IPG upgrades full-year outlook despite slowing organic growth

CEO Philippe Krakowsky said agency network continues to ‘create value’ for clients amidst recession concerns

Interpublic Group posted 5.6 per cent year-over-year organic net revenue growth in Q3 of 2022 to $2.3 bn — slowing from 7.9 per cent in Q2.

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Nevertheless, IPG upgraded its full-year outlook for organic growth to 7 per cent from 6.5 per cent, following similar moves from Omnicom and Publicis.

CEO Philippe Krakowsky said in a press release that “despite heightened macroeconomic and geopolitical uncertainty,” the company sees “significant opportunity to keep creating value for all of our stakeholders.”

Organic growth in the U.S. rose 8.2 per cent year-over-year. International markets grew 8.3 per cent, the U.K. went up 3.6 per cent, continental Europe 7.5 per cent and Asia-Pacific 6.4 per cent.

As with previous quarters this year, margins slowed year-over-year, from 16.3 per cent in Q3 2021 to 15.5 per cent, mainly due to increased headcount and increased expenses as pandemic restrictions lifted.

Headcount increased by about 7 per cent compared to last year.

“Our results again continue to reflect the strong cost discipline exercised by our operating teams, as well as our ongoing investment behind key growth areas,” Krakowsky said in prepared remarks on an earnings call Friday morning.

Total revenue of $2.6bn was up 3.7 per cent year-over-year, while net income lifted 5.2 per cent to $257.5m.

However, Q3 organic growth was a hefty but expected drop from the 15.7 per cent organic growth it posted in Q3 2021.

“Our comparisons to last year reflect the ins and outs of the pandemic, though we continue to drive margins at levels well above seasonally comparable pre-COVID periods,” Krakowsky said in prepared remarks.

IPG’s three-year compound organic growth is 16.9 per cent.

At the start of its fiscal year in 2022, IPG began reporting on three segments: media, data and engagement solutions (MD&E); integrated advertising and creativity led solutions (IA&C); and specialised communications and experiential solutions (SC&E).

MD&E, which includes Mediabrands, Acxiom, Kinesso, MRM, R/GA and Huge, grew 3.8 per cent year-over-year organically, but total revenue fell by 0.2 per cent.

IA&C, which includes IPG’s creative agencies, grew 6.7 per cent organically and 2.3 per cent overall.

SC&E, which features experiential and PR, grew 7.8 per cent organically and 4.4 per cent overall.

A looming recession

Investors expressed concerns about how it would fare in a global recession, an increasingly likely scenario.

Krakowsky said IPG has a flexible model and cost structure and continues to “look very hard at discretionary expenses,” as well as freelance spend.

Europe is “definitely a focus” for cost contingencies, he said, given the economic fallout caused by the war in Ukraine and economic turmoil in the U.K.

A recent study from The World Federation of Advertisers and Ebiquity found that 74 per cent of the world’s biggest advertisers are preparing to shift budgets in 2023 in line with a recession, with 30 per cent planning to decrease spend.

Krakowsky said IPG’s top clients have been “growing consistent with the overall growth of the company,” but acknowledged that budgets are varying by sector. While some might “need to take some corrective action,” he cited healthcare and e-commerce as sectors that are “more resilient.”

“It [cutting spend] is a conversation that is ongoing with the vast majority of our clients. There is an understanding and acknowledgment that there is a meaningful benefit to staying the course,” he said.

A version of this article was first seen on Campaign UK.