Global advertising and marketing agency WPP today issued a bleak profit warning as it revealed trading conditions have continued to worsen through the Spring and into the Summer.
The Waterloo-headquartered giant reinvented as an ad company by Sir Martin Sorrell in 1985 said it had seen a “deterioration in performance” during the second quarter of the year against a “challenging economic backdrop.”
The update triggered another sell off in WPP shares, which fell more than 12%, or 65.2p to a 16-year low of 662.4p. The shares are down more than 40% this year.
It is also likely to send shivers through a struggling sector battling the twin challenges of declining spend during uncertain times and the rise of AI.
WPP said it now expected first half revenues to fall by 4.2% to 4.5% with a steeper “below expectations” decline of 5.5% to 6% in the second quarter.
As a result, first-half operating profits will be in the range of £400 million to £425 million which is consistent with a year on year margin decline of 280 to 330 basis points.
With no sign of “macro uncertainty” easing, client spend and net new business is expected to be weaker than previously anticipated in the second half of the year. Revenue over the year as a whole is expected to fall by 3% to 5% with the operating profit margin down by 50 to 175 basis points after cost cutting.
CEO Mark Read, who leaves WPP at the end of the year after seven years in the job and 30 years with the company, said: "Since the start of the year, we have faced a challenging trading environment with macro pressures intensifying and lower net new business.
“While we expected the second quarter to be similar to the first quarter, performance in June was worse than anticipated and we expect this pattern of trading in the first half to continue into the second half.
"As a result, we are updating our guidance for the full year and reducing our expectations on LFL revenue less pass-through costs growth to -3% to -5% (from flat to -2%) with a year-on-year decline in headline operating profit margin of 50 to 175 bps (vs. around flat previously).
"Our focus remains on ensuring the right balance between investing in the business for the long-term and continuing to reduce structural costs, while taking appropriate actions to respond to the current trading environment."
