IPG Earnings: First Organic Top-Line Decline Since 2020 Will Turn Around

While last year’s organic net revenue growth of 11.5% was tough to match, IPG IPG reported solid first-quarter results with only a slight decline in organic net revenue. The firm maintained its full-year organic growth guidance, expecting improvement in the second half, with which we agree as we expect less economic uncertainty during that period. We are not making any significant adjustments to our projections and are maintaining our $36 fair value estimate. While the share price declined 5% in reaction to earnings, IPG remains fairly valued, in our view.

Net revenue of $2.18 billion was down 2.3% from last year mainly due to currency exchange headwinds. Net revenue declined 0.2% excluding currency effects, partially offset by a 0.2% positive contribution from acquisitions. Net revenue declined organically in media, data, and engagement solutions (down 0.7%) and in integrated advertising and creativity-led solutions (down 0.9%), offset by a 3.3% increase in specialized communications and experienced solutions. Regionally, the impact of declines in the U.S. (0.9%), Continental Europe (4%), and Asia-Pacific (2.6%) exceeded the impact of growth in the U.K. (2.9%), Latin America (3.9%), and other markets (9.3%). Net revenue declines were due to a tough comparison versus last year and softer spending within the technology, telecom, and retail sectors.

Operating margin dipped more than 200 basis points from last year to 8.7% given the firm’s higher base salaries and some severance charges. However, with the return of organic growth and less hiring for the rest of the year, we think margins can still expand.

Management still expects full-year organic net revenue growth between 2% and 4%, accompanied by operating margin expanding to 16.7%.