Markets

The Sky May Be Falling for Everyone Else, But WPP Sees Only Growth

By Jim Edwards

Updated on: August 20, 2010 / 6:32 PM EDT / MoneyWatch

If WPP (WPPGY) reports strong revenue growth, as expected, when it describes its Q2 2010 earnings on Aug. 24, it will stand in stark contradiction to everything else that seems to be going on in the global economy. Weak unemployment numbers have depressed the stock market recently, but WPP CEO Martin Sorrell is expecting to report "stronger" growth in Q2.

WPP's numbers are important because it's the largest ad agency holding company on the planet, and therefore a convenient bellwether for the entire adspend market. Total adspend roughly cycles up and down with total GDP.

Also, WPP's revenues are a reflection of how companies that cater to consumers might regard the future. You don't increase adspend -- and thus WPP's revenues -- if you don't believe your future sales will go up. So while the stock market seems to believe unemployment will dampen consumer demand and risk a double-dip recession, WPP's thousands of clients -- including Procter & Gamble (PG), Coca-Cola (KO) and IBM -- seem to be doubling down on growth for Q3.

It's not guaranteed, of course. But bear in mind the anecdotal evidence: In July, client surveys showed that companies expected to trim their Q2 budgets. In fact, the opposite happened, just as I predicted. They spent more through their ad agencies.

Sorrell told CNBC recently that that growth showed up at WPP also, and will continue into the July month of Q3:

We were flat in the first quarter, second quarter was remarkable -- I have to be a bit careful because we're reporting shortly [he then winks at the camera!] but that won't keep me from talking. Second quarter was stronger. And actually into July I was looking into the July numbers, we don't have the final, final July numbers, but stronger.

You should watch the video if you want a whirlwind tour inside the macro-economic mind of Sorrell. Asked about the mindset of his clients he says they're "terrified" and paralyzed by "tremendous uncertainty." Yet his own numbers show them committing more money to the market. This is a lovely illustration of one of my favorite rules of thumb regarding economics: that there's a difference between what people actually do and what people say they think they're doing. The former is more significant than the latter.

For the record, Interpublic (IPG) CEO Michael Roth is also still positive on an economic rebound. I'd like to think this bodes well for Q3.

Lastly: I've previously paid careful attention to Sorrell's obsession with the collapse of Lehman Bros two years ago. He raised it again on CNBC:

If you went back to the Lehman weekend in September 2008, they [advertising clients] were preparing their budgets for 2009, very cautious. We go into 2009, the world didn't come to an end, they feel a little bit more expansive.

The new normal in my mind is that Lehman weekend ... it's shattering that the financial world almost came to an end, almost, on that weekend. I think that's seared into the consciousness.

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