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Stockbeat: Trouble in Mad Men Land as Publicis Guidance Hits Sector

By Geoffrey Smith

Investing.com -- It’s not been a great week for advertising companies. Omnicom (NYSE:OMC) fell nearly 2% after reporting falling revenue in the first half, but that pales in comparison with the drop in Publicis shares on Friday morning after the French-based group cut its outlook for the year.

Publicis (PA:PUBP) said after the European close on Thursday that it no longer expects organic sales to grow this year, due to “continued attrition” in traditional advertising in its biggest market, North America. The shares fell 8.4% to their lowest in nearly seven years on the news, dragging down U.K.-based rival WPP (LON:WPP) by over 3% to a three-month low in the process.

By contrast, Europe’s major bourses were broadly higher, following Wall Street and Asia after New York Federal Reserve President John Williams re-ignited hopes of a half-point cut in the Fed’s key Fed funds rate at the end of the month. The consensus forecast is still for a 25 basis point cut.

The Stoxx 600 was up 0.5% at 388.80 by 5 AM ET (0900) GMT, on course to end the week marginally higher. The FTSE 100 was up 0.7% and the German Dax up 0.8%.

“On the one hand, our clients are suffering from various pressures leading to budget cuts and fee reductions in sectors where we have a disproportionate share of market,” Publicis CEO and chairman Arthur Sadoun said a statement. “On the other hand, the profound transformation we have been engaged in has penalized us in the short term.”

Traditional advertising companies are rushing to reinvent their business models under pressure from Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL), which control nearly 90% of the online ad business. That’s forcing Publicis into some expensive investments in digital-based businesses, such as the $4 billion acquisition of data marketing company Epsilon back in April. Sadoun said Publicis has 25 different teams working on the integration of that business, an illustration of how badly it needs to squeeze the benefits out of that deal.

Despite the squeeze on revenue, Sadoun upheld the company’s guidance of a 30 to 50 basis point improvement in operating margin and a rise of 5% to 10 % in full-year earnings at constant currencies.

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