Advertising and marketing services major WPP plc reported almost flat first half 2013 earnings of £280.9 million ($433.7 million) or 21.5 pence per share (33 cents per ADS) compared with £277.8 million ($428.9 million) or 21.6 pence per share (33 cents per ADS) in the first half of 2012.
Revenues increased 7.1% year over year to £5,326.7 million ($8,224.9 million). However, on a constant-currency basis, revenues grew 5.5% year over year. The rise in revenues was led by 2.4% organic growth, 3.1% inorganic growth and 1.6% gains due to the effects of currency exchange rates.
Moreover, the company reported strong billings that increased 5% year over year to £22.7 billion ($35.1 billion).
Revenues by Region
During the first half of 2013, revenues in North America climbed 5.3% year over year to £1,840 billion ($2.841.1 million) on a reported basis, and 2.9% on a constant currency basis. Revenues in the U.K. improved 13.1% to £669 million ($1,033 million), driven by a healthy rise in advertising and media investment management business, branding and identity, healthcare and direct as well as digital and interactive businesses
In the Asia Pacific, Latin America, Africa, the Middle East as well as Central and Eastern Europe, revenues rose 7.9% year over year to £1,560 million ($2,408.8 million) on a reported basis and 8.1% on constant currency basis, driven largely by robust performances in Latin America and the BRIC (Brazil, Russia, India, China) countries. Revenues in Western Continental Europe increased 6.0% year over year to £1,258 million ($1,942.5 million) with a relatively steady performance in Belgium, Germany, Netherlands and Turkey.
Revenues by Segment
By segment, Branding and Identity, Healthcare and Specialist Communications was the strongest performer in the first half of 2013 with revenues of £1,438 million ($2,220.4 million), rising 12.6% year over year increase on a reported basis and 11.0% on a constant currency basis. Revenues from Advertising and Media Investment Management improved 7.2% to £2,193 million ($3,386.2 million) on a reported basis while Data Investment Management’s revenues increased 3.9% year over year to £1,238 million ($1,911.6 million). However, revenues from Public Relations & Public Affairs dipped 0.2% year over year on a reported basis to £458 million ($707.2 million) and 2.2% on a constant-currency basis.
Balance Sheet & Cash Flow
WPP reported cash and cash equivalents of £1,258.6 million ($1,943.4 million) for the six-month period ended Jun 30, 2013. Cash provided by operating activities was £175.2 million ($270.5 million) at the end of Jun 30, 2013. Free cash flow for the first half of 2013 aggregated to £392 million ($605.3 million), most of which was used to finance share repurchases. WPP repurchased shares worth £133.1 million ($205.5 million) during the first half of 2013. At Jun 30, 2013, net debt was £2,717.1 million ($4,195.5 million) compared with £2,861.3 million ($ 4,418.1 million) in the comparable year-ago period.
WPP completed 26 acquisitions worldwide across all the business segments during the first half of 2013. Of these, 17 acquisitions and investments were made in new markets, out of which 13 were made in new media. Moreover, 7 acquisitions were made in data investment management, including data analytics and the application of technology 2 acquisitions were made to cater to the requirements of individual clients and agencies.
In an attempt to reward its shareholders, WPP decided to raise its dividend payout ratio for 2013 from 40% to 45%–50%. Consequently, the company increased its interim dividend by 20% to 10.56 pence per share (16 cents per share), payable on 11 Nov 2013 for shareholders on record of Oct 11..
Going forward, the company expects 2013 to be similar to 2012, though a little less challenging due to increased client confidence despite an uncertain macroeconomic environment and sovereign debt issues. WPP expects like-for-like revenue and gross margin growth of around 3% and operating margin improvement of 0.5 margin points in 2013, with revenue and gross margin growth at a faster rate than the industry average. The company expects to achieve it by virtue of its leading position in the new markets and new media, and its depth in consumer insight. At the same time, WPP expects to remain active in the case of share buybacks and acquisitions in order to extend its footprint as well as consolidate its position in the existing markets.
WPP currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering include MDC Partners Inc. (MDCA - Snapshot Report), PublicisGroupe SA (PUBGY - Snapshot Report) and Corporate Executive Board Co. (CEB - Snapshot Report). All these also have a Zacks Rank #2 (Buy).
Note: £1 = $1.5441 (period average from Jan 1, 2013 to Jun 30, 2013)