Interpublic Group of Cos. (NYSE: IPG) reported Q4 EPS of $0.89, $0.10 better than the analyst estimate of $0.79. Revenue for the quarter came in at $2.41 billion versus the consensus estimate of $2.34 billion.

Revenue

• Fourth quarter 2018 net revenue was $2.41 billion, compared to $2.13 billion in 2017, with an organic net revenue increase of 7.1% compared to the prior-year period. This was comprised of an organic net revenue increase of 6.3% in the U.S. and 8.0% internationally. Fourth quarter 2018 total revenue was $2.86 billion compared to $2.59 billion in 2017.
• Full year 2018 net revenue was $8.03 billion, compared to $7.47 billion in 2017, with an organic revenue increase of 5.5% compared to the prior-year period. This was comprised of an organic net revenue increase of 5.1% in the U.S. and 6.2% internationally. Full year 2018 total revenue was $9.71 billion, compared to $9.05 billion in 2017.
• For both the fourth quarter and full year 2018, total revenue includes $181.7 million related to Acxiom which was acquired on October 1, however its impact will not be included in the calculation of organic revenue growth until the fourth quarter of 2019.

Operating Results

• For the fourth quarter of 2018, operating income was $459.1 million, compared to $423.0 million in 2017. Adjusted EBITA1, excluding $22.6 million of transaction costs for the acquisition of Acxiom and $22.0 million of expense for the amortization of acquired intangibles, was $503.7 million in the fourth quarter of 2018, compared to $428.3 million in 2017. Adjusted EBITA margin on net revenue was 20.9% in 2018, compared to 20.1% in 2017.
• For the full year 2018, operating income was $1,008.8 million, compared to $938.4 million in 2017. Adjusted EBITA1, excluding $35.0 million of transaction costs for the acquisition of Acxiom and $37.6 million of expense for the amortization of acquired intangibles, was $1,081.4 million for the full year 2018, compared to $959.5 million in 2017. Adjusted EBITA margin on net revenue was 13.5% in 2018, compared to 12.8% in 2017.
• Refer to reconciliations in the back for more detail.

Net Results

• Fourth quarter 2018 net income available to IPG common stockholders was $326.2 million, resulting in earnings of $0.85 per basic share and $0.84 per diluted share. This compares to net income available to IPG common stockholders of $252.3 million, or $0.66 per basic share and $0.64 per diluted share a year ago.
• Fourth quarter 2018 adjusted earnings were $0.89 per diluted share as adjusted for after-tax loss of $10.8 million on the sales of businesses, after-tax transaction costs directly related to the acquisition of Acxiom of $17.0 million, after-tax amortization of acquired intangibles of $17.8 million, and the positive impact of various discrete tax items of $23.4 million. This compares to adjusted earnings of $0.64 per diluted share a year ago.
• Full year 2018 net income available to IPG common stockholders was $618.9 million, resulting in earnings of $1.61 per basic share and $1.59 per diluted share. This compares to net income available to IPG common stockholders of $554.4 million, resulting in earnings of $1.42 per basic share and $1.40 per diluted share a year ago.
• Full year 2018 adjusted earnings were $1.86 per diluted share as adjusted for after-tax loss of $59.7 million on the sales of businesses, after-tax transaction costs directly related to the acquisition of Acxiom of $36.5 million, after-tax amortization of acquired intangibles of $32.8 million, and the positive impact of various discrete tax items of $23.4 million. This compares to adjusted earnings of $1.40 per diluted share a year ago.
• As a reminder, 2017 results are as previously restated for the adoption of ASC 606.
• Refer to reconciliations in the back for more detail.

"Overall, 2018 was a very successful year, with outstanding financial results, coupled with a significant, future-facing acquisition. Our results again demonstrate the strength of our client-centric integrated offerings, and the quality of our people. We’re proud that our culture continues to attract diverse talent with a breadth of digital expertise, which has helped us to deliver leading organic growth and margin improvement in recent years. This is what’s required in light of the significant changes taking place in our industry and the environment in which we operate,” commented Michael Roth, Chairman and CEO of IPG.

“As we turn to our outlook for 2019, we do so with a strong portfolio of agencies, across the full range of capabilities and marketing disciplines, competing successfully in the marketplace. This allows us to achieve revenue growth and convert it to operating profit at rates that have been leading the industry. Our 2019 targets are for fully competitive organic growth and solid underlying margin expansion. We also remain committed to our robust capital return program, as is evident in the action of our Board announced today to further increase our dividend. We are confident that this combination of operating performance and capital returns will allow us to build on our strong track record of enhancing shareholder value," Mr. Roth concluded.

Outlook

The company said that, entering the new year, it continues to see opportunities for solid revenue increases, and is targeting 2019 organic growth of 2.0%-3.0%. The company is also targeting a further 40-50 basis points of improvement in full-year adjusted EBITA margin, on top of the 13.5% achieved in 2018. The margin target excludes an expected pre-tax charge to earnings of approximately $30-$40 million in the first quarter of 2019, to right-size its cost structure following certain accounts lost, mainly in the latter part of last year.

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