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WPP cuts sales and profit forecasts – again

WPP has once again lowered its growth forecasts, the second time in two months and the third time this year. At the same time, the agency network said its UK business was profiting from the uncertainty surrounding Brexit.

“It is slightly perverse because increased uncertainty is driving variable investment rather than fixed capital investment, which is not good for the long-term economy but has a temporary benefit for us,” Sir Martin Sorrell said, as the company published its Q3 trading update.

The update revealed that like-for-like sales were down by 1.1% – the second consecutive quarterly decline. WPP is now forecasting that sales growth and operating margins would be flat this year, rather than the growth the firm predicted in August of 1% and 0.3%, respectively.

After the news of the revised forecasts, shares in WPP dropped by 1%. Sorrell told the BBC that the low growth environment was causing clients to keep a tight control on spending.

“Consultants are going to clients and suggesting they’re spending too much money across the board,” he said.

Ultra-low interest rates are “driving pools of money into activist investing” which has resulted in a squeeze on companies’ budgets, he additionally explained.

Projections for 2018 were more positive, Sorrell outlined, as there a number of major events planned that would involve significant marketing budgets.

“Whilst it is too early to comment on prospects for 2018 as three-year plans and budgets are in the course of preparation, any further marketing investment reduction may well be countered by the mini-quadrennial events of 2018 – the Winter Olympics in South Korea; the Fifa World Cup in Russia; and the mid-term congressional elections in the United States,” he said.

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