WPP shares dive as Sorrell slashes growth forecast

Lindsay Bennett
By Lindsay Bennett | 24 August 2017

WPP has cut its sales target for the second time in six months as a result of consumer goods giants curbed spending, putting its shares on track for their worst day in 19 years.

The world's largest advertising company lowered its full year forecast for net sales growth to 1% or even less, blaming the pull back on lowered spending by packaged goods companies.

Facing its weakest underlying revenue growth since the financial crash in 2009, WPP saw its shares fall as much as 13%, slashing some US$2.6 billion off its market value.

Boss Martin Sorrell said advertisers in the packaged-goods sectors – which make up a third of company sales – are struggling with low-growth. This includes Procter & Gamble, Nestle and Unilever.

"Fast-moving consumer goods has taken the brunt of the cuts and cutbacks both in media spending and agency spending," Sorrell said in a call with US investors.

Among WPP's top 30 clients, 14 saw a drop in net sales of about 2.5% in the first half of 2017, he said.

WPP's two biggest CPG clients – Procter & Gamble and Unilever – are in major agency cost-cutting drives. P&G in April outlined a plan to cut US$2 billion in marketing costs over the next five years, around $500 million of that from agency fees and production.

That comes on top of $600 million in cuts over the past three years. Unilever has pulled the number of ads it produces globally by 30% while halving the number of agencies it works with.

He also said the election results in the UK and US, combined with erratic economic conditions in faster-growth economies such as China, had impacted the global advertising market.

Among advertisers’ biggest worries, Sorrell said, is the increasing dominance of Amazon over the traditional retailers that distribute consumer goods.

The company is often considered a bellwether for the ad industry, with Omnicom and Interpublic also experiencing a decline of up to 5% in shares following the WPP announcement.

Sorrell, in comments in late July, said WPP is investing in more digital services. He said about US$6 billion is going to Google this year and about $200 million with Snapchat this year – up from the $100 million last year.

The company said the cyber attack earlier this year that crippled computer systems at some of its agencies including GroupM and Y&R Group didn’t cause a significant loss in revenue and couldn’t be blamed for the weaker performance in June and July.

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