Investors and entrail-rakers alike yesterday (Monday) developed a nervous tic on learning that WPP Group – the world’s largest agency conglomerate – is likely to miss its profit margin target for the current year.
In a trading update, the group referred to an 8% plunge in underlying revenues, in the period January through May. Despite wielding the cost axe, “the weakness in revenue experienced in the first five months of 2002, and the possible continuation of this trend for the latter part of the year, will make it difficult for the group to reach its 2002 margin target of 15 per cent.”
Investors’ eyebrows also hit the hairline given that just two months back, WPP’s Q1 trading update assured that the group was on target to hit budgeted operating margins.
This assurance was presumably based on the premise that the second half of 2002 would see an upturn within the ad sector – an assumption that now seems increasingly unlikely.
“Our view continues to be that recovery will be gradual: saucer or bath-shaped, rather than U or V or W-shaped, and will be American led,” opined WPP’s statement. Although 2002 would show an improvement over 2001, and that trend repeated in 2003, “pronounced recovery will have to wait until the US presidential elections and the Athens Olympic Games of 2004.”
But seasoned Sorrell-watchers believe that WPP’s canny ceo may well be leading the entrail-rakers by the nose, it being not unknown for Sir Martin to under-promise and over-deliver.
Data sourced from: Financial Times; additional content by WARC staff