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Interpublic Group of Companies Inc (IPG) Q4 2018 Earnings Conference Call Transcript

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Interpublic Group of Companies Inc  (NYSE: IPG)
Q4 2018 Earnings Conference Call
Feb. 13, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Interpublic Group Fourth Quarter and Full Year 2018 Conference Call. (Operator Instructions) This conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

Jerome J. Leshne -- Senior Vice President, Investor Relations, IPG

Good morning. Thank you for joining us. We have posted our earnings release and our slide presentation on our website interpublic.com. This morning, we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9:30 Eastern.

During this call, we will refer to forward-looking statements about our company. These are subject to the uncertainties in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-K and other filings with the SEC. We will also refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance.

At this point, it is my pleasure to turn things over to Michael Roth.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Jerry and thank you all for joining us this morning as we review our results for the fourth quarter and 2018. As usual, I'll start out by covering the highlights of our performance as well as our outlook for the new year. Frank will then provide additional details and I'll conclude with an update on our agencies, to be followed by our Q&A. We are very pleased to report strong performance for both the quarter and full year.

At the top of our financial highlights, organic net revenue growth was 7.1% in the fourth quarter, that brings organic growth for the full year to 5.5%, which exceeds our latest 4.5% growth target. These are outstanding results.

Regionally, fourth quarter US organic growth was 6.3% and international growth was 8%. We grew organically in every region of the world. During the quarter as well as the full year, we saw very broad participation across agencies, disciplines, and client sectors: FCB, Mediabrands, Huge, McCann and R/GA were all notably strong in the fourth quarter. Top performing client sectors were consumer goods, healthcare, retail, and auto.

In the quarter, the total growth of our net revenue was 13.3%, which reflects both our organic increase and the revenue of Acxiom. This is our first report with the consolidated results of Acxiom having completed our acquisition on October 1. We were pleased with Acxiom's fourth quarter performance, which was fully on track with our expectations. But to be clear, Acxiom's growth is not included in our organic growth of 7.1% and will not be until the fourth quarter of 2019.

Turning to our operating income and adjusted EBITA. Fourth quarter operating income was $459 million, which includes deal expenses for the Acxiom acquisition, as well as acquisition-related amortization expense. Excluding those two items, our EBITA was $504 million and adjusted EBITA margin on net revenue was 20.9%. For the full year, adjusted EBITA was $1.08 billion and our adjusted EBITA margin was 13.5%. That's an increase of 70 basis points from a year ago at the high end of our targeted range for 2018.

Full year diluted earnings per share was $1.59 and was $1.86 as adjusted for Acxiom deal expenses, amortization of acquired intangibles, and net losses from the disposition of small non-strategic agencies over the course of the year. That's an increase of 33% over comparable adjusted EPS of $1.40 a year ago.

Our results for the year further demonstrates the strength of our client-centric integrated offerings and the quality of our people which have produced leading organic growth and margin improvement over a period of many years. It underscores a distinctive level of achievement amid significant change in our industry and the environment in which we operate. All of our people can take pride in these accomplishments, their talent and the great work they do every day on behalf of our clients is what drives such terrific results in the marketplace and for our shareholders. We thank them for their ongoing hard work and dedication.

It's equally important to note that along with strong performance, we have continued our investments in outstanding talent across our agencies and in the tools and capabilities that keep us on the leading edge of our dynamic industry. This is especially true in key areas like creative, digital, data, and analytics. On this note, our acquisition of Acxiom was the signature investment in our space during 2018 and we think for years to come.

On the strength of these results and our future prospects, we are pleased to announce this morning our Board's decision to raise IPG's quarterly dividend by 12% to $0.235 per share. This marks our 7th consecutive year of dividend increases, over which time our quarterly dividend per share has nearly quadrupled.

As we turn to our outlook for 2019 we do so with the foundation of agencies competing successfully in our commercial marketplace over many years and converting revenue growth to operating profit as leading rates. We are focused on deleveraging our balance sheet following the Acxiom transaction and returning capital to shareholders. All of which urges our commitment to driving shareholder value.

The worldwide tone of business among our clients remain solid through year-end as is apparent in our results. While there is shared concerned around macro issues, which include the aging economic expansion, political turmoil, international trade, and interest rates, the backdrop appears sound as we enter the new year. With that, our opportunity for solid growth in 2019 is promising, even as we are comparing against industry-leading growth rates and revenue headwind due to certain account losses that we saw at the end of last year. These are not the norm for us. We will have largely cycled through their impact by this time next year and we are well positioned to bring our world-class offerings to compete for meaningful new business opportunities that are coming up over the course of this year.

For 2019, we're targeting competitive organic growth of 2% to 3%. The growth of Acxiom again is not included in our organic calculations until the fourth quarter.

Turning to expenses and EBITA margin for 2019, we anticipate that we will take cost actions in Q1 for headcount reduction and to exit real estate, mainly due to the account losses in 2018 and to implement certain other additional headcount actions to further right size our cost structure. The largest accounts driving these actions are the Army and FCA media North America. These cost actions will result in a charge to Q1 earnings, which has yet to be finalized so we currently anticipate that will be in a range of $30 million to $40 million.

