WPP’s biggest market, North America, has suffered a dramatic 8.5% plunge in quarterly net sales as the revenue decline at the world’s biggest advertising group worsened markedly in the first three months of 2019.
Net sales, which WPP describes as like-for-like revenue less pass-through costs, fell 2.8% globally: The worst quarterly performance yet since the group first began to see sales decline two years ago.
Mark Read, chief executive since September 2018, said the decline was "anticipated"; he had warned investors earlier this year that 2019 would see revenues drop sharply as he embarks on a three-year turnaround.
He said "our expectations for the full year remain unchanged", with a likely fall of 1.5% to 2% across 2019, following the first-quarter performance.
"Although we face a challenging year, especially in the first half, I am encouraged by how well our people, agencies and clients are responding to our new strategic direction," Read said.
WPP's share price rose slightly above £9 (US$11.61) as investors were relieved that the slump was not worse.
However, Steve Liechti, an analyst at Numis Securities, an investment bank in London, said the results were "worse than we expected" and described the 8.5% slump in North America as "whopping".
"We still see material challenges and continuing forecast pressure as WPP adapts to the new/changed marketing services environment," he warned.
US client losses take toll
WPP admitted that North America’s slump was "disappointing" and blamed it on "continued pressure and the impact of assignment losses among automotive, pharmaceutical and FMCG clients in 2018", while insisting the decline "was in line with our budgets".
Ford, American Express and GlaxoSmithKline were major losses for WPP last year.
The company said "the actions we have taken since September with our creative and healthcare agencies", including the mergers to create Wunderman Thompson and VMLY&R to simplify the group, "are intended to address the group's performance" in the US.
The UK suffered a third consecutive quarter of decline, dropping 0.9%. Western Continental Europe fell 0.3% and the rest of the world, which includes Asia and Latin America, was up 2.3%.
WPP’s creative and media agencies, which are grouped together as advertising and investment management in the financial results, saw net sales slump 4.8%.
The group said that it is reconsidering how it presents financial results by division in the future because the "appropriateness of this sectoral breakdown" might be "less meaningful" following some of the internal agency mergers.
WPP is facing a third successive year of declining revenues at the group that was led by Sir Martin Sorrell for 32 years until April 2018.
Net sales fell in the last four quarters of Sorrell’s reign and the decline has continued since, with the second quarter of 2018 the only exception.
Read, one of Sorrell’s lieutenants for decades, took over officially in September.
WPP’s share price has plunged from £19 in March 2017 to £11 when Sorrell exited, and touched £8 in February.
Read said the first-quarter results underlined the fact that "it will take time to address the company’s legacy issues, but we are committed to taking all the actions necessary to position WPP for future success".
The sale of a majority stake in data unit Kantar remains on track, WPP added.
Most rival advertising groups only report one revenue number, which includes pass-through costs.
On this measure, WPP’s first-quarter revenues fell 1.3%—better than Publicis Groupe’s 1.6% organic revenue decline in the same period but far behind Omnicom’s 2.5% growth. Interpublic reports later today.