Interpublic's Q3 net income soars to US$208.1M from net income of US$42.4M in year-ago period partially influenced by Facebook transaction; sales up 11.6% to US$1.73B with organic revenue growth, increases in major emerging markets

NEW YORK , October 28, 2011 (press release) – Interpublic Group (NYSE: IPG):

  • Third quarter 2011 reported revenue increase of 11.1% and organic revenue increase of 8.7% – first nine months organic revenue growth was 7.5%
  • Third quarter 2011 operating income of $173.2 million, with an operating margin of 10.0% – compared to $100.2 million and 6.5%, respectively, in the year-ago period
  • Pre-tax gain of $132.2 million from sale of approximately half of the company’s holdings in Facebook
  • Third quarter 2011 diluted earnings per share of $0.40 – or $0.16 excluding benefit of Facebook transaction, compared to $0.08 diluted earnings per share in third quarter of 2010
Summary

Revenue

Third quarter 2011 revenue was $1.73 billion, compared to $1.55 billion in the third quarter of 2010, with an organic revenue increase of 8.7% compared to the prior-year period. Organic revenue growth was 10.1% in the U.S. and 6.7% internationally, with increases in all major emerging markets.

First nine months 2011 revenue was $4.94 billion, compared to $4.50 billion in the first nine months of 2010, with an organic revenue increase of 7.5% compared to the prior-year period.

Operating Results

Operating income in the third quarter of 2011 was $173.2 million, compared to operating income of $100.2 million in 2010. Operating margin was 10.0% for the third quarter of 2011, compared to 6.5% in 2010.

For the first nine months of 2011, operating income was $301.9 million, compared to operating income of $218.0 million in 2010. Operating margin was 6.1% for the first nine months of 2011, compared to 4.8% in 2010.

Net Results

Third quarter 2011 net income available to IPG common stockholders was $208.1 million, resulting in earnings of $0.45 per basic and $0.40 per diluted share. Excluding the impact of the Facebook transaction, diluted earnings per share was $0.16. This compares to net income available to IPG common stockholders a year ago of $42.4 million, or $0.09 per basic and $0.08 per diluted share.

First nine months 2011 net income available to IPG common stockholders was $261.7 million, resulting in earnings of $0.56 per basic and $0.50 per diluted share. Excluding the impact of the Facebook transaction, diluted earnings per share was $0.26. This compares to net income available to IPG common stockholders a year ago of $76.2 million, or $0.16 per basic and $0.11 per diluted share. Basic earnings per share for the first nine months of 2010 was benefitted by $25.7 million from the repurchase of Series B Preferred Stock that occurred in the second quarter of 2010.

“Our strong organic revenue, operating profit and net income growth for both the third quarter and first nine months of 2011 was driven by a broad cross-section of our portfolio, including all marketing disciplines, domestically and in the major emerging economies,” said Michael I. Roth, Interpublic’s Chairman and CEO. “We saw significant contributions from activity in the digital arena, where all of our agencies are embedding digital expertise at the core of their professional offerings. We demonstrated effective cost discipline that resulted in high profit conversion and also continued to return capital to our shareholders. Though macro uncertainty remains, we are confident that our performance for the nine months has positioned us to meet or surpass our targets of 4-5% organic revenue growth and operating margin of 9.5% or better. This level of performance, combined with the quality of our talent and our strong financial fundamentals, positions us to deliver significant shareholder appreciation for the balance of 2011 and beyond.”

Operating Results

Revenue

Revenue of $1.73 billion in the third quarter of 2011 was up 11.1% compared with the same period in 2010. During the quarter, the effect of foreign currency translation was positive 3.1%, the impact of net divestitures was negative 0.7%, and the resulting organic revenue increase was 8.7%.

Revenue of $4.94 billion in the first nine months of 2011 was up 9.8% compared with the same period in 2010. During the first nine months of 2011, the effect of foreign currency translation was positive 2.6%, the impact of net divestitures was negative 0.3%, and the resulting organic revenue increase was 7.5%.

