Advertising agency WPP (WPP) is the worst performing FTSE 100 share today after a second profit warning from the world’s third largest agency Publicis.
Shares in the French media business crashed 13% on Friday after cutting revenue guidance for the full year. It now expects a rough 2.5% decline in headline income compared with an anticipated flat performance previously.
IS PUBLICIS THE CANARY IN THE COAL MINE?
The warning for a major industry peer was enough to spook investors who are clearly worried that the Publicis alert may be the starting gun fired on a wider industry slowdown.
WPP shares slumped more than 4% on Friday to 924.6p in response.
Advertising companies have traditionally been seen as so called ‘bell weathers’ because they get a front seat view of company’s high level spending patterns. Advertising spending is generally one of the first activities to feel the pinch from economic slowdown, so investors keep a close eye on the performance of the big players for clues about the economic backdrop.
This time around the picture is slightly muddied by the onslaught on traditional advertiser’s revenues and business models from the likes of Facebook and Google. There has been a structural shift which has also impacted performance.
THE BIG QUESTION
The key question for shareholders is whether there is a clear ‘read across’ for WPP or if Publicis problems are more specific to its business.
Broker Liberum is in the latter camp saying ‘we think Publicis’ problems are more firm specific than anything else despite the claims from the group that general industry trends were at the room of its problems.’
Since chief executive Mark Read came on board last year, WPP has been on a drive to simplify the business, reduce costs and debts and get its profit margins back to industry levels of 15%.
WPP is therefore to some extent in control over its own destiny and early this week confirmed that there were no changes to current trading conditions.