Ireland-based advertising titan WPP Group plc. (WPPGY) released its trading update for the third quarter of 2011on October 28. The company reported its top-line year-over -year growth of 9.0% with revenue settling at £2,456.7 million (US$3,951.4 million).
Revenue growth was attributed to strength across all geographical regions and communication services sector. On a constant currency basis, revenue grew by approximately 8.5%. Excluding the impact of acquisitions and currency fluctuations, revenue was up 4.7% in the reported period.
From a geographical perspective, WPP Group experienced a noticeable growth in Asia Pacific, Latin America, Africa, the Middle East and Central & Eastern Europe; where revenue increased by 14.5% year over year and 12.2% on a constant currency basis. This was followed by 13.1% and 8.9% growth in the Western Continental Europe and the United Kingdom, respectively. North America registered a 2.2% year-over-year revenue growth, while a 5.6% improvement on a constant currency basis.
Of the four business segments, revenue from Advertising & Media Investment Management segment increased 13.4% year over year to £1,010.1 million (US$1,624.5 million) and accounted for 41.1% of the quarter’s total revenue. Consumer Insight revenue (24.1% of total revenue) of £593.2 million (US$954 million) grew by 1.9%.
Branding & Identity, Healthcare and Specialist Communications (25.7% of total revenue) revenue was £630.8 million (US$1,014.8 million), up 10.1% year over year; while revenue from Public Relations & Public Affairs grew 7.2% to £222.6 million (US$358 million).
Net new business billings won during the quarter were £1,430 million (US$2,289 million); attributed to incremental businesses from the existing and new clients and consolidation in the industry.
Exiting the third quarter of fiscal 2011, net debt was £3,046 million, up 4.2% year over year. During the first nine months of 2011, the company repurchased 22.7 million shares (1.8% of issued share capital) for £160.9 million, or £7.10 per share.
Outlook: For the full fiscal year, management expects revenue growth, excluding the impact of acquisitions and currency fluctuations, to be roughly 5% and gross margin growth of 5.7%.
Over the long term, management remains committed to improving its operating profits by 10%-15% per annum. Operating margin is expected to improve by half to one margin point per annum, while staff cost to revenue or gross margin ratios are targeted to improve by a 0.6 margin point per annum. Besides, management’s objective is to convert 25% -33% of incremental revenue to profit.
The Group also targets revenues from Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, along with digital revenues to account for 35%-40% of total revenue as against one third estimated earlier.
Based in Dublin, Ireland, WPP Group together with its subsidiaries provides advertising and communications services worldwide. The Group faces competition from its peers like Interpublic Group of Companies Inc. (IPG), Omnicom Group Inc. (OMC), and Publicis Groupe SA (PUBGY.PK).
We currently maintain a Neutral recommendation on the company.
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