Wednesday, June 27, 2007

Interpublic's Turnaround Effort Suffers Pair of Major Blows

Interpublic's Turnaround Effort Suffers Pair of Major Blows

No. 3 Holding Company Had Been on Upswing Before Losing GM, J&J Accounts

NEW YORK ( -- The Interpublic Group of Cos.' long-running turnaround effort may be hitting yet another snag, as the third-largest holding company runs into trouble with two of its largest clients, General Motors Corp. and Johnson & Johnson.
The current account losses mean that Interpublic must address whether the company can meet its current turnaround goals at the time of its next quarterly results, expected the first week of August.

GM, its largest client, yesterday moved about $384 million in billings out of Interpublic agencies, McCann Erickson and Lowe, to Publicis Groupe's Leo Burnett. Last week, Johnson & Johnson fired McCann, Interpublic's largest agency, on several brands that collectively spend about $92 million on measured media per year. Interpublic brass is awaiting decisions on J&J's global media-agency review, expected early in July.

Layoffs loom
All in all, the exiting GM business is worth about $25 million in revenue, a loss that will likely trigger "not insignificant layoffs" at McCann, Detroit, and Lowe, New York, and the J&J brands represent $10 million to $12 million in revenue, according to executives familiar with the company. The developments mean that Interpublic Chairman-CEO Michael Roth must address whether the company can meet its current turnaround goals at the time of its next quarterly results, expected the first week of August.

The bad news follows several months of relative calm for Interpublic. Since it last restated financials, the company had avoided major client losses and even began to turn in some promising financial results, winning it upgrades from Lehman Bros., J.P. Morgan Chase and Bank of America.

Once again, however, some clouds appear to be gathering. Lowe Worldwide's loss of GMC, the automaker's truck division, may be the most troubling development. Over the past few years, in which Lowe has struggled with management and client turnover, GMC was a big-spending, reliable base to support the agency network's U.S. operations. The office continues to handle Nokia's N-series multimedia devices, J&J's baby products, Got Milk, XM Satellite Radio, Unilever brands Degree and Snuggle and some smaller clients, according to a spokesperson.

It's unclear whether and how the GMC loss will force Interpublic's hand on the agency. Interpublic has said in various public statements that despite problems, Lowe is a necessary part of Interpublic's offerings because it provides a strong creative solution to the more business-results orientations of McCann and DraftFCB.

Lowe's momentum stalled
"This is really going to be difficult for Lowe when you lose an anchor piece of business like that," said a consultant who manages agency reviews. "One of the things clients are always looking for is momentum, and new business is one of the criteria that a client uses to determine that. Lowe has done a good job to some degree stopping the exodus. When you look at something like that that's a critical mass of business, it's troubling."

Just last month, during a conference call about Interpublic's first-quarter results, Mr. Roth said that Lowe had made progress. "I think it's stable," Mr. Roth told analysts. "Whenever you have a turnaround like IPG is in, there are certain components that are part of that turnaround story and clearly, Lowe is one of them. And I think the investment we made in Lowe is starting to pay out in terms of the stability and the offerings that they have and we watch it very carefully."

On the J&J front, Interpublic media shops Universal McCann and Initiative are defending large chunks of the consumer-goods giant's business against fellow incumbent OMD, owned by Omnicom Group. Unlike GM's 2005 media review, which Interpublic lost to Publicis' Starcom MediaVest Group, this review is not an all-or-nothing situation, because J&J is making market-by-market decisions.
buzz this