Advertising agency’s stock plunges 12% and the CEO is blaming ‘political gridlock’

Key Points
  • Interpublic CEO Michael Roth said "political gridlock" caused his company's earnings miss.
  • The advertising firm reported EPS and revenues below Wall Street expectations.
  • A lack of new "large projects" especially hurt revenues, Roth said.
Michael Roth, IPG CEO.
Michael Newberg | CNBC

Shares of Interpublic dove 12 percent in trading Tuesday, after CEO Michael Roth said "political gridlock" was to blame for his company's second-quarter earnings miss.

The advertising company's poor report for both earnings per share and revenue largely came from reduced spending by consumer goods clients, according to Roth.

"Our results in the quarter reflect the fact that macro uncertainty and political gridlock are affecting spending, particularly in the U.S., with clients demonstrating caution in terms of releasing budgets," Roth said during the company's earnings call.

Interpublic's revenue declined by nearly 1 percent because of the decrease in spending from these clients, according to Roth. He said clients "are overreacting," and pointed to clients "officially" saying spending would increase in the latter half of this year.

Revenues declined $32 million compared to the same quarter last year. When asked to further explain, Roth said the miss was from a lack of "large projects" to replace previous substantial projects.

"In the second quarter, we were missing some of these larger projects to replace the ones that have run off," Roth said, before adding new work is in the company's "line of sight."

Roth believes the lack of investment in the technology and telecom sectors hurt Interpublic's growth, saying those "historically have been a good driver for us." He stopped short of calling for a complete bounce back in the second half of the year, saying the Interpublic sees "some recovery" on the way.

While the second quarter was softer than he expected, Roth believes Interpublic, which owns McCann Worldgroup, will meet its growth target of 3 percent to 4 percent for the year.