The world’s biggest advertising group, WPP plc , reported strong results for first-half 2016 with double-digit earnings and revenue growth year over year, combating significant currency headwinds. Non GAAP earnings per share improved 16.7% year over year to 39.1 pence ($0.6) on the back of revenue growth across geographic regions and strong performances from all operating segments.

Reported revenues for the first-half 2016 increased 11.9% to £6.5 billion ($9.3 billion) year over year, with constant currency growth of 8.9% and inorganic growth of 4.6%. The company recorded strong revenue growth across various geographic segments which include Western Continental Europe and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe.

Revenues by Region

During first-half 2016, revenues in North America displayed growth, climbing 12.7% year over year to £2,440 million ($3489.2 million) on a reported basis. The surge in revenues was led by strong growth in Advertising and Media Investment Management, part of the Public Relations and Public Affairs and Branding & Identity. However, the company’s Group healthcare businesses continued to face challenges during the first half.

Revenue growth in the U.K  remained strong, rising 7.8% to £927 million ($1325.6 million), driven by healthy growth in Advertising and Media Investment Management and Public Relations and Public Affairs businesses.

Revenues in Western Continental Europe increased  17.4% year over year to £1,342 million ($1919.1 million) with Austria, Belgium, the Netherlands, Italy, Germany, Denmark, Turkey and Switzerland showing stronger performance, which was somewhat offset by performance in France, Portugal and Spain.

In Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe, revenues rose 9.3% year over year to £1,827 million ($2,612.6 million) on a reported basis, driven largely by robust performances in Latin America and Central & Eastern Europe, with Asia Pacific, Africa and the Middle East showing slower growth.

Revenues by Segment

Branding and Identity, Healthcare and Specialist Communications showed a robust performance in the first half with revenues of £1,830 million ($2,616.9 million), rising 16.7% year over year. The segment witnessed strong growth in direct, digital and interactive businesses, while some of the healthcare businesses remained sluggish.

Revenues from Advertising and Media Investment Management, which turned out to be one of the company’s strongest performing sector in first-half 2016, improved by 12.3% to £2,963 million ($4,237.1 million). Advertising gained traction in North America, the United Kingdom, Western Continental Europe and the Middle East.

Data Investment Management’s revenues improved by 5.9% year over year to £1,244 million ($1,778.9 million).

Revenues from Public Relations & Public Affairs showed growth of 8.8% year over year to £499 million ($713.6 million). Cohn & Wolfe, the specialist public relations and public affairs businesses in the United States and Germany performed well.

Margins

EBITDA for the period increased 13.7% to £889 million, up 9.5% on a constant currency basis. Operating profit increased 14.9% to £769 million ($1,099.7 million) from £669 million (956.7 million), up 10.3% in constant currency.

Balance Sheet & Cash Flow

Free cash flow for the twelve months ended Jun 30, 2016, was £459 million ($656.4 million), of which the company utilized £226 million ($323.2 million) for acquisitions and £197 million ($281.7 million) for share repurchases.

Average net debt in the first six months of 2016 was £3.986 billion ($5.69 billion), compared with £3.374 billion ($ 4.82 billion) in 2015, as sustained improvement in working capital was offset by weakened pound sterling.

Acquisitions

WPP completed 36 transactions in the first six months; 13 acquisitions and investments were in new markets and 23 in quantitative and digital. Of these, 9 were driven by individual clients or agency needs and 9 were in both new markets and quantitative and digital.

Outlook

Fast growing geographical markets of Western Continental Europe and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, and faster growing functional sectors of Advertising, Media Investment Management and Branding and Identity, lend optimism to the company’s growth prospects. However, their strength will, to some extent, be offset by geopolitical concerns and growth worries in China, as well as soft growth in the mature markets of Western Continental Europe.

For the year 2016, the advertising giant expects EPS growth to be in the range of 10% to 15% p.a. delivered through revenue increase, margin expansion, acquisitions and share buybacks.

Following Brexit, accelerated implementation of growth strategy continues, with revenue ratios for fast growth markets and new media raised from 35-40% to 40-45% over the next four to five years. The quantitative revenue target of 50% has already been achieved.

Our Take

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

WPP currently carries a Zacks Rank #4 (Sell). Other stocks that are worth a look in the same industry include Marin Software Incorporated (MRIN Quick QuoteMRIN - Free Report) , Novatel Wireless Inc. , and Motorola Solutions, Inc. (MSI Quick QuoteMSI - Free Report) , each carrying a Zacks Rank #2 (Buy).

Note: £1 = $1.43 (from Jan 1, 2016 to Jun 30, 2016)

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