By Kate Holton
LONDON (Reuters UK) - WPP (WPP), the world's largest advertising group, said a decline in ad spending was moderating and corporate confidence was picking up, helping boost its shares more than 5 percent on Friday.
WPP, which includes Ogilvy & Mather and Hill & Knowlton, said the increased confidence was fragile and had not yet converted into increased ad spend, but said its job cutting programme and weaker comparatives would allow it to boost profits into 2010.
The group said like-for-like revenue fell 8.7 percent in the third quarter, beating the average analyst forecast of minus 9.1 percent in a Reuters poll and marking an improvement on the 10.5 percent fall reported for the second quarter.
It also reported an improvement in U.S. sentiment, which coupled with comments that group revenue was still expected to be flat in 2010, helped make its shares the top gainers in the FTSE 100 index by mid session.
Chief Executive Martin Sorrell said there were signs of improving confidence among corporate clients. "People feel better, their hearts and minds are better, but it hasn't been reflected in increased spending yet," Sorrell told Reuters. "But it is much less worse in the United States. The down draft is slowing.
Like-for-like revenue was down 6.1 percent in the United States, compared with a fall of 9.4 percent in the first quarter and 11.3 percent in the second.
The performance by WPP, which has the likes of Unilever, Vodafone, HSBC and Ford as clients, also compares favourably with rivals such as Omnicom (OMC) and Interpublic Group (IPG), which have been hit by a drop in corporate spending.
SOME GROWTH
WPP, which has responded to the downturn by cutting headcount by 10 percent this year, said it expected the improvement in trading to continue and result in a flat revenue performance for 2010.
Sorrell told Reuters he expected some growth in the first half of 2010 but overall expects the year to be around flat.
Analysts at UBS welcomed the reassuring update and said they expected the shares to react positively, although they said they were not expecting to change consensus numbers.
"We believe WPP would need to see robust full year revenue growth in 2010 to drive meaningful upgrades -- in line with management guidance of flat growth in 2010, we see this as unlikely with agency revenues likely to lag GDP recovery given fee pressures from contract renewals," they said in a note.
WPP said conditions had eased in July, August and September compared with April, May and June and said it expected to deliver a flat margin performance in the second half compared with last year.
Investec analyst Steve Liechti said in a note the outlook suggested a stabilisation, if not yet a material recovery. "Our sense (unconfirmed) is that September trading was better than the two previous months," he said.
"We believe figures should be taken well, especially the positive margin comments for the second half, as cost cuts deliver. Forecast risk looks marginally on the upside, though mostly due to FX upgrades."
Reported revenue was 2.01 billion pounds, compared with a Reuters poll on average forecasting 2.02 billion.
The results follow similarly tough trading from other agencies. Omnicom (OMC) saw a 10.7 percent decline in the third quarter as key clients cut back on ad spending, while Interpublic (IPG) posted a 14.2 percent fall. France's Publicis (PUBP) reported organic sales down 7.4 percent.
WPP shares were up 5.1 percent at 573p by 1238 GMT, having fallen on Thursday to their lowest in almost a month.
(Editing by Simon Jessop and David Holmes)
