Results: Satisfaction = Expectation - Performance
* Citi's Take — Publicis’s 3Q results are a little light. Revenues are below consensus
expectations and we suspect consensus forecasts for the FY will have to moderate
on a slightly weaker outlook. The question is whether this should be a surprise? In
our view it shouldn’t. The company has been very upfront about the challenges to
growth in the 3Q/2H and the performance and outlook in the results is consistent
with previous commentary. The issue is that having beaten expectations by some
margin in the last 3 quarters, expectations had got ahead of themselves. With this in
mind, we expect the shares to be weak today but attribute it to a disconnect in
expectations rather than performance. More broadly we don’t think the underlying
investment case is fundamentally altered and we retain our Buy.
* Results vs. Expectations — We show the detailed results in the chart on page 2,
but 3Q revenues came in at €2,315m below Citi/consensus expectations of
€2,354m/€2.355m. The key focus for many investors will be the organic growth
which at 0.2% is better than Citi expectations at -0.1% but worse than consensus at
0.8%. Within the mix we note that the spread of growth is more polarized than
expected: following Omnicom’s lead, the US is weaker than anticipated at -4.0%
(we/consensus were looking for -1.1%) but Europe much stronger (+7.6% vs.
3.4%).
* Focus 1: So They Were Right About the 300bps Headwind From Account
Losses — As we highlighted running into results, Publicis faced a challenged in
managing expectations into the 3Q. Although the company had been quite clear that
3Q would begin to see the headwind from account losses (300bps) and as such
would see 3Q growth in the range of 0%-0.5%, consensus, emboldened by the
performance from the last 3 quarters, had assumed the company was simply being
conservative. 0.2% is not a disaster. In fact given the pressures from account
losses, we think it is quite a good performance (we were on -0.1%) but consensus
was at 0.8% and steeled for another beat. The reset of expectations will be taken
poorly even if it should not altogether be a surprise.
* Focus 2: 4Q Outlook Suggests More Of The Same — The commentary on the
4Q is quite clear: the company expects the impact from account losses to remain
and also flags some phasing issues within its digital businesses. The clear
implication is that the 4Q will trend similarly to the 3Q in terms of organic growth.
This is no problem for us (we forecast 0% growth across the 2H), but the implication
is that the bullish end of the consensus range may need to come in.
* Call Details — 10am CET/9am UK time. Confirmation Code: 1378237. France: +33
(0)1 76 77 22 57. UK: +44 (0)20 3043 2024. USA: +1 719 325 2202
* Implications — We forecast 1.2% organic growth for the FY, a figure that still feels
eminently achievable even with a flattish performance in 2H. Consensus, however,
is nearer 1.8% which may have to moderate. The implication, for consensus, is a
mild (2%-3%) reset to EPS expectations.