The Interpublic Group of Companies (IPG)

Q2 2012 Earnings Call

July 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

Matthew Chesler - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Daniel Salmon - BMO Capital Markets U.S.

Michael Nathanson - Nomura Holdings, Inc.

Tim Nollen - Macquarie Research



Good morning, and welcome to the Interpublic Group Second Quarter and First Half 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. Thank you as well for your patience this morning as the release was behind schedule due to problems at our service provider. But we have posted our earnings release and our slide presentation on our 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 for our review of our second quarter and first half 2012 results. As usual, I'll start out by covering the key highlights of our performance, Frank will then provide additional details on our results and I'll conclude with an update on our agencies and outlook to be followed by Q&A.

To begin with the highlights, we're pleased to report Q2 diluted earnings per share growth of 16%, along with operating margin expansion that supports our targets for the year. Our organic revenue growth in the second quarter was 0.8% and 1.7% for the first half of the year.

In the U.S., our organic revenue decrease in Q2 was 3.2%. The approximate 5% impact of last year's account losses more than offset sound U.S. performance. We had growth at several of our integrated agencies and across the CMG portfolio.

Our digital services continue to make strong contributions. That includes both the capabilities we built within our agencies and, of course, our digital specialty agencies.

Internationally, organic growth in the second quarter was 6%. In the Asia Pac and LatAm regions, double-digit growth was due to the strength of all our global networks: Media businesses, digital capabilities and our marketing services specialist.

In the U.K., we again had solid growth in Q2, while in Continental Europe, organic revenue decreased moderately due to continued macro challenges. Turning to the client sectors. We had growth during the quarter in auto and transportation, financial services and food and beverage. As expected, we had decreases in the tech and telecom and consumer goods category. It's worth noting that absent the loss of SC Johnson, the consumer goods category showed solid growth, a sign that our U.S. business is solid.

In health care, we continue to see industrywide softness due to patent expirations and regulatory uncertainty. Retail sector revenues in the quarter decreased due to some pullback from existing clients. These trends weighed particularly heavy on our U.S. revenue in the quarter.

For the year-to-date, we are net new business positive. I'll cover specific wins when I provide detail on the agencies in my closing remarks. But we've seen good results thus far this year in major pictures such as Bank of America, Unilever, as well as with good growth with current clients like Microsoft and General Motors.

While first half revenue growth is below our full-year objectives, we are targeting a stronger second half and our full-year objective continues to be 3% organic growth.

Moving to operating expenses and margin, our results continue to reflect careful and effective cost management, along with disciplined investment in the growth areas of our businesses, do talent acquisition and development as well as targeted M&A activity.

Q2 operating margin increased 30 basis points to 10.3%. For the first half of 2012, our operating margin was also up 30 basis points compared to a year ago. On a trailing 12-month basis, our operating margin increased to 9.9%, which is once again the highest level of 12-month profitability that IPG has posted in over a decade.

We are well-positioned to deliver on our 2012 objective of 50 basis points or more of margin improvement. Q2 diluted earnings per share were $0.22, an improvement of 16% from a year ago. Diluted shares decreased 13% as a result of our share repurchase program and the elimination of the convertible notes retired earlier this year.

We continue to place a priority on returning capital to shareholders in the quarter. During the second quarter, we repurchased another 6 million shares, bringing our first half total to 11 million shares. Along with our quarterly common stock dividend, we returned over $170 million to shareholders in the first half of 2012. Given the seasonality of our cash flows, we are planning to increase our share repurchase activity in the second half of 2012.

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