Interpublic (IPG) Q3 Earnings & Revenues Miss Estimates

The Interpublic Group of Companies, Inc. (NYSE:IPG) reported third-quarter 2017 GAAP earnings of $146.2 million or 37 cents per share, up from $128.6 million or 32 cents in the year-earlier quarter. The year-over-year increase was primarily due to a fall in operating expenses.

Adjusted earnings remained constant year over year at 31 cents per share, but missed the Zacks Consensus Estimate of 33 cents.

Quarter in Detail

Revenues for the reported quarter were $1,902.6 million, down 1% from the prior-year period. Moreover, revenues missed the Zacks Consensus Estimate of $1,946 million. However, the company recorded 0.5% growth in organic revenues over the prior-year period with a positive foreign currency translation effect of 0.4%. Net divestitures negatively impacted revenues by 1.9%.

Interpublic experienced an organic growth of 1.3% in the United States and a decline of 0.7% in the international markets. Geographically, the company reported revenues of $1,156 million in the United States, a decline of 0.8% and $746.6 million in international markets, a fall of 1.3%.

Margins

Operating income increased to $219.1 million, compared with $208 million in third-quarter 2016, driven by better cost-management efforts. Operating margin also improved to 11.5% from 10.8% in the prior-year quarter. Total operating expenses in the quarter were $1,683.5 million, down 1.8% year over year.

Balance Sheet

As of Sep 30, 2017, cash, cash equivalents and marketable securities were $705 million compared with $894.6 million as of Sep 30, 2016. Total debt was $2.1 billion at the quarter end.

Share Repurchase Program

During the third quarter, the company repurchased 4.7 million shares at an average price of $21.69 per share (including fees), bringing its tally for the first nine months of the year to 9.4 million shares, at an aggregate cost of $216 million and an average price of $22.92 per share.

Interpublic paid a dividend of 18 cents per share for a total consideration of $69.8 million during the reported quarter.

Outlook

The company revised guidance for 2017. It currently expects organic growth in the range of 1-2%, with a 40 basis points improvement in operating margins.

Our Take

Interpublic is poised to grow on the back of its strong digital capabilities, diversified business model and extensive geographic presence. The company is anticipated to achieve targeted levels in the upcoming quarters based on diversification across emerging regions along with collaboration and integration across agencies through technological improvement. Moreover, strategic investments and acquisitions to expand in key global markets augur well .

However, the fact remains that the company forms part of the communications industry, which is highly competitive in nature. Agencies and media services compete with other agencies and creative or media services providers to maintain existing client relationships and to win new clients. These are likely to pose challenges to its prospects.

Interpublic currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include The Brink's Company (NYSE:BCO) , Envestnet, Inc (NYSE:ENV) and Gartner, Inc. (NYSE:IT) . While Brink's Company sports a Zacks Rank #1 (Strong Buy), Envestnet and Gartner carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brink's Company has an excellent earnings surprise history, surpassing estimates in the trailing four quarters with an average beat of 23.4%.

Envestnet has an excellent earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 4.7%.

Gartner has posted earning beat thrice in the trailing four quarters. It boasts an average beat of 5.4%.

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