We expect to continue to add to our long-standing record of margin expansion in the upcoming year. We are targeting adjusted EBITA margin expansion of 40 basis to 50 basis points over the results we are reporting today, excluding the cost actions we expect to take in Q1, which would bring us to 13.9% to 14%. As always, as the year unfolds we will regularly review our perspective on the year during our quarterly calls.

In summary, we believe that the drivers of shareholder value creation in the quality of our people, revenue growth, margin expansion, and share dividends will continue to work well at Interpublic as we enter a new year.

At this stage. I'll turn things over to Frank for additional detail on our performance and then I'll return with the update and highlights of our business. Frank?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Thank you Michael and good morning. As a reminder, I will be referring to the slide presentation under the company's -- our webcast. On slide two, you'll see a summary of our results.

Fourth quarter net revenue growth was 13.3% and organic growth was 7.1%. US organic growth was 6.3% and international organic growth was 8% with increases across all regions. For the full-year, organic was 5.5%, which does not include Acxiom's growth. Q4 adjusted EBITA margin on net revenue was 20.9% compared with 20.1% a year ago. For the full year, our adjusted EBITA grew 13% and margin expanded 70 basis points to 13.5%.

For the quarter, our adjusted diluted earnings per share was $0.89, which excludes Acxiom transaction costs, the amortization of acquired intangibles, and losses from dispositions of certain small nonstrategic agencies. That's an increase of 39% from comparable Q4 2017. For the full year, our diluted EPS was $1.86, an increase of 33% from comparable 2017. As Michael mentioned, we announced this morning that our Board has once again significantly increased our common share dividend by 12% to $0.235 per share quarterly.

Turning to slide three, you'll see our P&L for the quarter. I'll cover revenue and operating expense details on the slides that follow.

Turning to revenue on slide four, fourth quarter net revenue was $2.41 billion compared to Q4 2017, the impact of the change in exchange rates was a negative 1.6% while net acquisitions added 7.8%, resulting organic revenue increase was 7.1%. Net revenue growth for the full year was 7.5%, consisting of 5.5% organic growth and a positive 1.8% from net acquisitions, while currency was a positive 20 basis points. As you can see on the bottom half of this slide, Q4 organic growth at our integrated agency network segment was 7.4%. Growth in IAN was led by FCB, Mediabrands, McCann, R/GA, and Huge. At our CMG segment, organic growth was 5.1% in the quarter driven by standout growth by Weber Shandwick and Golin in public relations. Corporate and other segment revenue was $182 million, which is Acxiom's Q4 revenue. Organic growth rates for the full year were 6% in IAN and 3.4% at CMG.

Moving on to slide five, revenue by region. In the US, fourth quarter organic growth net revenue was 6.3%, we were led by a range of agencies, notably FCB, Mediabrands, Weber Shandwick, Huge, and MullenLowe. For the full year, US organic growth was 5.1% with increases across most client sectors including healthcare, auto, financial services, and consumer goods.

Turning to international markets, we had another strong quarter in the UK with 9.6% organic growth. We continue to see contributions at a number of our agencies, such as McCann, Mediabrands, and Weber Shandwick. For the full year, UK organic growth was 9.7%, an outstanding performance. In Continental Europe, organic growth was 4.1%. This was highlighted by growth in each of our largest national markets Germany, France, Spain, Italy. Full-year organic growth was 5.3%. In Asia-Pac, net organic growth was 6.6% in Q4, pace notably by strong growth in Japan, India, and China. Organic growth in the region was 3.9% for the full year. LatAm grew 17.4% organically in Q4 (ph). We continue to see strong performance throughout the region with double-digit increases in Colombia, Argentina, Chile, Mexico and Brazil. We were led by Mediabrands, McCann, Huge, FCB, and R/GA. Organic growth for the full year was 11.7%. In our other markets group, organic growth was 8% in the quarter with strong increases in Canada and the Middle East. Full-year organic growth was 3.4%.

Moving on to slide six on operating expenses, which remain well-controlled in the fourth quarter. Compared to our net revenue growth of 13.3%, Q4 net operating expenses increased 12.2% as adjusted for Acxiom transaction expenses and the amortization of acquired intangibles. For the full-year, operating expenses, similarly adjusted, grew 6.7% supporting net revenue growth of 7.5%. Our ratio of total salaries and related expenses to revenue for the full year was 66% compared with 66.8% a year ago, underneath that we continue to drive efficiencies on our investment at base payroll benefits and tax, which is our largest cost category, we leveraged and improved 120 basis points for the year.

Our expense for performance-based incentive compensation and salaries increased to 3.7% of revenue for the year. That was driven by performance against our operating targets for revenue and margin growth. At year-end, total headcount was approximately 54,000, an increase of 3,800 from a year ago with more than half of the increase due to the addition of Acxiom. As you would expect, headcount increased in growth areas of our portfolio including media, digital services, and our healthcare specialists.

