IPG organic growth slows in Q2 but remains strong over Covid period

Q2 earnings dropped just after news of a new leadership team at McCann Worldgroup

Jul 22, 2022 04:11:00 AM | Article | Alison Weissbrot

IPG posted 4.7% year-over-year organic net revenue growth in the second quarter of 2022 to $2.38 billion, a marked slowdown – and tough comparison – from the nearly 20% organic growth it achieved y-o-y in Q2 2021.

Margins also slowed year over year, from 17.9% in Q2 2021 to 15.6% in the same quarter this year, with expenses such as salaries, office reopenings and business travel increasing as the world began to reopen again.

"As expected…that is below last year’s second quarter [margin]...when our growth had begun to accelerate very significantly, yet certain variable expenses were historically low due to the effects of the pandemic,” said Philippe Krakowsky, CEO of IPG, on an earnings call Thursday morning.

IPG’s headcount grew 9% in the second quarter as the holding company has “largely caught up on hiring relative to what 2021 represented,” Krakowsky said. He added there is a “modicum of wage inflation inside of our four walls,” but “we see that as manageable.”

“Pressure on labour markets…hasn’t fully abated, but it's definitely slowing,” he said.

Krakowsky emphasised that IPG’s organic growth over 2019, before the pandemic, or its 'three year stack' is strong, at 16.5%, 'well ahead of industry norms'.

“Our comps are very challenging, and I’ll take that,” he said. “A lot of that is just the math, and I’d reiterate that the momentum in the business is healthy and the demand for what we do is healthy.”

In the U.S., which comprises 66% of IPG’s business, organic net revenue increased by 8.3%. International markets grew net revenues 7.1% organically, with the UK up 4.4% and Asia-Pacific increasing 4.8%. China was the only market in Asia to decrease from a year ago, as the country experienced ongoing lockdowns related to Covid-19.

Despite an endless list of political and economic uncertainties, Krakowksy told investors “we haven’t seen macroeconomic concerns significantly weigh on the growth outlook for the year that we shared with you in April.” The results led IPG to raise its 2022 growth forecast from 6% to 6.5%.

Second quarter results came in just after news broke of new leadership at McCann Worldgroup. Bill Kolb will step back as CEO and remain as chairman of Worldgroup, as Daryl Lee, most recently CEO of IPG Mediabrands, takes over as CEO. Eileen Kiernan, currently CEO of UM Worldwide, will succeed Lee as CEO of IPG Mediabrands, making her the only female leader of a major media agency group in the U.S.

Deep dive

Last quarter, IPG updated its reporting structure to include three segments: media, data and engagement solutions (MD&E); integrated advertising and creativity led solutions (IA&C); and specialized communications and experiential solutions (SC&E).

MD&E, which includes Mediabrands, Acxiom, Kinesso, MRM, R/GA and Huge, grew 6.2% year over year organically in Q2, down from 25.1% in Q2 2021. Growth was led by MRM, Acxiom and Kinesso. R/GA and Huge, which both laid off staff in the quarter “experienced softness,” Krakowsky said.

IA&C, which includes IPG’s creative agencies, grew organically 8.5% year over year in the second quarter, led by IPG Health, MullenLowe and FCB. And SC&E, which comprises experiential and PR services, grew 11.1%,with double-digit increases in experiential and single-digit increases in PR.

Work with leisure, government and industrial clients grew, while financial services and healthcare grew double digits in the quarter. While some clients are already planning for darker economic days ahead, many remain strong spenders, Krakowsky said.

“People are definitely doing that calculus,” he said. “There are some asking for contingency plans, but many more who are very committed. There’s been an underlying change in marketing the last time we went through something like this.”

Krakowsky acknowledged polarization in the U.S., emphasizing the importance of corporate purpose to IPG’s employee base. Doing so is “particularly important when you consider that we’re a talent-based business, focused on ideas, creativity, and IP,” he said.

He also addressed the Supreme Court’s overturning of the Roe v. Wade right to abortion decision in the U.S., adding that IPG updated its healthcare benefits to provide funding for travel to “ensure consistent and equal access to healthcare, including reproductive choice, for all employees.”

(This article first appeared on CampaignLive.com)