Interpublic Group of Companies Inc. (IPG) reported its earnings for the second quarter of its fiscal year 2010 on July 29, 2010, beating the Zacks Consensus Estimate by 5 cents per share. Analysts are bullish given the company’s impressive results, as almost every one covering the stock revised estimates upward.
Second Quarter Results
Interpublic reported a net income of $105.3 million for the second quarter of fiscal 2010, significantly up from $20.9 million in the year-ago quarter. Earnings per share also shot up to 15 cents from 4 cents in the year-ago quarter and surpassed the Zacks Consensus Estimate of $0.10. The growth was attributable to increased revenues and strict control over costs.
Total revenues grew 9.7% to $1,617.8 million, up from $1,474.4 million in the same period of fiscal 2009 based on various strategic investments and the improvement in economic conditions, which boosted clients’ spend particularly in the auto, retail and financial services sectors. Total revenues increased organically by 8.5% year over year with Integrated Agency Networks and Constituency Management Group increasing 8.8% and 6.7% respectively. Reported revenues also beat the Zacks Consensus Estimate of $1,509.0 million.
Detailed discussion of the earnings release can be found at: Interpublic Beats Zacks Estimates.
Agreement of Analysts
Second quarter results and the recovery in economic conditions inspired analysts to increase their projections. For the immediate quarter, 7 of 13 analysts covering the stock raised expectations while only 3 moved in the opposite direction in the last 7 days. For fiscal years 2010 and 2011, 13 of 14 analysts increased their estimates while none moved in the opposite direction.
Magnitude of Estimate Revisions
For the third quarter of fiscal 2010, the Zacks Consensus Estimate edged up a penny to 8 cents. For both fiscal 2010 and 2011, it shot up by 3 cents to 42 cents per share, and 56 cents per share.
With respect to earnings surprises, Interpublic has a positive track record in all the preceding four quarters. The operator produced an average positive earnings surprise of 125% over the last four quarters, meaning that Interpublic has topped the Zacks Consensus Estimate by that measure.
In the near-term, we see a significant market recovery, which is going to give a considerable push to the outlook as corporate and consumer confidence returns. We believe that the company’s continued strategic investments and a strong liquidity position in the present conditions will help it to capitalize on emerging markets. Interpublic recorded a net cash position of $30.0 million at the end of second quarter of fiscal 2010.
Moreover, Interpublic’s cost containment initiative will position itself for future growth. In the first half of 2010, salaries and other related costs based on revenues declined 360 basis points, while office and general costs remained flat at 29.4%. However, huge dependence on a few significant customers and a highly competitive market could substantially affect the business. Thus, our long-term recommendation for the stock remains Neutral.