ii view: WPP defers sales growth hopes to second half of 2025

First-quarter trading update to 31 March

• Adjusted like-for-like (LFL) revenue down 2.7% to £2.48 billion

Guidance:

• Continues to expect full-year adjusted like-for-like revenue of between flat and down 2% 
• Continues to expect full-year headline operating profit margin to be about flat

Chief executive Mark Read said:

“We continue to make solid progress on our strategic priorities. Our financial performance in Q1 was in line with our expectations, reflecting macroeconomic challenges and the timing of new business, and we expect these factors to continue in Q2 with performance anticipated to improve in the second half.”

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ii round-up:

Global ad agency WPP (LSE:WPP) today maintained full-year sales and profit expectations but pointed to expected challenges in the coming quarter, with potential growth therefore all second-half weighted. 

Adjusted like-for-like sales for the first quarter to 31 March fell 2.7% to £2.48 billion, with the retreat led by a 6.6% fall for the group’s Public Relations agencies. Full-year sales on the same basis are still expected to come in at between flat and up 2%, but with an expected fall in the second quarter meaning growth of 0.5% is needed in the second half to meet City targets. 

Shares in the FTSE 100 company fell 0.5% in UK trading having come into this latest news down by a third so far in 2025. That’s comfortably below a near 2% improvement for the FTSE 100 index itself year-to-date. Rivals Publicis Groupe SA (EURONEXT:PUB) and Omnicom Group Inc (NYSE:OMC) are down nearer to 13% this year.

WPP’s services include core communications such as media ad buying and planning, as well as market research services. While trade tariffs are not expected to directly impact WPP, management did flag concern for the potential hinderance which tariffs will likely cause many of its clients. 

Given no detectable changes to client demand from tariffs so far, WPP continues to expect its headline operating profit margin for the full-year 2025 to be around flat compared to 2024.

Company focuses for 2025 include increasing the use of technology and AI, winning new client assignments and improving group efficiency. 

Annual investments in AI are expected to come in at £300 million, up from 2024’s £250 million, with new client assignment wins recently coming from Generali, Heineken and Levis Strauss. 

First-half results are likely to be announced early August. 

ii view:

Starting as a maker of wire baskets and teapots called Wire and Plastic Products, WPP today operates in more than 100 countries. Employing over 100,000 people, Global Integrated Agencies taking in ad-related services generate most of its revenues during 2024 at 85%. That was followed by Public Relations at 8%, and Specialist Agencies the balance of 7%.  

Geographically, the US accounted for most sales in 2024 at 35%. The combined Asia, Latin America, Africa and Middle East regions generated a further 27%. Then came Western Continental Europe at 20%, with the UK 15% and Canada the balance of 3%.  

For investors, US trade tariffs now make client demand uncertain. Existing tough economic times, particularly for markets such as China, are likely to continue to impact business. Curtailed spending for technology clients following investment booms during the pandemic have more recently provided tough comparatives, while the advantage of tech companies dependent on advertising and able to develop their own AI coding such as Alphabet Inc Class A (NASDAQ:GOOGL) and Meta Platforms Inc Class A (NASDAQ:META) should not be ignored. 

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On the upside, WPP is pushing a performance improvement programme. Diversity in terms of both product and geographical region exist. Group net debt declined by £0.8 billion in 2024 to £1.7 billion, while headline costs were cut by 4.5% to £9.65 billion. 

In all, risks remain, with the full impact of trade tariffs potentially not showing until later this year. And that's reflected in the share price which sits at multi-year lows. However, risk takers might be attracted to a forecast dividend yield above 6% and a consensus analyst estimate of fair value in excess of £7 per share.

Positives: 

• Diversified product and geographical offering
• Attractive dividend (not guaranteed)

Negatives:

• Advertising demand is historically cyclical
• Foreign exchange movements can hinder

The average rating of stock market analysts:

Hold