WPP beats expectations in Q2

While WPP is still losing revenue, CEO Mark Read’s turnaround plan seems to be slowing the bleeding, as the holding company posted better than expected second quarter results Friday.

The key sales metric of like-for-like net sales, less pass through was down 1.4%, better than the 2.8% decline last quarter and beating the 3% slide forecast by analysts. North American sales were down 5.3% in the quarter, but that was also better than the 8.5% slide in Q1.

“WPP’s performance in the second quarter was slightly ahead of our internal expectations but in line with our full-year guidance and three-year strategic targets,” said Read. He cited new business with eBay, Instagram and L’Oreal as evidence of a brightening outlook at the company.

“That said, we are still in the early stages of our three-year turnaround plan, and we remain focused on returning the company to sustainable growth over that period. Our guidance for the full year is unchanged.” WPP expects like-for-like net sales to decrease between 1.5% and 2% for the year.

The markets responded favourably to the results, with WPP stock up sharply after the numbers were released Friday morning. Business media too saw signs of progress. “WPP sales drop eases in sign of progress in restructuring,” was how the Financial Times reported the numbers, while the Reuters headline was “New contract wins help WPP to improve second-quarter trading.”

After long-time CEO Martin Sorrell was pushed out last year, Read introduced his three-year plan to right the listing ship that has lost key clients and saw its stock fall by more than half in two years. Announced in December, Read’s plan included closing offices, merging some businesses and selling off others. The reorganization, which began before his plan was revealed, included merging VML with Y&R, and Wunderman with JWT, along with the sale of a majority stake in Kantar to Bain.

Read said he planned to cut about £300 million in costs over three years and reduce the company’s 134,000 workforce by 3,500. At the same time, however, he said WPP would reinvest in creativity—including hiring as many as 1,000 new creatives, with a focus on the U.S. “We are fundamentally repositioning WPP as a creative transformation company with a simpler offer that allows us to meet the present and future needs of clients,” he said at the time.

WPP said Friday it has closed 68 offices and intends to close another 12. It has also laid off about 3,100 of the planned 3,500 employees. “The anticipated gross savings remain in line with the £160 million estimate in December 2018… a proportion of these gross savings will be reinvested in talent and technology development.”

Other noteworthy details from the WPP Q2 results include:

•”In the first half, our top 30 clients accounted for 27% of our revenue less pass-through costs. We saw strong growth from clients in the technology sector, a varied performance in consumer packaged goods, with some improvements, and some weakness in healthcare.”

•”We performed strongly in faster growing economies, with Brazil up over 10% and India up over 12%. Our performance in China was -2.8% in [the first six months of the year] with a split of +6.6% in Q1 and -10.1% in Q2.”

•”While we saw improving trends in Q2, the USA remained in decline. In the past 12 months, we have put new leadership into most of our major US companies, tackled structural challenges and invested in new creative talent and in marketing and new business.”

•“Our disposal programme is substantially complete, but we will continue to review our portfolio to maximise value for our shareholders… Including Kantar, the total proceeds from all disposals in the last 18 months amount to approximately £3.6 billion.”

David Brown