WPP plc Q3 FY2024 earnings call

Financial and Strategic Highlights

• Third quarter delivered 0.5% net sales growth led by GroupM, with growth across four of top five markets and broad-based improvement in client sectors, including technology returning to growth.

Strategic Progress

• Made progress on WPP Open, investing over GBP250 million in AI adoption. Won significant new business like Amazon's media account outside Americas, consolidated Unilever work including retail media/activation in U.S., won Starbucks creative work, and Burson merged well. Sold stake in FGS Global and acquired NCA in U.K.

New Business

• Stronger quarter with wins such as Amazon, Unilever, Starbucks, and Honors Global Media, with new business pipeline strong but some at risk.

For the third quarter, revenue less pass-through costs fell 2.6% on a reported basis but was up 0.5% on a like-for-like basis. GroupM grew 4.8% after 1.9% growth in the first half, driving the 0.5% like-for-like net sales growth. Integrated creative agencies declined 3.1% due to factors like Pfizer impact, China macro conditions, and project-based work decline. PR revenue less pass-through costs grew 0.2%, with Burson impacted by Pfizer loss but FGS Global growing. Specialist agencies grew 0.8%, with CMI Media growing but Landor and Design Bridge affected by project spend. Geographically, North America grew 1.7%, U.K. was stable, Western Continental Europe had 2.2% growth, Rest of the World declined 2.2% (China down 21.3%), CEEMEA and MEA mid-single digit, Latin America low single digit. Client sectors: CPG grew 7.6%, technology returned to growth at 1.3%, automotive 5.8%, financial services 5.3%, while telecom, media & entertainment declined 2.3%, and healthcare/retail continued to decline.

Reiterated like-for-like net sales growth of -1.0% to flat for full year 2024, midpoint implies Q4 like-for-like of -0.5%. Headline operating margin expected to improve 20-40 basis points at constant currency. FX expected to be a 3.2 percentage point headwind for reported net sales, impacting margin by 20 basis points. M&A impact on full year likely slightly negative, with proceeds from FGS sale used to reduce debt.

• Macro and political uncertainty impacting client spending plans in Q4.
• Tougher comps in Q4 compared to Q3.
• Recent new business wins will impact 2025 rather than 2024.
• Competitive and macro-challenged Chinese market.

Q: What will need to happen in Q4 for you to reach the top end of your full year 2024 guide?

A: Joanne discussed comp differential of about 90 basis points between Q3 and Q4, macro uncertainty, need for improvement in China, and further stabilization in tech.

Q: Could you give us an idea of the impact of the net new business on 2025 growth?

A: Joanne said net new business currently neutral, need to build on Q3 success to move into positive territory for 2025.

Q: Do you expect the pricing model of ad agencies to evolve with more GenAI products being levered?

A: Mark said more output-based pricing likely, with potential for technology license fees linked to AI investments, and GenAI already contributing positively to revenues.