UPDATE: Publicis Upgrades 2010 Outlook As Ad Recovery Gains Pace

French advertising company Publicis Groupe SA (PUBGY) Thursday raised its full=year outlook after posting better-than-expected second quarter earnings, in a further sign that the pace of the advertising market recovery has accelerated.

"Even if we don't know for sure that the crisis is over and despite some worries about sovereign debt and public spending, there is a strong feeling that we have reached the end of the crisis," said Chief Executive Maurice Levy.

Publicis now expects organic revenue to grow more than 3.5% in fiscal 2010, in line with projections for the global advertising market from its unit ZenithOptimedia, Chief Executive Maurice Levy said in a briefing with reporters.

Publicis, which owns the Saatchi and Saatchi advertising network, previously said it aimed to post organic revenue growth of around 3% but the improvement in advertising markets seen over the past months has given the group confidence to raise its guidance, according to the CEO.

Levy said growth has been driven both by winning new budgets and an increase in existing clients' budgets. "Almost all of our thirty biggest clients have increased their advertising spending," he said.

Publicis, whose clients include Procter & Gamble Co (PG) and carmaker Renault SA (RNO.FR), said it won net new business worth $2.1 billion in the first half.

Publicis's better-than-expected results, together with strong results at French market research group Ipsos SA (IPS.FR), provides bullish read-across for advertising agencies, Exane BNP Paribas said in a note to investors. At 1048 GMT, shares in WPP PLC (WPP.LN), the world's largest advertising and marketing group by revenue, were trading up 1.6% to 687 pence while Aegis Group PLC (AGS.LN) shares were up 1.7% to 119 pence.

Publicis shares gained 0.7%, only slightly outperforming a 0.5% rise in the CAC-40, as most analysts had expected the group to be upbeat.

Exane noted that the group's new organic revenue growth guidance of 3.5% is conservative as it implies only 2% growth for the second half.

Yet in another sign that the advertising market is recovering, Aegis Thursday launched a A$363 million friendly takeover bid for Australia's Mitchell Communication Group Ltd. (MCU.AU).

Publicis CEO Levy also sounded a more optimistic tone with regard to the company's margin, which he said is likely to be higher than 15% this year. So far, Publicis had targeted for its operating margin to be flat at 15% this year, an outlook analysts say was conservative.

"We consider the margin we posted last year to be a floor," Levy said.

In the second quarter, Publicis posted organic revenue growth of 7.1%, another improvement from the 3.1% posted in the first quarter, albeit on a lower comparison base. This was better than the 5.6% forecast by six analysts polled by Dow Jones Newswires.

Organic revenue growth is a key metric in the advertising industry that strips out currency fluctuations, acquisitions and disposals.

On a reported basis, revenue in the quarter rose 21% to EUR1.38 billion from EUR1.13 billion a year ago, as all regions, except the Middle East and Africa, returned to growth. Revenue was also boosted by favorable exchange rates, notably the higher U.S. dollar compared to the euro. Analysts had expected revenue of EUR1.28 billion.

Net profit for the first half of the year totaled EUR213 million, up from EUR167 million in the same period last year, and above analysts' expectations of EUR194 million.

Operating profit in the same period rose 29% to EUR369 million, while analysts had expected operating profit of EUR328.6 million. This gave the company a margin of 14.5%, up from 13% in the first half 2009, as tight cost control put in place amid the downturn last year helped offset the drag on margins from recently acquired digital agency Razorfish.

-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54; ruth.bender@dowjones.com

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