Consumer goods clients are struggling, and dragging Publicis down with them.
The holding company reported weak earnings with just 0.3% organic growth for the quarter and 0.1% organic growth for the year to $2.85 billion, well below analyst expectations of 2.5%.
“Let’s be clear,” CEO Arthur Sadoun said on the earnings call Thursday. “Q4 organic growth has been a disappointment for us.”
Publicis blamed the soft quarter on attrition from US clients in the FMCG sector, which are continuing to cut spend on marketing and traditional agency services. These clients represent 25% of Publicis’ revenue and cost the group about $170 million in Q4.
“This year would’ve been a success if we didn’t experience a high level of attrition on traditional advertising from FMCGS and CPGs,” he said. “As attrition from Q4 continues to weigh on the beginning of the year, we expect a tough Q1.”
Sadoun hopes clients will refunnel money from traditional advertising into services like data, dynamic creative and business transformation, which Publicis has singled out as its strategic game changers. These services grew 28% in 2018 to represent 12% of the group’s work and brought in roughly $270 million in incremental revenue for the year.
“Clients who are active with us are suffering today,” he said. “We are able to overcompensate for the loss of revenue on one side by the growth of our game changers on the other.”
While Publicis expects a lot of attrition in Q1, it’s still on track to hit its 4% growth target by 2020, Sadoun said. Publicis won major new business last year, including GSK and Fiat Chrysler, which both bring in more than $1 billion in billings per year. These wins will start materializing as revenue in 2019.
“Our new business performance speaks volumes about our future,” Sadoun said. “It’s proof of the attractiveness of the model.”
While Publicis is still betting on Publicis.Sapient, the consulting and business transformation unit launched in 2014, it still isn’t scaled enough, even five years after the Sapient acquisition. The group announced Tuesday the promotion of Nigel Vaz to CEO of Publicis.Sapient to carry out this vision.
“We need to strengthen our practices in data, production, dynamic creativity, optimization, commerce and investments to bring to all of our clients marketing business transformation,” Sadoun said.
Publicis is also still working to align agencies in the same market under a single P&L. The model is currently operating in 61 markets.
“Client attrition will be better if we simplify our organization and reduce the number of layers,” Sadoun said.
In 2018, Publicis saved roughly $227 million from rightsizing costs, $125 million of which it reinvested back into talent and operations.
As for M&A, Publicis is being “extremely rigorous” in the companies it goes after, Sadoun said. The group announced Thursday the acquisition of France-based data company Soft Computing for $49 million.
“We will only go for what fits into our strategic game changers,” Sadoun said. “We won’t be satisfied until we bring back strong and profitable organic growth.”
