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WPP (WPPGY) Posts Strong 2016 Earnings, Offers '17 Guidance

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The world’s biggest advertising group, WPP plc reported strong results for full-year 2016. Earnings per share (EPS) improved 20.9% year over year to 113 pence ($1.53) 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 full year increased 17.6% to £14.4billion (up 3.7% to $19.4 billion) year over year, with constant currency growth of 7.2%. 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 year, revenues in North America displayed constant growth, climbing 3.9% year over year to £5,281 million ($7,154.2 million) on a reported basis. The surge 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% to £1,866 million ($2,527.9 million), driven by healthy growth in advertising and media investment management and public relations and public affairs businesses.

Revenues in Western Continental Europe grew 4.8% year over year to £2,943 million ($3,986.9 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 year over year to £4,299 million ($5,414.2 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 2016 with revenues of £4,079 million ($5,525.8 million) rising 23.2% 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 17.9% to £6,548 million ($8,870.6 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 9.7% year over year to £2,661 million ($3604.9 million). The mature markets continued to be difficult.

Revenues from Public Relations & Public Affairs showed growth of 16.4% year over year to £1,101 million ($1491.5 million). Ogilvy Public Relations, Cohn & Wolfe, the specialist public relations and public affairs businesses in the U.S. and the U.K., H+K Strategies and Germany performed well while Burson-Marsteller was less impressive.

Margins

Operating margin for full-year 2016 came in at 17.4% on a reported basis, up 50 basis points year over year.

Balance Sheet & Cash Flow

Free cash flow for the twelve months ended Dec 31, 2016, was £1.6 billion ($2.1 billion), of which the company utilized £697 million ($944.2 million) for acquisitions, £427 million ($578.5 million) for share repurchases and £720 million ($975.4 million) for dividends.

Average net debt was £4.3 billion ($5.9 billion) compared with £3.9 billion in 2015, as sustained improvement in working capital was offset by significant acquisition spending and share buybacks.

Acquisitions

WPP completed 56 acquisitions worldwide, across all spectrums of its business in 2016. Of these, 20 acquisitions and investments were in new markets, 38 in quantitative and digital and 10 were driven by individual client or agency needs. The acquisitions were in accordance with the company’s strategic focus on new markets, new media and data investment management.

Outlook

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. Like-for-like revenue growth of over 2% and net sales growth of over 0–5% 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 include The Interpublic Group of Companies, Inc. (IPG - Free Report) , JCDecaux SA and Social Reality, Inc. (SRAX - Free Report) . 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.

Interpublic has a long-term earnings growth expectation of 7.40% and is currently trading at a forward P/E of 16.72x.

JCDecaux has a long-term earnings growth expectation of 2.80% and is currently trading at a forward P/E of 29.82 x.

Social Reality has a long-term earnings growth expectation of 15% and is currently trading at a forward P/E of 4.18x.

Note: £1 = $1.3547 (from Jan 1, 2016-Dec 31, 2016)

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