Rude awakening for new WPP CEO as margin squeeze hits shares

By BLOOMBERG

LONDON • No grace period for Mark Read, the new CEO at WPP plc.

Just 24 hours after getting promoted to the top job, Read had to watch the advertising giant’s shares sliding as much as 8.6% as its earnings and outlook disappointed investors, the biggest intraday fall since March.

Read has led WPP’s operations since his predecessor quit in April and the market reaction puts pressure on him to accelerate a turnaround.

Analysts fixated on his forecast for a profit margin squeeze as WPP spends more to revive growth at the world’s biggest advertising group. WPP is striving to defend business with big clients — especially in the US where consumer goods giants are cutting their ad spending — and power in online advertising is shifting to Alphabet Inc’s Google and Facebook Inc.

Company veteran Read, 51, has already sold minority stakes in some businesses, signalled he could merge some WPP brands and promised a new culture that breaks with Sorrell’s more abrasive, macho style.

“Definite signs of progress already, on revenue growth and asset disposals, however, the material slippage in WPP operating margin may unnerve investors,” said Alex DeGroote, an independent media consultant.

WPP shares were down 6.2% to £11.97 at 11:56am in London yesterday, bringing their decline in the past year to 16%.

It now sees the full-year margin in line with a 0.4 percentage point like-for-like decline in the first half to 13.3%.

Read downplayed the significance of the forecast, saying it was the result of adding £20 million (RM106.4 million) to a £5.3 billion cost base.

“So you’re slightly dancing on a pinhead,” he said in a phone interview, attributing the higher costs to bigger employee incentives. “We’re investing a little bit back in talent.”

WPP also boosted the company’s revenue forecast slightly for the year. Like-for-like revenue less pass-through costs, a key measure of WPP’s operating performance, is now expected to grow in line with the first half of the year, when it rose 0.3% — consistent with the average estimate in a company- compiled survey of analysts. It had previously forecast no change.

WPP yesterday said a review of its structure and underperforming operations, particularly in the US, was underway and the company would provide an update by year-end.

Read told analysts in London that selling a stake in data business Kantar, which generates about 15% of the company’s net sales, was one of the moves WPP was considering.