Ad giant WPP trims full-year guidance citing U.S. tech companies

Shares of WPP PLC (LON: WPP) were weighed on Friday after the advertising giant trimmed its guidance for the full year.

Why did WPP lower its outlook?

The world’s largest advertising company attributed the expected weakness to U.S. technology companies. Its CEO Mark Read said in a press release:

Part of our business where we’ve seen a shortfall has been in the U.S. with the gap versus our expectations in the prior year really being focused on tech clients and tech-related projects.

The multinational now forecasts its revenue excluding pass-through costs to grow between 1.5% and 3.0% on a comparable basis this year. Its outlook for the full-year headline operating profit, though, remained unchanged at 15%.

WPP shares are now trading roughly at the same price at which they started the year.

WPP reports a decline in H1 profit

On Friday, the British firm also said that its pre-tax profit was down year-on-year in the first six months of 2023. That metric printed at £204 million ($259.5 million) in H1 versus £419 million a year ago. According to CEO Read:

Reasons differ by client and not all clients are down, but general trend of cost control, focus on margins after a slowdown in their rapid rates of growth, and perhaps a different stage of innovation cycle.

WPP reported £5.81 billion in revenue excluding pass-through costs for the first half versus £5.51 billion in the same period last year. In comparison, analysts were at £461.4 million for pre-tax profit and £5.87 billion for revenue.

The Londo-listed firm saw its headline operating profit margin stand at 11.5% in H1.

China turned green again in Q2

WPP agreed that China climbed back into the growth territory in the second quarter but revenue excluding pass-through costs was down 4.1% (like-for-like) in North America. CEO Read attributed part of the U.S. weakness also to the rising focus on artificial intelligence.

Tech companies are not entirely clear on what the business model is associated with that. I’d expect that to revert. But we’re rightly being cautious about the likelihood of that happening this year.

Office space consolidation, he added, will result in a largely non-cash impairment charge worth £220 million this year.

WPP announced 15 cents per share of interim dividend on Friday. Wall Street currently has a consensus “overweight” rating on the tech stock.