The Interpublic Group of Companies Inc. (IPG) reported outstanding numbers during the third quarter of fiscal 2010. Net income was $42.4 million, significantly up from $17.2 million in the year-ago quarter.
Earnings per share (EPS) also shot up to 8 cents, up from just 3 cents in the year-ago quarter. EPS was a penny above the Zacks Consensus Estimate of 7 cents. The growth was attributable to increased revenues and strict control over costs.
Total revenue grew 9.4% to $1,560.6 million, up from $1,426.7 million in the same period of fiscal 2009 based on various strategic investments and the improvement in economic conditions, which boosted client-spends particularly in the auto, retail and financial services sectors.Total revenue increased organically by 9.4% year over year. Reported revenues also beat the Zacks Consensus Estimate of $1,519.0 million.
United States, which contributed 58.7% of total revenue, stretched 9.9% to $916.7 million and International revenues grew 8.7% to $644.1 million.
Operating expense was up 6.7% and reached $1,460.6 million from $1,368.4 million in the corresponding quarter of the previous year. However, as a percentage of revenues, it declined 230 basis points. Operating margin grew to 6.4% from 4.1% in the year-ago quarter.
At the end of the quarter, cash and cash equivalents remained at $1.94 billion, equivalent to the previous quarter, but were up from $1.77 billion at the end of the prior-year quarter. Total debt increased marginally to $1.94 from $1.91 billion at the end of the previous quarter. This proves that the company has a strong liquidity position with the capability to pay off its debt out of present cash.
Outlook
Although, the company did not provide any guidance for fiscal 2010, the Zacks Estimate is 41 cents, more than double the EPS of 19 cents in fiscal 2009.
We raise our earnings estimate for the upcoming year compared to fiscal 2009 based on our optimism on the market. Since the beginning of 2010, the overall market and economic conditions have improved. Client-spends particularly in the auto, retail and financial services sectors have improved.
Moreover, we believe that Interpublic Group’s continued strategic investments and a strong liquidity position in the present conditions will help it to capitalize in the emerging markets. Further, Interpublic Group’s cost containment initiative will position itself for future growth.
However, the company operates in a highly competitive market, which could substantially have a negative affect on its business. Hence, we reiterate our Neutral recommendation on the stock, which currently retains a Zacks #3 Rank (short term Hold rating).
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