Publicis Groupe Trended Upward Through 2017, But Still Faces Headwinds

Publicis Groupe’s massive transformation is starting to pay off – but the business still has a way to go before its new model is complete.

The holding company reported earnings on Thursday with organic growth of 2.2%, reaching $3.2 billion for the quarter. Organic growth for all of 2017 was 0.8%, hitting roughly $12 billion.

Publicis’ full-year earnings demonstrate an upward trajectory from a rocky start. Organic growth in Q1 was -1.2%, improving in Q2 to 0.8%, in Q3 to 1.2% and in Q4 to 2.2%.

“If you take a step back and look at the global picture, Publicis Groupe is stronger than it was a year ago,” CEO Arthur Sadoun told investors. “But we don’t want to think we are satisfied with these results.”

Sadoun continued to bang the drum about the holdco’s need for continued investment to “offer our clients what they really need: transformation for the digital age.”

“Despite the market’s and our own challenges, we know that there is no other alternative than to profoundly transform ourselves,” he said. “It’s the only way to deliver the financial results you are expecting from us.”

Restructuring costs to make this transformation a reality were significant at $147 million in 2017, compared to $85 million in 2016. This year, restructuring costs will remain high at roughly $123 million as Publicis continues to invest in integration, IT projects training and talent, said EVP and CFO Jean-Michel Etienne.

“Heavy restructuring costs had an impact on cost improvement in 2017,” Etienne said.

In 2018, Publicis will also focus on continuing to integrate siloed units grouped around client needs. The agency appointed 35 client leaders in 2017, representing one-third of revenue, and implemented client-centric P&Ls in six markets, including the US.

It also announced a partnership with Microsoft to build Marcel, the AI platform that will connect Publicis’ 80,000 employees around the world and “redefine the way we work,” Sadoun said.

“We are shifting our organization from a holding company to a platform, first by putting our clients at the center,” he said.

Publicis also had good news to share about client wins, including Lionsgate, Southwest in the US, P&G in the UK and Diesel globally on the communications side, leading to $2.2 billion in gross billings. Publicis.Sapient won the ecommerce transformation account for French retailer Carrefour, which Sadoun described as “a concrete example of the convergence between marketing transformation and digital business transformation, where Publicis Groupe has a unique role to play for clients.”

Sadoun declined to break out the performance of Publicis.Sapient, but said the first quarter “was good.”

“Although it’s too early to draw a conclusion of the positive effect of our transformation, it’s already leading to encouraging results,” he said, pointing to Sapient’s “healthy pipeline.”

In addition to momentum on the Publicis.Sapient side of the house, Publicis Media boss Steve King expects to see “Mediapalooza two” this year with an unprecedented number of clients putting their accounts up for review.

The opportunities in media “are going to be even greater than Mediapalooza one,” King said. “Many of these assignments now are coming in because were bringing in Sapient, digital, content and data to build connected solutions.”

Despite ending the year on a higher note than it started, Publicis is keeping expectations in check about its 2018 outlook as clients continue to cut their marketing spend.

“We know that GDP growth is expected to be stronger [in 2018],” Sadoun said. “The truth is, clients have not given an indication that marketing spend will follow, and so we have to be very cautious.”

In terms of when investors can expect Publicis’ giant restructuring project to end, the answer is no time soon.

“Our objective is not to accelerate too fast,” Sadoun said. “It’s to do it properly, deliver to clients and show that their business results will improve.”

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