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WPP (WPPGY) Reports Strong 1H17 Earnings, Revenues Rise

Zacks Equity Research

The world’s biggest advertising group, WPP plc WPPGY reported strong results for first-half 2017. Earnings per share (EPS) improved 146.6% year over year to 46.6 pence ($58.67) on the back of revenue growth across all geographic regions and strong performance in all operating segments.

WPP PLC Price, Consensus and EPS Surprise


WPP PLC Price, Consensus and EPS Surprise | WPP PLC Quote

Reported revenues for the period increased 13.3% to £7,404 million (down 0.4% to $9.328 billion) year over year, with constant currency growth of 1.9%. The difference between the reportable numbers reflect the continuing weakness of the pound sterling against the U.S. dollar, the euro and other major currencies. The company recorded strong revenue growth in North America, the U.K., Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe.

Revenues by Region

During the first half, revenues in North America displayed constant growth, climbing 13.4% year over year to £2,767 million ($3,483.9 million) on a reported basis. The rise in revenues was led by strong growth achieved in advertising and media investment management, part of the company’s public relations & public affairs businesses and branding & identity, direct, digital and interactive operations.

Revenue growth in the U.K remained strong as it rose 5.6% to £979 million ($1,232.7 million), driven by healthy growth in advertising and media investment management and public relations and public affairs businesses.

Revenues in Western Continental Europe grew 11.3% year over year to £1,494 million ($1,881.1 million) with Austria, France, Ireland, Italy, Netherlands and Portugal showing weakness. This was somewhat offset by steady performance by Germany, Norway, Spain, Sweden and Switzerland.

In Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe, revenues rose 18.5% year over year to £2,164 million ($2,368.5 million) on a reported basis, driven largely by robust performance in all the regions, slightly offset by Africa and the Middle East, which showed slight weakness.

Revenues by Segment

By segment, Branding and Identity, Healthcare and Specialist Communications showed a robust performance in the first half with revenues of £2,023 million ($2,547.2 million) rising 10.6% year over year on reported basis. The segment witnessed strong growth in direct, digital and interactive businesses, especially WPP Digital, VML and Wunderman, with parts of its healthcare, branding & identity and specialist communications businesses also showing robust growth.

Revenues from Advertising and Media Investment Management improved 17.7% to £3,489 million ($4,393 million). While Advertising gained traction in Asia Pacific, Media Investment Management was strong across the U.K., Continental Europe and Latin America.

Data Investment Management’s revenues were up 5.1% year over year to £1,308 million ($1,646.9 million). The mature markets continued to be difficult.

Revenues from Public Relations & Public Affairs showed growth of 16.9% year over year to £584 million ($7.5.3 million). Ogilvy Public Relations, Cohn & Wolfe, the specialist public relations and public affairs businesses in the United States and the U.K., H+K Strategies and Germany performed well while Burson-Marsteller was less impressive.


Operating margin for first-half 2017 came in at 13.9% on a reported basis, up 20 basis points year over year.

Balance Sheet & Cash Flow

Free cash flow for the first six months of 2017 was £1,001.1 million ($1.3 billion), of which the company utilized £241 million ($303.4 million) for acquisitions and £290 million ($365.1 million) for share repurchases.

Average net debt for first six months of 2017 was £4.81 billion, ($6.1 billion) compared with £4.39 billion in 2016, as sustained improvement in working capital was offset by significant acquisition spending and share buybacks.


WPP completed 23 transactions in the first six months; nine acquisitions and investments were in new markets and 18 in quantitative and digital. Of these, one was driven by individual client or agency needs and five were in both new markets and quantitative and digital. The acquisitions were in accordance with the company’s strategic focus on new markets, new media and data investment management.

Subsequent to the Quarter

In addition, eight acquisitions and investments were made in July and August, with one in advertising and media investment management in Germany; one in branding & identity in Italy; and six in digital eCommerce & shopper marketing in the United States, France, the United Arab Emirates, China and Brazil.


Fast growing geographical markets of North America and the U.K, and the rapidly growing functional sectors of advertising, media investment management and Branding and Identity, Healthcare and Specialist Communications lend optimism to the company’s growth prospects. However, this strength will, to some extent be moderated by geopolitical concerns and growth worries in China, as well as soft growth in the mature markets of Western Continental Europe.

For 2017, the advertising giant expects EPS growth to be in the range of 10% to 15% through revenue growth, margin expansion, acquisitions and share buybacks. Growth in net sales margin of 0.3 margin points or more is expected.

Our Take

With sustained revenue growth in faster-growing geographic markets, strategically targeted acquisitions and continued emphasis on improvement in operating costs to enhance margins, WPP expects its growth momentum to continue in the coming times.

WPP currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Honeywell International Inc. HON, Publicis Groupe S.A. PUBGY and Federal Signal Corporation FSS. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Honeywell has a long-term earnings growth expectation of 9.53% and is currently trading at a forward P/E of 19.27x.

Publicis Groupe has a long-term earnings growth expectation of 12.92% and is currently trading at a forward P/E of 13.20x.

Federal Signal is currently trading at a forward P/E of 23.21x.

Note: £1 = $1.2591 (from Jan 1, 2017-Jun 30, 2017)

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