Earnings Scorecard: Interpublic Group - Analyst Blog

Following the stellar numbers posted by the Interpublic Group of Companies Inc. (IPG) for the third quarter of fiscal 2010 on October 29, the estimates went up. Analysts remain optimistic of the market movements in the coming years. Both the top-line and the bottom-line results surpassed the Zacks Consensus Estimate.

Third Quarter Highlights

On October 29, Interpublic Group reported outstanding numbers during the third quarter of fiscal 2010. Net income was $42.4 million, significantly up from $17.2 million in the year-ago quarter.

Earnings per share (EPS) also shot up to $0.08, up from just $0.03 in the year-ago quarter. EPS was a penny above the Zacks Consensus Estimate of $0.07 per share. The growth was attributable to increased revenues and strict control over costs.

Total revenue grew 9.4% to $1,560.6 million, up from $1,426.7 million in the same period of fiscal 2009 based on various strategic investments and the improvement in economic conditions, which boosted client-spends particularly in the auto, retail and financial services sectors. Total revenue increased organically by 9.4% year over year. Reported revenues also beat the Zacks Consensus Estimate of $1,519.0 million.

Agreement of Estimate Revisions

For the immediate quarter, 4 of the 13 analysts covering the stock raised their estimates while the equal number of analysts downgraded it in the last 30 days. Hence, the net effect remained neutral. For fiscal 2010, 8 out of 14 analysts moved their estimate in the upward direction while only 3 analysts moved in the opposite direction.

Lastly, for fiscal 2011, estimates of 11 analysts went up, while none reduced it. Thus, overall the movement remains positive based on the improvement in the client-spends particularly in the auto, retail and financial services sectors, which are expected to improve in future.

Magnitude of Estimate Revisions

There was no change in the estimate for the fourth quarter and fiscal 2010 based on the decrease in estimate exactly being matched by the magnitude by which the estimates moved up.  

However, for fiscal 2011, estimates inched up by 3 cents to 60 cents. In the near term, analysts see a significant market recovery, particularly in Europe, which is expected to give a considerable push to the outlook as corporate and consumer confidence returns.

Earnings Surprises

With respect to earnings surprises, Interpublic Group has a track record of positive surprise in the last four preceeding quarters with an average of 32.15%. This depicts that Interpublic Group has exceeded the Zacks Consensus Estimate by that measure.

Our Take

Based on the gradual market recovery, client-spends particularly in the auto, retail and financial services sectors has improved and we remain optimistic on the market movements in the coming years. Thus, we raise our fiscal 2011 Zacks Estimate by 2 cents.

Moreover, we believe that the company's continued strategic investments and a strong liquidity position in the present condition will help it to capitalize in the emerging markets. However, huge dependence on few significant customers and a highly competitive market could substantially affect its business. Thus, we maintain our Neutral recommendation on the stock with a short term Hold rating (Zacks #3 Rank).