WPP Cuts 2012 Revenue Forecast

08/30/2012| 03:15am US/Eastern

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LONDON--WPP PLC (>> WPP PLC), the world's biggest advertising company, Thursday cut its revenue forecast for 2012 complaining of slowing revenue growth in the U.S. and parts of Europe, despite posting a rise in first-half profit.

WPP, which owns the Young & Rubicam and Ogilvy & Mather advertising agencies among others and operates in 108 countries, said it now expects annual like-for-like revenue, which strips out currency exchange-rate movements and acquisitions, to grow by close to 3.5% this year, down from over 4% previously.

The company, which moved its headquarters to Dublin four years ago for tax purposes, also confirmed it will return to the U.K. following new tax rules, subject to shareholder approval.

WPP's move to trim its full-year outlook is a U-turn from a rise in the guidance just four months ago after a strong performance in Asia and Latin America boosted first-quarter results. At that time, the company forecast like-for-like revenue growth of "over 4%" for 2012 up from 4%.

WPP generates more than two-thirds of its sales in Western economies, which are continuing to feel the effects of the European debt crisis. More surprising is the company's disappointing performance in the U.S., with the group blaming a 0.6% fall in the country's second-quarter like-for-like revenue on slow spending by its customers in healthcare and call center businesses and by regional governments. The U.S. slide compares with 1.4% growth in the first quarter.

Chief Executive Sir Martin Sorrell said trading conditions in the U.S. got "just a little bit softer," blaming strained relationships between governments and healthcare companies over healthcare reform and public affairs businesses in Washington holding back on spending ahead of the U.S. general election. Other sectors remained robust, he said.

Sir Martin expects continued economic uncertainty in the U.S. ahead of the election, and declined to provide any specific forecasts for 2013, noting that companies haven't set their budgets yet.

Carat, a media agency owned by WPP rival Aegis PLC (>> Aegis Group plc), also cut its global advertising spending forecast for 2012 last week, blaming lackluster growth in the U.S. and Western Europe. It predicts 5% growth in global advertising spending this year, down from 6%.

WPP's revised revenue forecast triggered a share sell-off, with the stock down 20 pence, or 2.4%, at 812 pence at 1408 GMT. Prior to Thursday's warning, WPP shares had risen 35% over the past 12 months, underpinned by its strong earnings track record.

For the six months to June 30, WPP booked like-for-like revenue growth of 3.6%, missing analysts' forecasts for 3.9% growth.

Still, first-half net profit rose 20% to GBP277.8 million, boosted by strong performances in Asia Pacific, Latin America, Africa & the Middle East, Central and Eastern Europe. U.K. operations also picked up, with 3.5% like-for like revenue growth in the quarter.

WPP's net new business more than doubled to GBP2.48 billion in the first six months of the year, bolstered by contracts wins with Bank of America Corp. (>> Bank of America Corp), Procter & Gamble Co. (>> The Procter & Gamble Company), L'Oreal SA (>> L'OREAL), Levi Strauss & Co., Dell Inc. (>> Dell Inc.) and the U.K. government, according to the CEO.

Like rivals Publicis Groupe SA (>> PUBLICIS GROUPE SA) and Omnicom Group Inc. (>> Omnicom Group Inc.), WPP has made a string of acquisitions in digital media and emerging markets to help drive growth in recent years. In June, the company bought one of the biggest independent digital advertising firms in the U.S., AKQA Holdings Inc. for around $540 million, amid rising demand for digital advertising as more consumers spend time online. AKQA, which expects to book revenue of around $230 million this year, boasts clients such as Google Inc. (>> Google Inc), Nike Inc (>> NIKE, Inc.), and Diageo PLC (>> Diageo plc).

France's Publicis last month reported a 19% increase in first-half net profit, bolstered by growth in emerging markets and acquisitions, but also noted sluggishness in the U.S. healthcare sector, while U.S.-based Omnicom booked a 2.2% rise in first-half net profit, thanks largely to strong domestic operations and the acquisition of several firms involved in public relations, licensing or market research.

WPP has already flagged that it expects to benefit from this summer's Olympic Games in London and the upcoming U.S. presidential election. Business from both events will be booked in the second half of the year. Next year will be "challenging," the company warned, with no major events on the radar and concerns about the growing U.S. budget deficit.

WPP declared an interim dividend of 8.80 pence a share, up 18% from a year earlier.

Write to Lilly Vitorovich at lilly.vitorovich@dowjones.com; Twitter: @LillyVitorovich

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