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Advertising and marketing services major WPP plc (WPPGY - Analyst Report) reported revenue growth of 7.4% year over year to £2,680 million ($4,152.4 million) during the third quarter ended Sep 30, 2013. However, it missed the Zacks Consensus Estimate of $4,338 million. On a constant currency basis, revenues grew 6.4% year over year.
The company won net new business of $3.716 billion during the third quarter of 2013, compared with $1.415 billion in the prior-year quarter.
Revenues by Region
During the third quarter of 2013, revenues in North America climbed 7.2% year over year to £948 million ($1,468.9 million) on a reported basis, and 5.5% on a constant currency basis. The surge in revenues was led by strong performance from the company’s advertising and media investment management, data investment management, and the healthcare and specialist communications businesses.
Revenues in the U.K. improved 13.2% to £352 million ($1,225.6 million), driven by a healthy rise in advertising and media investment management business, branding and identity, as well as direct, digital and interactive businesses.
In Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe, revenues rose 3.6% year over year to £791 million ($1,225.6 million) on a reported basis and 7.3% in constant currency, driven largely by robust performances in Latin America, Central and Eastern Europe, Africa and the BRIC (Brazil, Russia, India, China) countries.
Revenues in Western Continental Europe increased 9.6% year over year to £589 million ($912.6 million) with a relatively steady performance in Italy, Germany, the Netherlands, Austria and Turkey.
Revenues by Segment
By segment, Branding and Identity, Healthcare and Specialist Communications was the strongest performer in the third quarter of 2013 with revenues of £747 million ($1,157.4 million), rising 10.1% year over year on a reported basis and 8.9 % in constant currency.
Revenues from Advertising and Media Investment Management improved 8.8% to £1,087 million ($1,684.2 million) on a reported basis while Data Investment Management’s revenues increased 4.4% year over year to £617 million ($996 million).
However, revenues from Public Relations & Public Affairs rose marginally by 0.7% year over year on a reported basis to £229 million ($354.8 million).
Balance Sheet & Cash Flow
Free cash flow for the twelve months ended Sep 30, 2013 was £1.5 billion ($2.3 billion), of which the company utilized £1.1 billion ($1.7 billion) for capital expenditure, acquisitions, share repurchases and dividends.
As of Sep 30, 2013, net debt decreased to £2.810 billion ($4.3 billion) from £3.576 billion ($5.5 billion) in the comparable year-ago period, reflecting an improvement in the company’s working capital.
WPP repurchased 12.6 million shares worth £134 million ($207.6 million) during the first nine months of 2013.
WPP completed 45 acquisitions worldwide across all the business segments during the first nine months of 2013. Of these, 29 acquisitions and investments were made in new markets, 23 of which were in new media. Moreover, 14 acquisitions were made in data investment management, including data analytics and the application of new technology and 2 acquisitions catering to requirements of individual clients and agencies.
Going forward, the company expects 2013 to be comparatively less challenging than 2012 on the back of rising consumer confidence. However, the company notes that macroeconomic uncertainties and sovereign debt issues still persist. 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 these by virtue of its leading position in new markets and new media, and its deep consumer insight.
WPP currently carries a carries a Zacks Rank #2 (Buy). Some other stocks in the same industry are Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report), Publicis Groupe SA(PUBGY) and Huron Consulting Group Inc. (HURN - Snapshot Report). While Clear Channel and WPP carry a Zacks Rank #2 (Buy), Huron holds a Zacks Rank #1 (Strong Buy).
Note: £1 = $1.5494 (period average from Jul 1, 2013 to Sep 30, 2013)