WPP stock dropped steeply Thursday after the world's largest advertising holding company posted worse-than-expected results for the third quarter, citing weakness in its creative agencies and in its North American business. The holding company has also suffered a recent string of client business losses.
Reported revenue in the quarter was down 0.8 percent to £3.76 billion, with a like-for-like net sales decline of 1.5 percent. Investors reacted badly. WPP shares tumbled on the release of its results to the lowest level since 2012. Shares were down 15 percent in late-day U.K. trading.
WPP results come the week after peers Omnicom, Interpublic and Publicis published third quarters that were generally positive.
Liberum analysts said that though WPP laid blame on creative shops, they believe a bigger issue is a slowdown in high-margin media work, "which has the additional problem that lost accounts tend to create a vicious circle effect as the lessening of scale makes agencies less competitive on the discounts they can seek from media platforms."
"That is quite worrying: none of the other groups have suggested it is an issue for them so WPP seems to be losing clients for a specific reason," analysts wrote in a research note.
On the call, WPP CEO Mark Read said it was a "tough Q3" for the holding company. On the performance of its creative agencies and the business in North America, Read said "We obviously did not expect them to worsen in Q3 in the way that they have."
"The performance in Q3 does reinforce our need to take decisive action and more radical thinking to address the issues we face in the business," he said. Among other actions, Read said the company is simplifying its offerings, investing in creative talent, building a common data and technology strategy for the group and making it easier for clients to access different offerings across the business.
One example, announced Wednesday, was that WPP is integrating its specialist health networks into its major U.S. agency brands including VMLY&R, Ogilvy and Wunderman to "create a simpler, more flexible offer for its healthcare clients." The holding company also recently merged legacy shop Y&R with VML to form VMLY&R.
Read added that the holding company also needs to address "the Manhattan problem," meaning that New York is no longer the only place clients are looking for creative resources. "We need to make sure we're sourcing and building strong creative networks across the whole of North America," he said.
Though it has been a point of discussion for months, WPP has also said it is formally looking to sell a stake in Kantar. On the call, Read said the process likely won't conclude until next year, and that the holding company will use the proceeds to reduce leverage and said it will also look at share buybacks.
In recent months during reviews, WPP lost Ford's creative business (thought it retains global activation and much other work), as well as media agency work from American Express, GSK and HSBC. Read suggested on the call that one reason is that its agency structure during reviews is "too complicated" for clients and haven't been integrated enough. He added technology and price as other potential factors.
The holding company also announced its group finance director of 22 years, Paul Richardson, will be retiring from the company. Richardson will step down in 2019.
Contributing: Bradley Johnson