter and the first nine months of 2010. As a side note, we're calling you from Richmond, Virginia, home of your of our Agency of the Year, the Martin Agency, and we're pleased to be here. And in fact, we had our board meeting here yesterday as well.

I'll begin by covering the headlines of our performance, thereafter, which Frank will then take us through the financial results. I'll then return with additional detail about what's taking place at our key agencies and some closing comments. As always, we'll always leave plenty of time for Q&A.

In looking at our performance, we're pleased with the third quarter that saw a strong revenue and profit growth. Revenue increased 9.4% in the quarter, both as reported and in terms of organic revenue growth. It's gratifying that contributions came from such a broad range of our portfolio. Our U.S. organic revenue growth was 10%.

Key emerging markets, such as India, South Africa, Brazil, and the whole of Latin America, posted strong double-digit organic growth rates. Europe, however, continued to lag.

In terms of client sectors, automotive, packaged goods and financial services all posted strong double-digit growth. Health and personal care was up in the mid-single digits, as was technology and telecom, including the fact that we are cycling out at some significant assignment lost last year in the category.

At the agency level, there was a strong organic growth at many of our companies. Draftfcb, Lowe & Partners, Mediabrands, Weber Shandwick, Hill Holliday, Mullen, Jack Morton and Octagon. Digital was also a material contributor to our growth in the quarter, with very strong performance at the McCann's MRM unit, R/GA, HUGE, as well as the digital capabilities within our PR firms and the U.S. independent agencies.

Overall, we are seeing a fair bit of activity on the new business front, and the pipeline is solid at most of our agencies across all disciplines. On a trailing 12-month basis, we remained net new business positive to the end of the third quarter.

The top line performance in the quarter and year-to-date reflects the economic recovery. More important, our growth is the direct results of the investments we made during the past few years in talent and in developing markets and emerging media, as well as the strategic actions we've taken to strengthen and reposition a number of our key agency brands. While the first nine months of the year had been encouraging, and the tone of client conversations has improved, there is still a degree of uncertainty.

Now turning to the bottom line, operating income was $100 million, an increase of 72% compared to a year ago. Operating margin was 6.4% compared to 4.1% for Q3 2009, which speaks to our continued operating discipline. The people, systems and tools we put in place to ensure that we can effectively manage the business are clearly working. Earnings per diluted share were $0.08, up from $0.03 in the comparable period last year.

This performance further confirms that we are confident that we will deliver on our margin objective of greater than 8% for 2010. Our balance sheet continues to be strong, and we have ample financial resources at our disposal. It's encouraging to see our strength recognized by the rating agencies again, as this morning, Fitch upgraded us to BBB from BB+, a rise of two notches.

At this point, let me hand things over to Frank for an in-depth look at our first half performance.

Frank Mergenthaler

Thanks, Michael. Good morning. As a reminder, I will be referring to the slide presentation that accompanies our webcast.

On Slide 2, you'll see an overview of the quarter. We are pleased with operating results. Q3 revenue was balanced between the U.S. and international. We continue to maintain effective discipline over expenses.

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