“Interpublic Officials Cite Gains in Tone of Business” by Brian Steinberg, Wall Street Journal

Top Executives Are Upbeat, But Are Short on Specifics of Holding Firm’s Rebound

Published April 6, 2005

Interpublic Group’s top executives say the tone of business at the advertising holding concern is improving, but they still have little solid financial detail to which they can point. Interpublic, which boasts agencies such as Deutsch and McCann Worldgroup, has been on shifting terrain since 2002, when it unveiled a series of financial restatements and accounting issues significant enough to spur the Securities and Exchange Commission to start an investigation that remains open.

Last month, Interpublic disclosed new issues related to what it said were a “number of material weaknesses in internal control, including the documentation and control of the financial-results reporting process.” These could result in additional restatements and have left Interpublic unable to file financial results for 2004 and the first quarter of 2005.

“We are working as diligently as possible to become current with our filings as quickly as possible, but we cannot make any assurances on the timing at this point,” Michael I. Roth, Interpublic’s chairman and chief executive, said on a conference call yesterday. “Given the complexity of the task at hand, the shortcomings we have disclosed in the control environment and the fact that we’re in the initial stages of the process, it’s difficult to identify a date for completing this process.”

Interpublic, which works for such advertisers as L’Oréal and Yum Brands’ KFC, yesterday released preliminary unaudited figures for 2004, even though it said those numbers could change. Revenue in 2004 came to $6.2 billion, Interpublic said, an increase of 5.8% over reported 2003 figures. The company said it remains unable to provide net-income figures for the period.

Interpublic’s continuing operational and financial issues aren’t helping the New York company, widely seen as the third-largest advertising holding group, as it squares off against its larger rivals, Omnicom Group of New York and WPP Group of London. One person familiar with some of Interpublic’s agencies said the financial issues have at times posed an obstacle when ad executives are trying to woo new business.

Indeed, one agency executive under the Interpublic umbrella experienced some fallout when Interpublic first disclosed its accounting issues several years ago. The executive’s agency had won a new account, but the would-be client had reservations about the holding company, and eventually decided to send the business to a rival, this executive said. Interpublic’s more recent troubles haven’t had an effect at this particular Interpublic agency, this executive said.

Mr. Roth sought to damp speculation. “It’s important to mention that the filing issues we are facing are not impeding the quality and competitiveness of our professional product,” he said during the call. One client is going with the company. A spokeswoman for Intel, which awarded ad duties to Interpublic one day before the chip maker disclosed its most recent financial troubles, said, “Things are proceeding as planned.”

Interpublic shares were up 46 cents, or 3.8%, to $12.72 in 4 p.m. New York Stock Exchange composite trading.

Facing shifts in consumer responses to advertising and media, marketers are demanding more control of the dollars they spend — and want to know that ad agencies and their parent companies are doing the same. “Clients are now starting to look at the internal controls of their agencies,” said Arthur Anderson, a principal at New York’s Morgan Anderson Consulting.

Interpublic has other concerns. One of its biggest clients, General Motors, has put its large media-buying account into review. Interpublic has also lost valuable media business from Unilever and Nestlé in the recent past. Such a backdrop could make other Interpublic media clients “sort of question why they are still here,” said Alexia Quadrani, who follows the advertising industry for Bear Stearns. “That puts other relationships at risk.” Mr. Roth said Interpublic is looking to improve its media operations and “beef up our talent.”

One investor said he believes Mr. Roth wouldn’t have spoken so positively about business trends unless he was confident. While “there are a lot of overhangs and concerns” on the stock, said David Katz, chief investment officer of New York’s Matrix Asset Management, the fact that no additional bad news was disclosed marks “an improvement.” Matrix holds about 2.9 million Interpublic shares, Mr. Katz said.


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