Shares in the advertising behemoth WPP (LSE: WPP)(NASDAQ: WPPGY) slipped back this morning after it disappointed analysts with a prediction of profit margin growth of a measly 0.3% for 2014. Despite also predicting earnings per share growth of between 10% and 15% for the coming year, WPP shares gave up some 6% by mid-morning to stand at 1,255p.
Dividend hiked by 20%
There were a number of bright spots to enjoy in WPP’s 2013 results, however. The UK put in a solid performance, although the recent strength of the pound lessened the impact of profit growth elsewhere. Overall, earnings per share rose nearly 11% in 2013, but WPP’s dividend is to be raised by 20%, as the company moves towards its target of paying out 45% of its earnings to shareholders.
Average net debt was reduced by 7.5% to just under £3bn, and WPP hopes to at least double its share buyback programme from 1% of share capital to 2-3%. WPP also expects to spend £300-400m in acquisitions this year, having bought no less than 62 companies last year.
Looking forward, WPP remains generally optimistic, saying that as companies ran out of ways to cut costs, they should revert to trying to drive top-line growth, hopefully spending plenty of advertising pounds in the process.
Beware the grey swans
Sir Martin Sorrell rarely misses an opportunity to opine on the state of the global economy.
Today he highlighted a number of grey swans, or known unknowns, that still seem to be holding back the confidence of WPP’s clients when it came to advertising spending. These included the potential fragility of the Eurozone, the prospects for the Middle-East, a Chinese/BRIC hard or soft landing, the US budget deficit, the Scottish independence referendum, and potential hostilities between Japan and China.
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> Stuart does not own any of the shares listed above. He tries (and occasionally succeeds) to resist advertising of any kind.