Home Agencies IPG’s Roth: ‘The Second Quarter Is Not Going To Be Pretty’

IPG’s Roth: ‘The Second Quarter Is Not Going To Be Pretty’

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Holding companies are being hit hard by the pandemic, and IPG is no exception.

The company reported Wednesday that Q1 2020 net organic growth was 0.3% YoY to $1.97 billion, compared to 6.4% growth during the same period a year ago. Revenue was negatively impacted by account losses and the coronavirus pandemic in certain regions, particularly APAC.

Organic revenue in the United States was mostly flat, versus 5.7% growth in Q1 2019.

In APAC, where the pandemic first hit, organic revenue declined 5.3%, IPG’s steepest decrease in the region since the 2009 recession.

IPG did not offer guidance for the year, but on the earnings call, CEO Michael Roth said of Q2: “Strap on your helmet.”

“There is no question that the impact the crisis is having on the global economy will be reflected in the revenue of our industry,” he said.

IPG expects its financial situation to begin improving in Q3 and continue through next year, although it’s difficult to get a pulse on client appetite for marketing spend. “We have an assumption that changes by the hour based on how our clients spend,” Roth said.

In response to the pandemic, IPG has cut salaries by up to 25% across a number of its agencies, including IPG Mediabrands. It also furloughed and laid off staff in certain markets, froze hiring and temporary labor, deferred merit increases and cut nonessential spending over the past few weeks.

Some agency salary cuts affect all employees, while others focus on senior leadership. IPG’s management team took voluntary compensation cuts at the outset of the pandemic and have increased those since. Agencies more heavily weighted toward travel, hospitality and retail, or that focus on live events, have been disproportionately affected.

“In sectors that have come to a standstill, our model dictates staffing reductions,” Roth said.

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As IPG adapts to the new reality, it’s working with clients to do the same.

The company continued to win new business through March and April, including Shinola and some of Pernod Ricard’s brands. There were less dramatic impacts in healthcare, which makes up 28% of IPG’s revenue.

Clients in technology, telecom, CPG and ecommerce are also showing some strength, but verticals such as travel, hospitality and retail have gone dark and likely won’t come back until the economy normalizes.

IPG doesn’t have a clear sense of how client spending patterns will change as the crisis evolves. Some clients are developing branding campaigns for when the initial crisis subsides, while others are not spending at all.

“One day they’re cutting dramatically, the next day they feel like it’s a good time to build brand and get messaging out there,” Roth said.

Roth pointed to IPG’s $2 billion acquisition of Acxiom and creation of Kinesso as a strength, as clients look to addressable media in tough financial times. Two Mediabrands clients recently extended their multiyear agreements with the agency during the health crisis on the back of their work with Acxiom and Kinesso.

“There’s no question that the shift we already saw happening is accelerating on the digital side,” Roth said.

Through the crisis, IPG has been putting its employees to work on spreading brand messages and PSAs that address the situation, such as the Cottonelle “Share a Square” campaign and standing up a private marketplace for The Ad Council.

Roth said this crisis is different than the 2008 financial crisis in that consumer demand has completely dried up in a variety of sectors. The pandemic will also transform the way people work. IPG’s staff has been working from home for about a month, with some employees reporting that they find it effective.

“Our entire business model is being tested right now,” Roth said.

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