WPP Falls Most in 8 Years After Projecting Slower Growth

(Bloomberg) -- WPP Plc had its biggest drop since the financial crisis eight years ago after saying business cooled last quarter in the U.K. and North America, the ad giant's largest market, and reporting a slow start to 2017.

The company assumed an increase of about 2 percent for revenue this year on a like-for-like basis when setting its budget, “given continued tepid economic growth and recent weaker comparative net new business trends,” according to a statement Friday from London-based WPP, the world's largest advertising company. Revenue on a like-for-like basis expanded 3 percent last year.

A share decline of as much as 8.9 percent, the most since November 2008, erased all of WPP's year-to-date gains. The stock, which hit an all-time high this week, was down 7.4 percent to 1,770 pence at 2:48 p.m. in London.

“Investors have clearly taken an opportunity to take profits off the table,” according to Mike van Dulken, an analyst at Accendo Markets in London, as they “balk at a nasty combo of fourth-quarter slowdown and disappointing outlook.”

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WPP's advertising sales are a bellwether of strength in the global economy, as companies tend to boost or cut marketing budgets depending on how well their businesses are performing. The company also lost two large accounts -- Volkswagen AG and AT&T Inc. -- last year, which will hurt sales going forward.

Low inflation, technological disruption and customers' increased focus on costs are all weighing on advertising spending, Chief Executive Officer Martin Sorrell said in a phone interview.

“You put that little cocktail together and it's hard sledding,” he said.

WPP's forecast disappointed investors, who had been expecting the company to benefit from likely U.S. fiscal stimulus measures, said Ian Whittaker, a media analyst at Liberum Capital in London, who recommends buying the stock.

“They've had some firm-specific issues that have impacted the results unexpectedly,” Whittaker said. “The main thing is the outlook for net sales, which is weaker than people would have anticipated.”

Like-for-like net sales rose 1.2 percent in January, WPP said. That followed 2.1 percent growth in the fourth quarter, which was hurt by slowing business in North America and the U.K., the company said.

WPP's 2016 reported revenue was boosted by a currency tailwind and winning business from new and existing clients. Reported revenue rose 17.6 percent to 14.4 billion pounds ($17.7 billion), compared with the average estimate of 13.8 billion pounds, and was up 7.2 percent on a constant currency basis.

Global ad spending may grow 3.6 percent in 2017, slowing from gains of 5.7 percent last year due to economic uncertainty and the absence of the Olympics, which boosted expenditures in 2016.

--With assistance from Aleksandra Gjorgievska

To contact the reporter on this story: Joe Mayes in London at jmayes9@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Ville Heiskanen