Advertising group Publicis beats sales forecasts with U.S. rebound, shares rise

By Mathieu Rosemain

PARIS (Reuters) - French advertising group Publicis on Thursday delivered better-than-expected sales growth driven by a rebound in its biggest market in North America in the first quarter.

Publicis' shares rose sharply, with the stock up 5.6 percent in early session trading - among the top performers on France's benchmark CAC-40 index.

The world's third-biggest advertising group said net revenue amounted to 2.08 billion euros ($2.57 billion) over the period, reflecting growth excluding the impact of acquisitions and foreign exchange, of 1.6 percent, beating a Reuters poll forecast of 0.94 percent.

Chief Executive Arthur Sadoun said it bolstered his confidence in Publicis' strategic plan just as the boss of bigger rival WPP announced his sudden exit last weekend.

"The challenge for us it to continue to deliver financially while accelerating our transformation," Sadoun said in a briefing with reporters.

"We remain extremely cautious because the market environment remains very difficult," he added.

Publicis has been trying to foster greater collaboration between its many agencies, including the appointment of single managers for the largest clients - a strategy which has started to bear fruit in the U.S. with notable accounts gained in 2017, including McDonald's, Diesel, Lionsgate, Bradesco and Southwest.

Analysts at Jefferies kept a "buy" rating on Publicis shares, saying its sales figures echoed a similarly good performance at rival Omnicom (OMC) in April, although Jefferies added that the longer-term outlook was less clear.

"While the better than expected performance mirrors OMC's solid print and should provide some short term relief, longer term price/multiple momentum will likely be capped until we see successive improvements in quarterly organic growth," wrote Jefferies.

The rise of Internet giants Facebook and Alphabet's Google, improved connectivity and the proliferation of smartphones have profoundly changed consumers' habits worldwide, spurring large advertisers to look for better ways to reach their end-customers at a cheaper cost.

Consultancy firms like Accenture and Deloitte are also seeking a slice of the global advertising cake, which now includes the field of digital transformation or the setting up of online platforms to better interact with customers, Sadoun said.

CEO SUCCESSION

In this context, Publicis is moving away from the holding model that made its success and that of its competitors WPP, Omnicom and Interpublic Group.

The group is betting on its digital arm Publicis.Sapient, which employs thousands of developers in India, to offer technological tools to clients on top of creative campaigns and advertising space purchasing.

Despite a writedown on the Sapient acquisition in 2016, Publicis said it was instrumental in gaining of new global clients in the first quarter such as Daimler's Mercedez-Benz brand, Carrefour and Marriott International.

Analysts at brokerage Oddo BHF, which kept a "neutral" rating on Publicis shares, noted that the positive impact from the Daimler and Carrefour contracts would be felt later on in 2018, and had not been reflected in the first quarter figures.

These additions will drive higher growth in 2018 than in 2017, it said, confirming full-year targets for stronger year-over-year growth and higher margins. The goal is also to differentiate its offer from competitors like WPP.

Asked about the resignation of Martin Sorrell, who founded and led WPP for 33 years, Sadoun said that Publicis had a smooth executive transition when he replaced Maurice Levy less than a year ago.

Publicis shares are up around 5 percent so far in 2018, outperforming a 2 percent decline on the STOXX Europe 600 Media index.

($1 = 0.8079 euros)

(Additional reporting by Sudip Kar-Gupta, Camille Raynaud and Laetitia Volga; Editing by Cynthia Osterman and Elaine Hardcastle)