IPG upgrades full-year outlook despite slowing organic growth

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

Nevertheless, IPG upgraded its full-year outlook for organic growth to 7% from 6.5%, 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% year-over-year. International markets grew 8.3%, the U.K. went up 3.6%, continental Europe 7.5% and Asia-Pacific 6.4%.

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

Headcount increased by about 7% 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 $2.6 billion was up 3.7% year-over-year, while net income lifted 5.2% to $257.5 million.

However, Q3 organic growth was a hefty but expected drop from the 15.7% 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%.

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 specialized communications and experiential solutions (SC&E).

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

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

SC&E, which features experiential and PR, grew 7.8% organically and 4.4% 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%of the world's biggest advertisers are preparing to shift budgets in 2023 in line with a recession, with 30% 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.