Our office and other direct expenses was 16.9% of full year net revenue, compared with 17% a year ago. We leveraged our expenses for occupancy during the year by 30 basis points, that was partially offset by increased investments in data and other general expenses. Our SG&A expense increased as reported to $167 million for the full year, which includes $35 million of Acxiom deal expenses in the second half of the year. As adjusted for transaction costs, our SG&A expense was $132 million in 2018 compared with $119 million in 2017. The increase includes higher incentive compensation expense and increased investment in shared services and systems.

Little further down this page, our expense for depreciation in 2018 was $165 million, which is up from $136 million for the year before. The increase is primarily due to increased investment data and software, an additional $10 million of Q4 depreciation on Acxiom's books. Acquired intangibles amortization for the year was $38 million compared with $21 million in 2017, with the difference being $17 million in Q4 related to the Acxiom acquisition.

Turning to slide seven, we present details on adjustments to our reported fourth quarter results in order to give you better transparency and a picture of a comparable performance. This begins with our reported results and steps through to adjusted EBITA and our adjusted diluted EPS.

Beginning with our operating expenses in SG&A, Acxiom transaction costs were $23 million in the quarter. Our D&A expense includes $22 million for the amortization of acquired intangibles. Operating expense we had a loss in the quarter $12 million in other expense related to disposition of a few small non-strategic businesses. In our tax provision, we recorded a net benefit in the quarter from a number of discrete tax items totaling $24 million, which we have backed out here. At the foot of this slide, we show the after tax impact per diluted share of these adjustments. The total was $0.05 per diluted share, which is a difference between $0.84 reported $0.89 as adjusted.

Slide 8 depicts similar adjustment for the full year again for continuity and comparability. Acxiom transaction costs were $35 million in operating expenses and $14 million below operating income. Our amortization expense was $38 million. At right, adjusted EBITA was $1.08 billion. Business dispositions over the course of the year resulted in a book loss of $62 million. The impact of discrete tax items was a benefit of $24 million. The result is adjusted full year diluted EPS of $1.86. Note that our adjusted effective rate for the full year was 24.5%, which is below the 27% to 28% we had targeted. It reflects the 2018 benefit of certain tax planning strategies. In 2019, our forecast for our normalized effective tax rate is 26% to 28%.

On slide 9, we turn to cash flow for the full year. Cash from operations in 2018 was $565 million compared to $882 million a year ago. The comparison includes $431 million used in working capital 2018. It's not unusual for working capital to be volatile from year to year due to variations timing of collections and payments in our media business, which can be large. Investing activities used $2.5 billion in the year which of course is mainly our acquisition of Acxiom. CapEx was $177 million.

Our financing activities included debt proceeds of $2.5 billion raised to purchase Acxiom for $2.3 billion gross. We paid stock dividends of $322 million and share repurchases in the first half of the year were $177 million. Our net decrease in cash was $121 million.

Slide 10 is the current portion of our balance sheet. We ended the year with $673 million of cash and equivalents.

Slide 11 depicts the maturities of our outstanding debt. Total debt at year-end was $3.7 billion, which is a reduction of $100 million from the pro forma schedule at the end of the third quarter.

In summary, on slide 12, we are pleased with our performance in the quarter and the year. Our teams executed very well achieving strong revenue growth while maintaining expense discipline. Our balance sheet continues to be a strong and meaningful source of value creation as evident in the actions announced by our Board today and we are on our front foot strategically. That leaves us well positioned entering 2019.

With that, I'll turn it back over to Michael.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Frank. Well, we're certainly pleased with the quarter and the year with respect to both growth and profitability, our sector-leading performance with growth well ahead of our core competitors during the year, along with significant margin expansion demonstrates the continued competitiveness of our offerings. The effectiveness of our long-term strategy and the strength of our culture. We work to create a company that is positioned to address four fundamental changes in our industry.

First, a need to adapt to rapidly changing consumer media habits. Second, the potential for disintermediation, as clients work directly with digital platforms. Third, the in-housing of certain marketing practices, and finally the threat though still in the early stages of new entrants into our competitive space.

Today's results point to our ability to adapt to rapid change. Long term we believe that our many strengths, including the differentiated strategic decision to acquire Acxiom will allow us to successfully address and capitalize on the elements that underlie each of those four headline challenges. We remain optimistic about our ability to thrive in this environment. I'll speak to the Acxiom capability shortly and we will be sharing a lot more about unlocking the potential on future calls with you.

Turning now to the highlights of our annual performance, which was led by Mediabrands, which once again posted outstanding results globally. Growth was especially notable at our digital offering Cadreon and Reprise, further demonstrating the key role these high value offerings play in our media engagements. UM closed the year with a major global new business wins following Quicken Loans and Henkel early in the year. All of which will help balance out the account losses, I mentioned earlier.

The agency also promoted a long-term leader into the USC role and UM was named one of the Ad Age list of best places to work in 2019. Initiative continues to be a great turnaround story for IPG. The agency had a headline win in Q4 with KPMG and one of the special notable win at the start of this year with UPS along with the Martin Agency who together were tap for integrated media and creative duties. Mediabrands itself was also named a Best Employer for diversity by Forbes.

