WPP: Q3 results not encouraging

graeme at 9 a.m. Fri 30 Oct 2009

WPP’s third quarter results showed continuing declines with revenues down 8.7% on the previous year (organic at constant currency).

Gross margin fell 8%. Although operating margin has been stabilised, maintaining margins through costs cutting while revenues are falling does not suggest that the company, or the industry, are poised to return to growth.

The apparent recovery in confidence in the economy does not seem very sold. To quote APP:

Whilst the hearts of CEOs and CMOs are stronger and their minds clearer, increased confidence is still not transferring to their cheque-writing hands.

This is not interesting just from the point of view of the sector, but with regard to the economy as well.

Although debt has increased this is largely due to the acquisition of Taylor Nelson Sofres. If WPP can avoid further major deterioration in profits an cashflow, the current level of debt is easily sustainable.

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