WPP sales slow in first quarter after major account losses

Advertising giant WPP reported a slower start to 2017 after the loss of some major accounts and softening in North America but struck a confident tone about "renewed and encouraging" new business wins to keep the full year on track.

Like-for-like net sales rose 0.8% in the first quarter, below the company-compiled consensus of 1%.

This was down from the 2.1% growth in the fourth quarter of last year and 1.2% growth in January, after the loss of AT&T in the preceding quarter and Volkswagen in this latest period plus weaker market research sales.

Reported billings of £13bn were up 9.2%, with reported revenue up 16.9% at £3.6bn or up 1.2% on a dollar basis, and net sales up 18.5% to £3.1bn, comfortably ahead of the consensus estimate of £2.96bn. Acquisitions added 4.0% to sales while currency effects added 13.7%.

Revenue grew in all regions except North America, WPP's biggest market, with particularly strong growth of 3.7% in the UK and 4.3% from Europe, while Latin America and Central & Eastern Europe were solid.

The strongest segments were public relations and public affairs and digital, eCommerce & shopper marketing, while advertising & media edged down 0.3% and data arm Kantar returned to negative growth in the quarter, declining 0.8%.

For the full year outlook, boss Sir Martin Sorrell was still targeting LFL revenue and net sales growth of "around 2%", down from 3% due to the impact of account losses but with a stronger second half as comparisons from last year weaken.

Furthermore, after a softer second half last year, accelerating new business wins are seen as counteracting tough FMCG conditions characterised by April's announcement from top client Unilever of a 200-250 basis point marketing spend cut over 2017-2020.

Sorrell reiterated the net sales margin target of 0.3 margin points improvement on a constant currency basis.

Goldmam Sachs said margin comments were reassuring in the context of recent cuts announced by Unilever and Proctor & Gamble.

Analysts said the 1.1% decline of US organic growth was better than it had forecast and both the UK and Europe surprised on the upside, though the rest of the world fell by a "disappointing" 0.1% with weaknesses in China echoing similar comments by ad industry rivals.

With WPP citing further opportunities for client wins, Goldman suggested it could be a challenger in the agency reviews at PSA, Sprint and Sanofi and could expand its ABInBev media duties.

Broker Numis kept its £2.2bn pre-tax profit forecasts and 125p for earnings per share for the full year, rising to £2.3bn and 136p for 2018, both of which are consistent with consensus.