FCB closed the year very strong in terms of its financial results and they added to the business with a number of wins in LatAm, Europe, and the US FCB Health drove significant growth for the network and launched Solve(d), a data-backed practice at the end of the third quarter. In the US, FCB New York received new assignments from GSK in Q4. McCann made news with several global leadership appointments, notably at MRM McCann which promoted a long-term female executive from within to the post of Global CEO. MRM McCann was named the industry's B2B agency of the year by Ad Age.

In addition, McCann saw a number of additional new business wins following the Opel/Vauxhall win in Europe at the end of the third quarter. McCann also delivered two of the best received ads at the Super Bowl. The agency's efforts for its Microsoft and Verizon clients scored number one and two in the digital social conversation about TV commercials run during the game. According to metrics from Advertising Age, McCann's ad from Microsoft also topped the list of most effective ad shown during the game according to a consumer survey fielded by Unruly.

At the end of the fourth quarter, MullenLowe announced an exciting agency of record win for the Sennheiser global consumer business. MullenLowe also saw a particularly strong performance from the networks media arm -- media hub throughout the fourth quarter, picking up new business from Bloomin Brands and Dropbox. In LatAm, MullenLowe was named Network of the Year at the region's most important creative awards festival.

Among our marketing service agencies and CMG, we saw an acceleration of top line growth at Golin, Weber Shandwick, and Octagon. Weber Shandwick continue to prove a leader in that space and launched a new global management consultancy practice specializing in transformation called the United Minds. The PR firm close the year by winning the prolonged (ph) business and being named the best place to work in 2019 by Ad Age.

Our specialist agencies continue to innovate and expand their offerings. Experience agency, Jack Morton launched the global innovation practice Genuine X and appointed a number of new creative leads. Octagon had a standout performance for the year, both in terms of growth and profitability and was named the Best Agency in talent representation at the sports business awards. At R/GA, we passed the mantle of leadership from industry icon and founder Bob Greenberg, who remains in the role of Chairman to long time agency leader Sean Lyons, who is now global CEO. The agency also made a number of key appointments in the quarter, including senior talent in his creative department assuring in a new generation of leadership. Brooklyn headquarters Huge continue to bolster agency talent and capabilities and they saw a standout performance for the year as a result of major new projects in the US and Asia.

Our US Independence round out our portfolio. These agencies deliver a range of integrated services to their clients and also augment the rest of the IPG offering in our collaborative open architecture solutions. The Martin Agency picked up major new business with Buffalo Wild Wings and UPS, which is returning client that's part of the open architecture collaboration with initiative as we previously mentioned. The agency continues to deliver iconic creative work. Notably, this quarter was GEICO's greatest hits, featuring the agency's long time clients best Ads dating back to 1997. We're very proud of The Martin Agency's performance in 2018, under its first ever female CEO.

Deutsch promote the creative talent and saw wins with V-Go, the all in one insulin delivery device and a global soccer marketing project for Budweiser. Just last week, Deutsch was named global creative agency of record for Reebok, South Carolina based EP+Co, which is one of IPG's agencies to watch continues a successful run of client growth, which has led the agency to significantly expand this leadership team.

Open architecture solutions that integrate the best of our talent across the organization by means of customized client teams continue to be an area of focus and success for us in 2018. In contrast to some of our peers, IPG's long established hybrid approach is to invest in and protect agency brands while promoting collaboration. This puts our company in a strong position that appeals to talent and clients with respect to career development, as well as speed of service for clients.

In the fourth quarter, Axiom results are consolidated with IPG for the first time, and we're pleased to say that actual performance met both the revenue and profit targets we had set for the agency in the quarter. As we've noted on prior investor calls, this acquisition was about growing a great business at Acxiom and about revenue synergies and we expect to see those synergies begin to come to life over the course of 2019. Today, Acxiom provides the data foundation for many of the world's largest and most sophisticated marketers. They remove the pain points of organizing and cleansing data, which in turn positions these large marketers to leverage their data. This gives Acxiom broad reach into large enterprises, including about half of Fortune 100 companies. These are deeply embedded service relationships with long average life spans and very strong renewal rates.

All of us operate in an increasingly data centric ecosystem, which means that most of media and marketing will be centered around precision marketing, especially the ability to manage first party data to create deeper, direct consumer relationships, where we can connect with individual consumers at scale. Marketing needs to be done at the right place, right time with the right consumer, but that's easier said than done. Data capabilities unpack and understanding of the entire customer journey. That's a core principle in our era of fragmented media.

Strategically, the acquisition puts us ahead several years toward fulfillment of our strategy in data and analytics. Together with our company's best in class offerings across media, creative, digital, and marketing service we are positioned with a strong competitive advantage in our market. As we continue to fully integrate Acxiom, we're able to make our clients' data work harder for them and can deliver more efficient marketing. We're beginning to see this play out in pitches now, with sophisticated clients initially in the media space are asking us to pressure test our ability to link their first-party data with an external data stack to deliver better business outcomes.

