WPP Boosted by Better than Expected 2009 Outlook

WPP, the world's second largest advertising group, predicted its key like-for-like revenue would be down 2 percent in 2009 and the better-than-expected outlook boosted its shares over 9 percent.

Analysts welcomed the statement and said the group was benefiting from its aggressive push into markets such as China, India and Brazil and sectors such as digital advertising and market research.

"Although the outlook remains challenging we think these results demonstrate that WPP's variable cost base, and exposure to faster growing disciplines and regions is helping mitigate the impact of the downturn," Numis analysts said. "Whilst we think the real test will be in 2009/2010 at current levels the shares look attractive..."

The group, which is ranked behind Omnicom Group in terms of market capitalization but is likely to become the world's largest advertising group by revenue following the acquisition of TNS, also reported revenues and earnings ahead of forecasts for 2008.

In downgrading its expectations for 2009 WPP said: "We have only preliminary revenue and profit data for January and February 2009 and this does show a difference in the trend of revenues against last year, although operating profits were better than budgeted.

"The first two months of 2008 were, in any event, relatively strong months for like-for-like revenue growth. In the long-term, the outlook for the advertising and marketing services industry appears favorable."

Its shares were up 9.6 percent at 410 pence in early trading having fallen over 35 percent in the previous last 12 months.

"WPP reported a good set of results, with full-year 2008 numbers broadly in line with expectations but the outlook for revenues and operating margins is much stronger than expected," analysts at RBS said. "...we believe the shares could outperform from here as the market becomes more comfortable with current earnings estimates. If the company is right, there is now upside risk."

Recovery Seen in 2010

WPP reported 2008 like-for-like revenue growth of 2.7 percent, slightly missing analysts target of 3 percent and down from almost 4 percent growth in the first nine months.

WPP, whose agencies include JWT and Ogilvy & Mather, said it still expected a recovery of sorts in 2010.

It said headline 2008 operating margin was 15 percent, in line with analyst forecasts and revised its operating margin target for 2009 to 14.3 percent which includes a full year of the market research group TNS.

It forecast an operating margin target of 14.8 percent for 2010.

Reported 2008 revenues were up 21 percent to 7.5 billion pounds ($10.7 billion), ahead of analyst forecasts at 7.2 billion pounds.

Headline earnings before interest, tax, depreciation and amortization (EBITDA) rose 20.4 percent to 1.3 billion pounds, ahead of a forecast for 1.2 billion.

The total dividend was raised 15 percent to 15.47 pence, including a second interim dividend of 10.28 pence.

WPP said the first half of 2009 was budgeted to be weaker than the year with a slight improvement in the second half.

Rival Omnicom Group described the fourth quarter as the toughest stretch since 1992 when it reported in February a 2.3 percent drop in revenue excluding acquisitions and currency fluctuations for the period.

Omnicom has said it expects the downturn to last through the next several quarters at least.

Maurice Levy, chief executive of the world's fourth largest advertising firm Publicis Groupe, said in February he expected a significant drop in sales growth excluding acquisitions and currency changes in the first and second quarters of this year.

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