Earnings Scorecard: WPP Group (WPPGY)

Ireland-based advertising titan WPP Group plc. (WPPGY) reported encouraging results for the first half of 2010. Its results were driven by strength across all geographies except for a modest decline in the European region. Expectations of revenue outperformance for the rest of 2010 are to some extent offset by worries over the Eurozone crisis and sustainability of US growth.

Earnings Review

The company’s diluted pro forma earnings per share in the reported period soared 48.1% to ₤0.191 ($1.46 per ADR) compared with ₤0.129 ($0.96 per ADR) in the year-ago period. Net income (pro forma) attributable to equity holders in the first half were ₤239.7 million ($366.7 million) compared with a net loss of ₤743.0 million ($1,107.1 million) in the comparable period of 2009.

The company’s reported revenue of ₤4,440.9 million ($6,794.6 million) was up 3.5% compared with the year-ago period and up 2.7% on a constant currency basis due to the strength in pound sterling versus the US dollar and euro. Excluding the impact of acquisitions and currency fluctuations, revenue was up 2.5% in the reported period.

Exiting the first half of 2010, WPP Group had cash and short-term deposits of ₤1,103.6 million ($1,666.4 million) and bonds and bank loans of ₤3,980.8 million ($6,011.0 million).

Detailed discussion on the earnings release can be found here: WPPGY’s Interim Results

Agreement of Analysts

As can be observed from the table below, sentiments for WPP Group, subsequent to the release of its first half 2010 financial results, were positive. Out of the 8 analysts, there were 2 positive revisions of EPS estimate for 2010 and 2011 in the last 7 days. The estimate revisions are primarily driven by strong performance in the reported period and management’s outlook for the second half of 2010. Analysts have increased their organic growth forecasts for the second half compared with their previous expectations.

However, fears over the US growth sustainability and impact from the Eurozone crisis restricted the positive momentum as is evident from the magnitude of these revisions.

Magnitude of Estimate Revisions

In the last 7 days, EPS estimate for 2010 soared from $3.87 to $3.92 and for 2011, from $4.30 to $4.37.

The current Zacks estimate for 2010 and 2011 represents year-over-year growth of 42.41% and 11.68%, respectively.

Neutral Recommendation

The company together with its subsidiaries provides advertising and communications services worldwide. It operates in a highly competitive industry having business worldwide with significant exposure in US markets. Skepticism over the sustainability of US growth and the possible impact of the Eurozone debt crisis on the European results remain prime causes of concern.

However, WPP’s encouraging results in the first half 2010 with net results rising 48% year over year, and management’s optimistic outlook for the second half are encouraging. Moreover, the company remains focused on new markets, new media and consumer insights. It enjoys a dominant market share in many areas and has the pricing power to improve margins and sustain future profit growth. We currently rate the stock with a Neutral recommendation.

WPP GRP PLC (WPPGY): Free Stock Analysis Report

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