Turning back to our overall results. It's clear that despite a challenging revenue environment, we posted growth that was well ahead of the industry average. We also demonstrated our ability to remain focused on and deliver margin improvement. This is consistent with our long-term record of improving profitability in both higher and more moderate growth environments. This is an achievement we are proud off.

Our capital return programs continue to be significant drivers of value. In 2018, we've returned capital to our shareholders through dividends and share repurchases. The latter were appropriately suspended on a temporary basis due to the Acxiom acquisition. During the year however, we returned approximately $322 million in the form of dividends and an additional $117 million via share repurchases. We intend to return to share repurchases, as we make progress on reducing our debt levels.

Given the leverage required to complete the Acxiom acquisition, we're pleased that the rating agencies acknowledged the strength of our financials and the strategic value of the deal by reaffirming their ratings for us. Our public debt issuance to finance the acquisition was a success across the board. While the Acxiom financing was a landmark capital markets transaction for IPG, it bears noting that we continue to invest in our most innovative capabilities as well as additional targeted M&A outside of Acxiom ensuring that our offerings stay relevant and differentiated in a highly dynamic media and marketing environment.

Our Board's decision today to once again meaningfully increase the dividend shows a continued commitment to return value to shareholders as well as confidence in our future prospects. Looking forward against the backdrop of global uncertainty, the tone of the business is good and we have some new business opportunities coming up. The breadth and strength of our portfolio have positions us well to participate in nearly all sizable pictures and there is further organic growth to be head by broadening the scope of our relationships with our existing clients.

In light of these factors, we believe that we should continue to see competitive organic revenue performance in 2019, which is why we are targeting 2% to 3% organic growth for this year. Given the headwinds, we are facing due to a couple of sizable client losses in late 2018, as well as the fact we are comping against industry-leading growth rates, the fact that we're able to target competitive organic growth performance speaks to the strength of our underlying offerings.

We are also focused on our client-centric model to assure retention of our important client base as we move forward. Along with this level of growth, we are targeting adjusted EBITA margin expansion of 40 to 50 basis points over the results we're reporting today. Excluding the cost (ph) actions we expect to take in Q1. This builds on a strong long-term record in this area.

At the same time, we will continue to invest in the outstanding talent and emerging capabilities that are required to position us for the long term, combined with the transformative opportunities of our enhanced ability to connect marketing with data and our commitment to capital return, that means there remain significant potential for value creation and enhance shareholder value. As always, we thank our clients and our people who are the foundation of our success.

With that, I'll open up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question will come from Alexia Quadrani of JPMorgan. Your line is open.

Alexia Quadrani -- JPMorgan -- Analyst

Hi, thank you very much and congratulations guys on such an impressive quarter here the revenue growth really is unbelievable. My question really is on the -- just at the organic revenue growth that we saw in the fourth quarter. Do you have a sense, maybe to talk broadly about how much of that it may have benefited from project business or sort of a budget flush toward year end? And how much was kind of the underlying growth of the business, the strength of business that you've sort of been seeing all year? And then I have a follow-up.

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah. As you know, our fourth quarter is typically when we see an increase in projects and in fact we saw that. That was evidenced in by a strong fourth quarter results for example at Weber Shandwick and Golin, as well as Octagon. So I don't consider it necessarily a flush of spending, I think it's pretty typical to have these projects operate in the fourth quarter. But what it does signal is the tone and the fact that our clients continue to value our marketing services in terms of their ability to do events and projects to reach their consumers.

Alexia Quadrani -- JPMorgan -- Analyst

And then on the -- I guess two other quick questions; one, the growth in the UK continues to be so strong, are you sensing there are some goods to market share gains there from competitors, can it continue to Brexit? And then maybe just a follow-up for Frank as well on incentive comp in temp labor that trend up in the quarter, I'm assuming reflective of the very strong revenue growth, is that likely to continue in Q1?

Michael I. Roth -- Chairman and Chief Executive Officer

All of that. First of all, the strength in UK, yeah, as you saw in the fourth quarter we were up 9.6% and for the 12 months we were up 9.7%. So, those are pretty good results. A lot of it -- and what's impressive about that is, it's across the board. It's media, it's PR, it's advertising. So a lot of that has to do with new client wins and the competitive positioning of us in the UK. We have yet to see any big pullbacks from Brexit and I know that question comes up all the time. I mean, eventually depending on what that outcome is it may impact. But right now we're just not seeing that. So we're very pleased with the results and just for a comparison, I believe the UK represents about 8% or 9% of our business and we're pleased with these results. The incentive comp follows our performance. So Frank, why don't you commented on it?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

And let's say, the model is working. We did a very good job of managing our base benefits in tax both in the quarter and the year, which allowed us to generate 80 basis point of leverage off the entire SRS line and we're able to overcome the increases incentives and temporary labor, which are more variable incentive, as Michael pointed, it's based on performance, temporary labor was around growth. As it relates to '19, the actions that we're taking -- as it relates to the account losses or what you would have expected, we are aggressively trying to manage our base benefit in tax. Unfortunately, when you have account losses like that there is going to be actions around people.

