Europe Earnings Preview: WPP, Ericsson, Randstad
Some big companies report tomorrow that will give more clarity on the health of advertising and technology spending, and the health of the European jobs market
Advertising giant WPP reports at 8:00 CET in London, and CEO Sir Martin Sorrell’s words will be closely followed for clues on how a US recession could impact the media industry. We know Sir Martin is confident the US election and Olympic Games will see advertising spending hold up in the second half before a slowdown in 2009, but that does not tell the whole story.
A recent report in the UK found that the faltering economy was forcing many companies to cut back on spending in the first quarter of the year. The Institute of Practitioners in Advertising, which commissioned NTC Economics to conduct a poll of 300 UK companies, said "Suddenly the outlook for 2008 has deteriorated quite markedly," and while things are not as bad as the last slowdown, "we think there's worse to come."
Internet spending growth remains robust but Cazenove warns newspapers are struggling. Credit Suisse warned last month that media companies are in denial about the earnings outlook. Marketing budgets are always the first to be slashed when things get tough, so Sir Martin’s interview with Squawk Box at 8:30 CET will be closely watched by the industry.
Ericsson is due to report in Stockholm, and investors are expecting a massive 55 percent drop in earnings. The group's shares have fallen by 50 percent in just 12 months, and management is trying to slash costs and jobs in anticipation of a flat telecom equipment market in 2008.
We already know that mobile profits at its joint venture with Sony fell sharply in Q1, and CEO Carl-Henric Svanberg is under pressure to show he can get to grips with the business following a profit warning late last year that led to the sacking of his CFO.
Shares on Thursday rose by over 5 percent, indicating some brave investors out there are betting the worst could be over for Ericsson, but trying to call a bottom for this stock has proved expensive in recent months. Goldman Sachs rates Ericsson a "Sell," with a price target of 11 Swedish Crowns a share. Credit Suisse is slightly more optimistic, rating the stock as neutral with a price target of 15 Swedish Crowns.
Carl-Henric Svanberg will join Louisa Bojesen on Power Lunch Europe at 12:05 CET.
Also due out tomorrow are Q1 numbers from Dutch staffing firm Randstad. The temping specialist is seen under pressure as firms cut back on hiring across Europe. Alongside that, analysts are waiting to hear more details on how it plans to carry through the pricey integration of its €3.5 billion acquisition of domestic rival Vedior. According to analysts the two firms’ structures couldn’t be more different, and could contribute to creeping and unexpected costs.
If today’s news from the UK’s Michael Page is anything to go by, the firm’s outlook could also be bleak. The London-based city recruitment specialist said it expected markets beyond the world of western banks to be impacted in the near term—with emerging markets unlikely to pick up the slack. Nevertheless, analysts remain divided on the merits of Randstad’s longer term potential. Consensus for Q1 EPS is flat at €0.63 per share.
Randstad’s CEO Ben Noteboom will be on Squawk Box to answer questions on how he sees the market unfolding at 07:45 CET.