Blog Post

WPP Downgrades Its Growth Forecast

Sir Martin Sorrell’s WPP has slashed its full-year growth forecast to 5%, after reporting organic revenue growth of 4.7% in the third quarter, lower than its rivals.

WPP, which earlier in the year predicted full-year growth to hit 6%, saw growth slump in the third quarter to 4.7% on revenues of £2.45bn as economic conditions have worsened over the course of 2011.

In the first two quarters WPP, the world’s largest marketing services company, reported growth of 6.7% and 5.6% respectively.

Rivals Omnicom, Maurice Lévy’s Publicis and Vincent Bolloré’s Publicis have all recently delivered third-quarter updates, with each well ahead of WPP’s performance with growth rates of 7.2%, 6.4% and 7.3% respectively.

WPP said that there had been an “anticipated slowing” in the US with like-for-like revenue growth of just 1.7% in the third quarter in the North American region. North America accounts for 34% of total WPP revenues.

Western Europe also proved to be a laggard, with like-for-like revenue growth slowing to just 1.3%.

However, there was good news for the UK operation, which “improved significantly” in the third quarter with like-for-like revenues up a healthy 6.7%.

Typically WPP’s emerging markets – regions including Asia, Latin America and Eastern Europe – showed strong growth of 10.5%.

A look at the results by communications discipline shows that the consumer insight operation, which includes market research business TNS, went into reverse in the third quarter with like for like revenues shrinking 0.2%.

However, all other disciplines showed healthy growth, with WPP’s PR business reporting like-for-like revenue growth of 5.6% in the third quarter, a rise from the 4.7% increase reported in the second quarter.

Advertising and media investment, which accounts for WPP’s 41% of total revenue, grew 6.3% on a like-for-like basis.

Branding and healthcare grew 6.8%.

WPP also saw growth in the overall percentage of revenues coming from digital, which were up 0.7 percentage points to account for 29% of total revenues. Sorrell’s objective is to get digital to account for 35% to 40% of revenues in three to four years.

The company aired a note of caution, arguing that “the continuous macroeconomic gloom and despair in the media and elsewhere must have some impact on both corporate and consumer confidence.”

However, WPP said that 2012 does not look “dire”.

“Although it is too early to compile or estimate budgets for next year, despite current uncertainties, the prospects do not look dire,” the company said. “The rubber is really likely to meet the road, however, after the US presidential election in late 2012 and into 2013, when a newly elected American president will finally have to deal with the US deficit.”

WPP said that it remains “attracted to the LUV analogy” – indicating the shape of the recovery for different regions of the world – with an “increasing emphasis” in the “L” indicating the “long slog in western markets in particular”.

This article originally appeared in MediaGuardian.