We're still servicing those clients as we work through the transition, but we wanted to make sure we let the investment community to know that we recognize there will be some pressure on our SRS lines with that revenue decline and we've got actions under way. More to come when we release our first quarter on that specifics.

Michael I. Roth -- Chairman and Chief Executive Officer

We always say, it's a variable cost model and that's what you do. When you have -- when you lose a client and unfortunately we did, then the adjustment to that is, unfortunately, in terms of layoffs and rightsizing the business. And the other side of that is as we bring new business on we're going to see an increase sometimes in temporary labor until we get the full time employees embedded in the organization. So it goes both ways, when we win a client it takes a while for the revenue and we have the expenses on the other side, we have to take expects actions when we lose and but the business continues to run off.

Alexia Quadrani -- JPMorgan -- Analyst

Well, thank you very much.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Dan Salmon of BMO Capital Markets. Your line is open.

Dan Salmon -- BMO Capital Markets -- Analyst

Good morning, everyone. Michael, one maybe high level one for you and then just a follow-on for either you or Frank. But just obviously Acxiom addresses your interest and desire to sort of grow your capabilities for data management more broadly. Getting beyond that theme of data when you look at your priorities for either tuck-in M&A, for transitioning the folks you have working at your agencies, what are the sort of the next two or three priorities on your list right now? Is it just sort of move beyond the acquisition of Acxiom to integrating it? And then secondly, I know you've been reticent in the past to give targets for revenue synergies and fair enough on that, but maybe either you or Frank could give a little bit of color on how you're thinking about revenue synergies within that 2% to 3% outlook number for organic growth for the year? Thanks.

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah, well, on the revenue synergies we said that the Acxiom transaction will be accretive. In fact, in the fourth quarter when we added Acxiom it was in fact accretive and we expect it to continue to be accretive for the full year 2019. So we're very pleased with how that's going. The synergies won't really be taking effect, probably toward the latter part of the year. Right now, we're busy integrating the businesses and the integration of the businesses as -- frankly has given rise to additional revenue synergies versus what our base case was, but it will take some time to implement some of the things that have to be done to make sure that the integration is correct and then whatever products we bring to market are being brought at the right time with the right people in place.

But the good news is that we are seeing greater potential on revenue synergies than we anticipated. In the meantime, the base business of Acxiom continues to be solid. Remember, the key aspect of Acxiom is data management and 65% to 70% of their business is data management and they continue to do an outstanding job there. In terms of our priorities, our markets are changing. So, therefore, it's important for us to invest in talent and clearly it goes without saying digital capabilities, which incidentally we embedded in all of our agencies, long time ago. So, every one of our agencies, whether they'd be creative, media, experiential, PR, all have very strong digital capabilities. And then of course, we have the Huge, R/GA, Profero, MRM which are unique digital capabilities within themselves, but we continue have to invest in the talent.

The other is business transformation. We're finding that given our relationship with our clients and the work that we're doing, we are seeing opportunities for business transformation. So we have been bringing onboard consultants, experts in business transformation, particularly in our digital agencies like R/GA, Huge, MRM and Profero. These business transformation projects are very well received. They're dealing with C-suite executives and of course, our goal is not only to win the project part of that, but to expand our relationship as a result of that. So one of the emphasis will be to continue to expand our expertise in business transformation, as well as in terms of data, data covers a lot of ground. I do believe we're going to see an increase in privacy issues across the country. Acxiom has expertise, certainly with GDPR we have the expertise that we've already brought to the market. In the United States, we see it in California. We're going to see it expanding all over the United States. We hope that we'll see a federal answer to the question of data privacy in the US and that will give us a great opportunity to leverage the expertise of Acxiom as being the leading provider of these services that have an element of trust, confidentiality and capabilities that are necessary in that environment.

Dan Salmon -- BMO Capital Markets -- Analyst

Maybe just one quick follow-up, fair to say that review activity is lower right now than it was a year ago at this time?

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah, I think that's fair to say, but I do believe it will start to pick up. I don't think it's going to stand still. But the good part of our revenue is coming from our existing clients and our expertise in terms of working those clients, bringing in the additional resources under our open architecture model is the opportunity that we have. I mean that's the bread and butter of our business and hopefully you win more than you lose in new reviews and hopefully there are the other competitors clients there in review.

Unfortunately, we had some bad result in December. But we don't have anything under review now. I don't want to jinx it and we're opportunistic and we're feeling good about our ability to compete as they come up in 2019.

Dan Salmon -- BMO Capital Markets -- Analyst

Great, thanks, Michael.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Dan.

Operator

Thank you. The next question comes from Ben Swinburne of Morgan Stanley. You may go ahead.

