INTERPUBLIC LOSING BILLION$ FROM J&J
Interpublic is facing another test of its turnaround strategy with the struggling ad giant expected to lose a sizable chunk of Johnson & Johnson’s huge media-buying business.
Interpublic agencies handle much of the estimated $3 billion global account for J&J, owner of brands such as Neutrogena, Band-Aid and Listerine, and have the most to lose in the closely watched contest for J&J’s business, with a decision expected any day.
Analysts predict the J&J media account will be split along geographic lines – the U.S., Europe and Asia – with Interpublic losing some portion it now holds. Interpublic’s Universal McCann is the lead agency on the U.S. business.
After a string of massive account losses in 2005, Interpublic has been on an upswing this past year, winning new accounts while showing slow but steady progress, analysts said.
But two high-profile losses this month, coupled with the imminent J&J decision, are raising questions about the firm’s ability to continue the turnaround and meet promised financial goals for 2008.
“Some of this is the psychological importance of keeping business in the middle of turnaround,” said one Interpublic veteran.
Although $3 billion in billings sounds like a lot of money, it reflects how much J&J spends to buy and place ads on TV, print and elsewhere, according to TNS Media Intelligence.
Interpublic’s revenue from the account is far less, somewhere between $40 and $50 million, analysts estimate. As a result, the company has been downplaying the potential financial impact.
In general, Madison Avenue is being squeezed on the media buying business, where fierce competition and cutthroat clients continue to chip away at the fees agencies charge.
For most of the year, Interpublic has been on the rebound, winning new accounts including Wal-Mart, estimated at $580 million in billings, as well as K-Mart and GM’s Saturn, each around $200 million.
“Given the size and complexity of Interpublic’s turnaround, however, there are going to be bumps in the road, and Interpublic hit two of them in recent days and an expected third . . . in the next few weeks,” Lehman Bros. analyst Craig Huber wrote in a note.
Earlier this month, Interpublic lost significant chunks of the creative work for GM and J&J, who remain its two biggest clients.
First, J&J stripped Interpublic of five brands – Splenda, Band-Aid, Reach, Monistat, Stayfree and K-Y – that amounted to about $120 million in billings. Then, GM pulled Buick and GMC, representing $400 million in billings.
The GM and J&J creative losses will result in about 100 jobs at the Interpublic agencies, McCann Erickson and Lowe, that handled much of the work, according to insiders.
With the upcoming J&J decision, Interpublic has been careful to manage Wall Street’s expectations, suggesting that if it keeps any portion of the business it will be a victory.
“The media business has gotten destroyed,” said one analyst, “and if they can just maintain a couple of pieces that’s positive.” holly.sanders@btc365-futebol.com