Shares of Omnicom ( OMC) and Interpublic Group ( IPG) went their separate ways Tuesday as reassurances from the former failed to inspire the latter.

Advertising giant Omnicom jumped 12% to $52.95 after meeting analysts' second-quarter profit estimates of $1 a share on better-than-expected revenue of $1.92 billion. Interpublic, on the other hand, fell 6% to $14.03 after saying Monday that it would delay filing its second-quarter results by at least a week. In response, Salomon Smith Barney downgraded the stock and Standard & Poor's placed the firm's ratings on credit watch with negative implications.

Omnicom calmed some concerns about its own accounting practices after saying in a conference call that auditor KPMG, which replaced Arthur Andersen earlier this year, has approved a controversial private partnership.

Violin Lessons

The chairman of Omnicom's audit panel resigned earlier in the year on concerns about the 2001 off-balance sheet vehicle known as Seneca, to which Omnicom contributed its ownership stakes in several Internet advertising companies. The stock has been cut in half since the start of the year.

Troy Mastin, an analyst at William Blair, said Omnicom's results Tuesday were "modestly positive." He was impressed with the firm's domestic revenue growth and pleased that guidance was left unchanged. But he did note that organic growth was "the lowest I've seen" at just 1.5%. At its peak, Omnicom was reporting organic growth of 17%. Total revenue growth stood at 9.7%.

Analysts did note, however, that comparisons with last year were very tough and that Omnicom is likely to be the only company in the space to report growth in this segment.

"Their results are indicative that they are performing better than their peers, but there are still no tangible signs of the ad market recovering," Mastin said.

Madison Gridlock

The advertising sector has experienced one of the worst slowdowns in decades amid sluggish economic growth, and recent data suggest things aren't about to get much better. Meanwhile, questions about accounting improprieties continue to swirl.

One Omnicom short-seller termed accounting issues the hot potato of the advertising industry, to be passed from one conglomerate to the next. "IPG is going to bleed for the next week," said the short-seller, speaking on condition of anonymity. "I'd be surprised if people want to jump in with OMC in the meantime."

Omnicom has said that its CEO and CFO intend to certify their financial statements next week, and Lauren Fine, an analyst at Merrill Lynch, said the firm's disclosure has improved "dramatically" with a 35-page investor presentation that included information on credit, acquisitions and earnout payments among other things.

Earnouts are contingent payments that holding firms still owe on acquired businesses. Omnicom estimated at the end of the second quarter that these obligations would be $415 million, which is larger than some analysts had expected. SunTrust Robinson Humphrey has noted that these are not carried on the firm's balance sheet as a liability.

Letter vs. Spirit

"I don't think anything they're doing anything that is outside the purview of GAAP," said Mastin, whose firm does not have a banking relationship with either Omnicom or Interpublic. "They do report organic growth a little differently to the rest of the industry, but that's supplemental information."

Unlike its competitors, OMC includes all revenue from newly acquired companies in its organic growth, thus helping to produce a higher rate.

As for Interpublic, which shed 24% Monday after postponing its results, Mastin said the firm has made larger acquisitions and has had some reorganizations that may have complicated the firm's bookkeeping. Specifically, he believes Interpublic may be having some problems accounting for the acquisition of True North Communications last year. Mastin is looking for a profit of 38 cents a share on sales of $1.6 billion. He also expects organic growth to be negative by at least 7%.

With investors shunning the growth-by-acquisition strategy, organic growth has become increasingly important in recent months. Advertising companies bought hundreds of marketing firms over the past few years in an effort to enhance their sales. But the acquisitions have also made the ad business increasingly complex and have ignited numerous rumors about improper accounting.

"It is unclear at this stage whether the audit committee has identified a particular accounting issue at Interpublic , or if the company is taking a belt and suspenders approach to its preparation for the Aug. 14 certification deadline," Salomon analyst William Bird said.

George Mannes contributed to this story.

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