Ben Swinburne -- Morgan Stanley -- Analyst

Thank you, good morning guys. Michael, just staying on AMS (inaudible) give it to us, I think you sort of talked about it before, but, and I don't trust my own historical AMS numbers because they've been adjusted a lot since it was owned by live ramp. It looks like the business was up north of 8% in the fourth quarter, I don't know if you guys could talk to how the business has performed since you've bought it on a topline basis, I know it's accretive to adjusted EPS? And then as you look at the margin guidance for '19, I would have guessed AMS would be a nice driver of margin expansion, I am just wondering if you unpack the guidance is there any kind of core underlying margin expansion that you're expecting this year given all the comments you made about tough comps, the account churning in the business, if you could help us there that would be great? Thank you.

Michael I. Roth -- Chairman and Chief Executive Officer

I wish I can help you along the way that you ask. Of course --

Ben Swinburne -- Morgan Stanley -- Analyst

I take what I can get.

Michael I. Roth -- Chairman and Chief Executive Officer

Okay, well look when we originally did the forecasting of Acxiom, we use a 5% growth number, that was out there. Suffice it to say, when I say we've delivered a least a 5% growth as expected in the fourth quarter. And given all the opportunities and what we believe the market is looking for from Acxiom obviously, there's a growth participation in our growth through 2019. We also commented that the Acxiom business was on the higher side of margins and we expect that to continue throughout the year. And no, we're not going to break out the margins for Acxiom as US, but we do -- as I said, we do believe it will be accretive to us for the full year.

Ben Swinburne -- Morgan Stanley -- Analyst

Got it. And if I could just ask one follow-up, kind of coming off of Omnicom's call yesterday I though John made an interesting comment about competing with weak competitors versus wounded. Some of the account losses you had there has been some press around pretty aggressive I don't know about rational but at least aggressive pricing. I guess if you could just comment on whether you think there is some that the market is more competitive than it's been and part of that to do with some of the struggles from some of your competitors impacting, where accounts are going -- more of it's just, this is sort of what we've been dealing with for years?

Michael I. Roth -- Chairman and Chief Executive Officer

I always look to John as being the wise man in our industry, always take his guidance. The fact is -- yeah, I think what happens is you know any company that has some issues, the best way is to show the the strength of their business is to win business and needless to say, this business is a very competitive business right now.

Actually, it always ever since I've been in this business has been competitive and pricing is an important aspect of it. But let's not forget, you don't get the pricing unless you have the capabilities to get there. Okay, so when it comes down to pricing, I don't -- there are circumstances where for strategic reasons, some of the competitors may view this as an opportunity to gain market share or put a win on the Board. And sure, to the extent that some of our competitors are lacking revenue as reflected in their results, that's a way of doing it. I think we'll see on their future performance in terms of how their growth goes and how their margin expansion flows through. And I think you'll be able to tell which are businesses are doing it and which aren't, I mean on a long-term basis the rubber is going to hit the road. You can you can win a quick business by buying it, but as far as (inaudible) looked liked in the margins. So the fact that we're forecasting an expansion of margin for 2019 and organic revenue and we believe in the product that we serve and how we deal with our clients and in the end you get what you pay for and that's how we view our competitiveness in the marketplace makes place.

Ben Swinburne -- Morgan Stanley -- Analyst

Make sense. Thank you.

Operator

Thank you. The next question comes from David Joyce of Evercore. Your line is open.

David Joyce -- Evercore -- Analyst

Thank you. Something just for some more clarification help understand the wins -- client wins and losses and the cadence of the revenues. With the big American Express win, did that contribute in the fourth quarter? Should we expect the USRA (ph) to be winding down and the by the end of this first quarter and whether your 2% to 3% growth guidance really be supported more in the first part of the year given the given these puts and takes?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Well, look, the way -- its still unclear how these businesses in terms of losses are going to roll out. First of all, the losses didn't affect '18, It's principally a '19 event in terms of the impact and it will cycle through probably the second quarter and thereafter, if you want to do your modeling on it. And as far as our wins, the losses came in December of '18 that's why it takes a while for it to affect our results in '19. On the other side of it, we had net -- we had business wins in '18 that start to impact a little bit in the fourth quarter, but the bulk of the wins will impact starting in the first quarter of '19.

David Joyce -- Evercore -- Analyst

And in terms of having so much strength across your disciplines and across your regions, are there particular clients who were spending globally that helped that? Or are there particular verticals?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Yeah, I think it's pretty clear that healthcare was a major vertical for us. We've been saying it all year and for the full year it continued to be our largest growth and healthcare is 25% of our business. So that's a strength and we see that continuing into 2019. We did have a pickup in consumer goods. I was surprised everybody was talking about consumer goods, I was expecting the first question to be, how come you guys are up on a global basis at consumer goods? Consumer goods is 8% of our business and we had some client wins. So we're fortunate in our clients in the consumer goods space, which frankly accounted for a good growth for us on a year-to-year basis. Financial services continue to be solid for us. We saw auto and transportation growth in that area, earlier in the year it was not quite as growing and we saw an improvement in auto and transportation. Tech and telecom we had some strength in the first part of the year, we saw some recovery in the second half of the year. And frankly, food and beverage is probably our weakest sector. But overall, we're very pleased with the fact that our business is a disbursed versus sectors and we are performing well in most of them.

