The Interpublic Group of Companies (IPG)

Q1 2012 Earnings Call

April 26, 2012 8:30 am ET


Jerome J. Leshne - Senior Vice President of Investor Relations

Michael I. Roth - Chairman, Chief Executive Officer and Chairman of Executive Committee

Frank Mergenthaler - Chief Financial Officer and Executive Vice President


Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

John Janedis - UBS Investment Bank, Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Matthew Chesler - Deutsche Bank AG, Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Tim Nollen - Macquarie Research

Anthony J. DiClemente - Barclays Capital, Research Division

James Dix - Wedbush Securities Inc., Research Division



Good morning. And welcome to the Interpublic Group's First Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

Jerome J. Leshne

Good morning, and thank you for joining us. We have posted our earnings release and our slide presentation on the website,, 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 about our company, which are subject to the 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 I. Roth

Thank you, Jerry, and thank you for joining us this morning as we review our first quarter results.

As usual, I'll start out by carving the key highlights of our performance. Frank will then provide additional detail on our quarter. I'll conclude with an update on our agencies and full year outlook to be followed by a Q&A.

Beginning with revenue. In the first quarter, our organic rate -- growth rate was 2.8%. Our comparison to last year was the most challenging among our peer set because of our industry-leading 9.3% organic revenue growth in Q1 a year ago.

Given this difficult hurdle, our 2.8% organic growth represents a solid result. Regionally, we were led by double-digit growth in Asia-Pac, fueled by a broad cross-section of our agencies, followed in turn by growth in Lat-Am, the U.S. and U.K.

Revenue decreased in Continental Europe where macroeconomic conditions, not surprisingly, continued to pose a challenge.

We saw growth at our IAN sector, which consists of our global advertising networks, our media operations, the U.S. integrated independents and our digital specialty agencies.

CMG's strong performance reflects the continuing growth of our marketing services specialist agencies and public relation that is Weber and Golden, experiential and sports marketing, as well as branding and identity.

Once again, digital services made a very strong contribution to our growth. This was true for the embedded capabilities at all of our global advertising networks within Mediabrands, at the U.S. integrated independent agencies and across the marketing services agencies that are part of CMG. It was also the case at our digital specialist agencies which continued to show strong growth and are making good progress in extending this service offerings and broadening their geographic reach.

Turning to our client sectors. We had double-digit growth in the auto and transportation and retail sectors, as well as growth in financial services and food and beverage.

The tone of our continuing business remains solid, but we did experience the negative revenue impact related to last year's account activity that we identified on our last call. Those headwinds were mainly felt in our consumer goods and tech and telecom sectors, both domestically and internationally.

Turning to operating expenses. Results in the quarter reflect continued careful cost management. This type of discipline is something that we trust you've come to expect from this management team.

Our Q1 seasonal operating loss was $39 million, a 13% improvement compared to a loss of $45 million a year ago.

On a trailing 12-month basis, our operating margin was 9.8%, maintaining our performance for the full year 2011, a level of profitability that Interpublic had not achieved in over a decade. Other Q1 highlights saw a continued progress in decreasing outstanding shares and reducing our debt.

During the quarter, we repurchased a further 5 million shares using $53 million along with our quarterly common stock dividend of $26 million.

Given the seasonality of our cash flows, we chose to moderate the pace of our repurchase activity in the year's first quarter.

For the 12 months ending March 31, we have returned over $550 million to our shareholders via common dividends and the repurchase of 46 million shares. This is an accomplishment of which we are proud and one that speaks to our confidence that we can continue to build on the strong performance and positive momentum of recent years, another area in which we've taken significant strides in strengthening our balance sheet and overall financial position. In late March, we took another positive step in this regard by retiring our $400 million 4.25% a quarter convertible notes, which eliminates 33 million shares from our diluted share count. Concurrently, we issued $250 million of new 10-year senior notes with a 4% coupon, thereby, lowering our total debt by $150 million as a result of these 2 transactions.

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