Interpublic Beats Zacks Estimates – Analyst Blog

Interpublic Group of Companies Inc. (IPG) has reported a net income of $105.3 million for the second quarter of fiscal 2010, significantly up from $20.9 million in the year-ago quarter. Earnings per share (EPS) also shot up to 15 cents from just 4 cents in the year ago quarter. EPS also surpassed the Zacks Consensus Estimate of 10 cents. The growth was attributable to increased revenues and strict control over costs.

 

Total revenues grew 9.7% to $1,617.8 million, up from $1,474.4 million in the same period of fiscal 2009 based on various strategic investments and the improvement in economic conditions, which has to some extent enhanced clients’ spending power. Revenues increased organically by 8.5% year over year. Reported revenues also beat the Zacks Consensus Estimate of $1,509.0 million.

 

United States, which contributed 59.4% of the total revenues, stretched 13.4% to $961.0 million. International revenues grew 4.7% to $656.8 million.

 

Operating expense fell 4.6% to $1,440.6 million from $1,377.5 million in the corresponding quarter of the previous year. As a percentage of revenues, it declined 440 basis points. Operating margin grew to 11.0% from 6.6% 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 up from $1.77 billion at the end of the prior year quarter.

 

Total debt declined marginally to $1.91 billion from $1.94 billion at the end of the previous quarter, but was lower than $2.04 billion at the end of the prior year quarter. Thus, at the end of reported quarter, Interpublic Group had a net cash position of $30 million.

 

During the quarter, Interpublic Group purchased 0.30 million shares of series B preferred stock for $267.6 million.

 

Interpublic, the third-largest advertising company in the world, continues to look for strategic investments that will help capitalize on the emerging markets. However, the company depends on a few significant customers for a large proportion of its revenues, which could substantially affect its business.

 

Interpublic Group is exposed to exchange rate fluctuations, as a significant portion of its revenues is generated from international operations. Nevertheless, the company’s cost containment initiative should help it to thrive as demand for marketing services gradually picks up in a broader recovery. Thus, we maintain our Neutral recommendation on the stock with the short term recommendation of Hold, equivalent to a Zacks #3 Rank.