Zacks_Analysts' Blog : IPG Outshines, Reaffirms Guidance - Analyst Blog

On October 28, The Interpublic Group of Companies Inc. (IPG) reported its financial results for the third quarter of 2011 with diluted earnings per share of 16 cents (excluding benefits of Facebook transaction) compared with 8 cents per share a year ago. The recorded EPS outshined the Zacks Consensus Estimate of 10 cents.

The performance primarily was driven by the company’s portfolio of strategic business mix, including all marketing disciplines, across domestic as well as major emerging economies.

Revenue

Revenue in the third quarter escalated 11.1% year over year to $1,726.5 million, beating the Zacks Consensus Estimate of $1,649 million.

Organic growth in the quarter was 8.7%, with roughly 10.1% growth in the U.S. and 6.7% internationally. The organic growth is attributable to revenue increase across all major emerging markets and global networks.

Margin

Operating income was $173.2 million, up compared with $100.2 million in the year-ago period. Operating expenses in the quarter grew 6.9% to $1.6 billion due to an increase of 8.0% in salaries and related expenses and a rise of 4.7% in office and general expenses. Operating margin in the quarter was 10.0% compared with 6.5% in the year-ago quarter.

Balance Sheet

Exiting the third quarter, the company’s cash and cash equivalents and marketable securities decreased to $1.80 billion from $1.94 billion in the previous year quarter. Total debt plummeted $1.72 billion compared with $1.94 billion in the preceding year quarter.

Dividend/Share Repurchase

During the quarter, the company paid a common stock cash dividend of $0.06 per share, for a total of $27.6 million.

In August 2011, the company authorized an increase in its existing share repurchase program from $300 million to $450 million. Moreover, during the reported quarter, the company repurchased 15.0 million shares of its common stock, at an average price of $8.66 per share.

Outlook

Management reaffirms its organic revenue growth target of 4%–5% and operating margin target of 9.5% for fiscal 2011 and expects to surpass targets, going forward.

New York-based Interpublic Group of Companies Inc. together with its subsidiaries, provides advertising and marketing services worldwide.  The company directly competes with its peers, such as Omnicom Group Inc. (OMC), Publicis Groupe SA and WPP plc (WPPGY).

We currently maintain a long-term Neutral recommendation on the stock. Interpublic Group has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).