Operating Expenses

During the third quarter of 2011, salaries and related expenses were $1.09 billion, up 8.0% compared to the same period in 2010. After adjusting for currency effects and the impact of net divestitures, salaries and related expenses increased 5.4% organically.

During the first nine months of 2011, salaries and related expenses were $3.26 billion, up 9.6% compared to the same period in 2010. After adjusting for currency effects and the impact of net divestitures, salaries and related expenses increased 7.2% organically.

Staff cost ratio, which is total salaries and related expenses as a percentage of total revenue, decreased in the third quarter of 2011 to 63.0% from 64.8% in the third quarter of 2010, and decreased in the first nine months of 2011 to 66.0% from 66.1% in the first nine months of 2010.

During the third quarter of 2011, office and general expenses were $465.5 million, up 4.7% compared to the same period in 2010. After adjusting for currency effects and the impact of net divestitures, office and general expenses increased 2.5% organically.

During the first nine months of 2011, office and general expenses were $1.38 billion, up 5.5% compared to the same period in 2010. After adjusting for currency effects and the impact of net divestitures, office and general expenses increased 3.2% organically.

Non-Operating Results and Tax

Net interest expense of $23.2 million decreased by $4.7 million in the third quarter of 2011 compared to the same period in 2010. For the first nine months of 2011, net interest expense of $70.2 million decreased by $12.7 million compared to the same period in 2010.

Other income, net was $137.1 million and $136.3 million for the third quarter and first nine months of 2011, respectively, which includes the pre-tax gain of $132.2 million related to the sale of approximately half of the company’s holdings in Facebook.

The income tax provision in the third quarter of 2011 was $70.4 million on income before income taxes of $287.1 million, compared to a provision of $24.4 million on income before income taxes of $69.2 million in the same period in 2010. The income tax provision in the first nine months of 2011 was $96.5 million on income before income taxes of $368.0 million, compared to a provision of $72.4 million on income before income taxes of $130.4 million in the same period in 2010. The effective tax rate for the third quarter of 2011 was 24.5%, and excluding the Facebook transaction was 42.3%, compared to 35.3% for the same period a year ago. The effective tax rate for the first nine months of 2011 was 26.2%, and excluding the Facebook transaction was 38.9%, compared to 55.5% for the same period a year ago.

Balance Sheet

At September 30, 2011, cash, cash equivalents and marketable securities totaled $1.80 billion, compared to $2.69 billion at December 31, 2010 and $1.94 billion at September 30, 2010. Total debt was $1.72 billion at September 30, 2011, compared to $1.74 billion at December 31, 2010 and $1.94 billion at September 30, 2010.

Share Repurchase Program and Common Stock Dividend

In August 2011, the company’s Board of Directors authorized an increase in its existing share repurchase program from $300 million to $450 million. During the third quarter of 2011, the company repurchased 15.0 million shares of its common stock, at an average price of $8.66 per share. During the first nine months of 2011, the company repurchased 27.0 million shares of its common stock, at an average price of $9.97 per share.

During the third quarter of 2011 the company declared and paid a common stock cash dividend of $0.06 per share, for a total of $27.6 million.

For more information concerning the company’s financial results, please refer to the accompanying slide presentation available on our website, http://www.interpublic.com .


About Interpublic

Interpublic is one of the world's leading organizations of advertising agencies and marketing services companies. Major global brands include Draftfcb, FutureBrand, GolinHarris International, HUGE, Initiative, Jack Morton Worldwide, Lowe and Partners, MAGNAGLOBAL, McCann Erickson, Momentum, MRM Worldwide, Octagon, R/GA, UM and Weber Shandwick. Leading domestic brands include Campbell Ewald; Campbell Mithun; Carmichael Lynch; Deutsch, a Lowe and Partners Company; Gotham Inc.; Hill Holliday; ID Media; Mullen and The Martin Agency. For more information, please visit http://www.interpublic.com.

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