IPG reports organic revenue growth of 6.7% in Q1 of 2016

The Interpublic Group (IPG) has reported strong organic revenue growth of 6.7 per cent and revenue increase of 3.9 per cent for the first quarter of 2016. The US organic growth was pegged at 8.3 per cent, while international organic growth stood at 4.3 per cent.

IPG also reported Q1 2016 operating income of $20.9 million, compared to income of $7.8 million a year ago, in seasonally small Q1. Operating margin was 1.2 per cent, an improvement of 70 basis points.

IPG has stated that it is well-positioned to achieve high end of 2016 organic revenue growth target of 3 per cent to 4 per cent and to expand full-year operating margin by 50 bps or better.

Revenue
First quarter 2016 revenue was $1.74 billion, compared to $1.68 billion in the first quarter of 2015, with an organic revenue increase of 6.7 per cent, compared to the prior-year period.

Net Results
First quarter results include a non-operating pre-tax loss of $16.3 million on the sales of businesses, in ‘Other (Expense) Income, net’, which is chiefly non-cash. This amount includes losses on completed dispositions and the classification of certain assets as held for sale.

The income tax benefit in the quarter includes valuation allowance reversals of $12.2 million as a consequence of the classification of assets as held for sale, as well as a benefit of $7.5 million related to the adoption of the Financial Accounting Standards Board Accounting Standards Update 2016-09.

First quarter 2016 net income available to IPG common stockholders was $5.4 million, resulting in earnings of $0.01 per basic and diluted share. This compares to net loss available to IPG common stockholders a year ago of $1.8 million and break-even earnings per basic and diluted share.

“We are pleased to report another quarter of very strong performance, driven by solid contributions from across the portfolio. Our results reflect growth with existing clients, as well as new business wins, and strength in all geographic regions, led by notable domestic performance,” said Michael I Roth, Interpublic’s Chairman and CEO. “Our digital expertise - whether embedded within all of our agency networks or at our stand-alone specialist agencies - continues to make us a valued partner for clients as they respond to an increasingly complex media and marketing landscape. Another key differentiator for IPG is our long-standing commitment to integrated ‘open architecture’ solutions customised to client needs. First quarter profit performance demonstrates that we are focused on driving further margin expansion. We also remain committed to our robust capital return programs. While the first quarter is seasonally small for us, our results position us to deliver on the high end of our 2016 target of 3 per cent – 4 per cent organic revenue growth and to expand full-year operating margin by 50 basis points or better. The caliber of our people and our offerings, coupled with strong operating discipline, is a winning combination that will ensure we continue to deliver for clients and further enhance shareholder value.”

Operating Results

Revenue
Revenue of $1.74 billion in the first quarter of 2016 increased 3.9 per cent, compared with the same period in 2015. During the quarter, the effect of foreign currency translation was negative 3.1 per cent, the impact of net acquisitions was positive 0.3 per cent and the resulting organic revenue increase was 6.7 per cent.

Operating Expenses
Total operating expenses increased 3.2 per cent in the first quarter of 2016 from a year ago, compared with revenue growth of 3.9 per cent.

Salaries and related expenses were $1.27 billion in the first quarter of 2016, an increase of 4.6 per cent, compared to the same period in 2015.

Staff cost ratio, which is total salaries and related expenses as a percentage of total revenue, was 73.0 per cent in the first quarter of 2016 compared to 72.5 per cent in the same period in 2015, in the seasonally small first quarter, due to higher expenses for long-term performance-based compensation and severance.

During the first quarter of 2016, office and general expenses were $450.2 million, a decrease of 0.6 per cent, compared to the same period in 2015, due to the impact of changes in foreign currency translation and decreased pass-through expenses. Office and general expenses were 25.8 per cent of revenue in the first quarter of 2016 compared with 27.0 per cent a year ago.

Non-Operating Results and Tax
Net interest expense of $16.8 million increased by $3.1 million in Q1 of 2016, compared to the same period in 2015.

The income tax benefit in the first quarter of 2016 was $15.6 million on loss before income taxes of $13.0 million, compared to a benefit of $1.4 million on loss before income taxes of $5.6 million in the same period in 2015. The income tax benefit in the first quarter of 2016 was primarily driven by valuation allowance reversals of $12.2 million, as a consequence of the classification of certain assets as held for sale, in addition to a benefit of $7.5 million on the early adoption of the Financial Accounting Standards Board Accounting Standards Update 2016-09, which requires all excess tax benefits and tax deficiencies on employee share-based payment accounting to be recognised in earnings instead of as additional paid-in capital, on a prospective basis.