David Joyce -- Evercore -- Analyst

Thank you very much.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

My pleasure.

Operator

Thank you. The next question comes from Jason Bazinet of Citi. Your line is open.

Jason Bazinet -- Citi -- Analyst

I appreciate you reminding us about the suspension of the buyback. And I guess apologize in advance if I've missed this, but if you ever given a leverage number when you would resume the buyback or it's -- we're just going to sort of see it turn on at some point in the future?

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah, no, we don't. And there's so much that goes into our ratings, the tone of the business, the integration of Acxiom, and obviously our cash flows. So what I said in my remarks is how we have to look at it and that is as we perform, as we take -- we don't have share buyback, so we hopefully delever in terms of paying down debt. And when we reach the right levels, we'll know it when we see it and we will implement of buying back shares.

We think it's important that there be a balance between returning of capital to our shareholders in the form of dividends and buybacks. I'm very pleased with the support the Board has it with us with respect to the increase of the dividend, showing that their confidence in the business in the future and how important it is to return capital to our shareholders. So we chose the dividend vehicle this time and as we delever you will see us getting back into the buyback business.

Jason Bazinet -- Citi -- Analyst

I appreciate it. Thank you.

Operator

Thank you. The next question comes from Michael Nathanson of MoffettNathanson. Your line is open.

Michael Nathanson -- MoffettNathanson -- Analyst

Thank you. I have three quick ones. Michael, you talked a lot about the losses in America, what do we do to organic growth, but we look at the international business, it's really amazing how fast you're growing in some markets where there's just no economic strength. So I wonder, when we look at '19 internationally, what are you expecting for growth and anything about just how you achieve such growth levels in markets like LatAm, which is really struggling, or Western Europe, as you talked on? And what do you think about '19 off of the '18 run rate?

Michael I. Roth -- Chairman and Chief Executive Officer

Well, again, if you look at the size of our business -- I think LatAm is a great example of the effect that we have in terms of business wins and losses. We went for a period in time where LatAm -- the business we were negative because of losses. Fortunately, whether it be McCann or Mediabrands and FCB and MullenLowe, we picked up new business. So we saw strength in Brazil, which is great to see as a result of some of the new business. Argentina, Mexico are very strong for us. So, it's across the board in Latin America, but the good news is Brazil and that's principally driven by new business wins, or actually a new business win or a client coming back, which is great.

With respect to the other markets, the same is true in Continental Europe. The fact that we are stronger in Continental Europe, we were up 4.1% in the fourth quarter and 5.3% for the year, that too is very much new client business related and again, it's 8% of our business, so client win here or there gives rise to a nice increase. So I think the answer to your question is, we want to win business in those markets and we'll see the growth coming from that.

Michael Nathanson -- MoffettNathanson -- Analyst

Okay, thanks. And then two quick ones for Frank. Frank, I don't know if we quantified the benefits of your cost actions over the year, so how much do you expect to save after you make those actions in the first quarter?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Michael, we don't have that information today. We'll disclose more on the first quarter call. We're still looking at the specifics, which are both people and real estate. So we'll give more granularity on the first quarter call. We just want to range out for a few folks that the general size of the charge we are looking to take.

Michael Nathanson -- MoffettNathanson -- Analyst

Okay. And the last one, going back to Ben's question just on margins at Acxiom. With your first quarter under management at Acxiom, is there any material change to the way you manage the business on the margin side, or should we look at historical margins there is kind of a good guide for what happened on the first quarter under your management?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

I think that we're very supportive of the AMS management team and their margins are very strong and we're looking for opportunities to drive incremental margin but we haven't changed anything materially on how they run their business.

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah, I mean that's a key part of the integration, and we didn't want to break it. We are doing well. We bought them because of their strength. So we have teams that we have great oversight in terms of how we work together and I got to tell you the relationship between them and IPG is it's fantastic. And not only are we looking at revenue synergies from IPG clients using Acxiom, we're seeing a lot of action coming from Axiom bringing in IPG businesses. So we're really excited about that opportunity.

Michael Nathanson -- MoffettNathanson -- Analyst

Okay. Thank you, both. Thanks, guys.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Thanks, Michael.

Michael I. Roth -- Chairman and Chief Executive Officer

Well, I'm getting the high sign here. So I thank you all for your participation. I know we got to do it again but we're quite proud of the results for '18 and we look forward to great results for '19. Thank you very much.

Operator

This concludes today's conference. You may disconnect at this time.

Duration: 60 minutes

Call participants:

Jerome J. Leshne -- Senior Vice President, Investor Relations, IPG

Michael I. Roth -- Chairman and Chief Executive Officer

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer, IPG and Chairman, CMG

Alexia Quadrani -- JPMorgan -- Analyst

Dan Salmon -- BMO Capital Markets -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

David Joyce -- Evercore -- Analyst

Jason Bazinet -- Citi -- Analyst

Michael Nathanson -- MoffettNathanson -- Analyst

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