The Interpublic Group of Companies
Interpublic is one of the biggest advertising and marketing agencies, competing with the likes of Omnicon
As we all know, the traditional advertising business model is under pressure, thanks to troubles among the major U.S. automakers, the decline in the "traditional TV ad spot," and the recent emergence of digital channels.
In response, Interpublic, which derives about 58% of its sales from "traditional advertising" and 42% from marketing services, is shooting for a 50-50 mix. Along with its competitors, it is also actively developing its digital offerings.
Mergenthaler noted that it's pretty obvious advertising and marketing spending are shifting toward digital areas, and that the industry's biggest challenge is finding the right talent to tap this growing area. Mergenthaler believes Interpublic has the right assets to attack this market -- evidenced by the fact that its current clients include Microsoft
Interpublic has done a good job getting back into the black. The company has cut excess expenses, including professional fees and non-billable staff, to the tune of $80 million to $90 million, and rationalized real estate costs. However, Interpublic's margins still trail the industry average. It's aiming to regain double-digit operating margins, primarily by growing sales.
In the past two years, Interpublic has mainly focused on retaining its talent and clients. Now, the company needs to leverage those assets and grow the top line to attain operating leverage. Interpublic currently spends 63.7% of sales on salary; in order to get to its goal of below 60%, it needs to win new business.
The good news is that Interpublic has momentum, a strong stable of brands, and a very healthy balance sheet. All in all, it's got a pretty good shot at getting back on track.
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.