WPP cuts forecast but says margins improving

WPP, the world's largest advertising company, cut its outlook for the full year on Friday due to slowing growth in the US and concerns in the Eurozone, but reassured the market with signs of improving margins.

Martin Sorrell's WPP said preliminary forecasts for the full-year indicated like-for-like revenue growth of 5 percent, compared with a previous forecast of 5.9 per cent, but it said it expected operating margins to show continuous improvement.

Analysts said they had already mostly factored in a slowdown for the fourth quarter, and they also noted that the third-quarter growth was a shade below expectations, but they welcomed the improved guidance on margins.

"This augurs well for enhanced profitability, despite more difficult economic headwinds and industry comparatives," the group said.

"Although it is too early to compile or estimate budgets for next year, despite current uncertainties, the prospects do not look dire, particularly given the record high levels of variable costs in the company's structure."

WPP had already reduced its forecast in August, saying that its 2011 organic revenue growth may drift down slightly from its previously upgraded forecast, but it said operating margins would improve further, leaving it pleased overall with the performance.

Third-quarter organic revenue growth was up 4.7 per cent, a slow down from the previous quarter and a shade lower than a forecast of 4.9 per cent according to a Reuters poll.

"The cut from 5.9 percent to 5 was mostly expected," Paul Gooden at RBS said. "The street was expecting 5.1 percent anyway. And on the margins, that's comforting.

"So realistically is there going to be any change on full year numbers? I don't think so."