Shares in two major UK advertising firms, S4 Capital and M&C Saatchi, plummeted to fresh lows on Monday after both issued stark profit warnings, highlighting a deepening crisis within the sector.
Double Blow for Advertising Giants
Sir Martin Sorrell's S4 Capital saw its stock sink by 8% in Monday morning trading, hitting a new all-time low. The company, founded by the former WPP boss, warned that its full-year like-for-like net revenues are now expected to fall by just under 10%.
Despite ongoing cost-cutting, S4 cautioned that this sales drop would significantly impact its underlying earnings. The firm has slashed its guidance for the year to approximately £75 million, a figure substantially lower than the £81.6 million anticipated by the City.
The company attributed the worse-than-expected performance to 'lower project-based revenue, continued client caution and a slower ramp up of our new business wins than expected'.
M&C Saatchi Blames US Shutdown
Fellow advertiser M&C Saatchi delivered a similarly grim update, pointing the finger at the 'unprecedented' US government shutdown. The group stated that the lengthy shutdown caused it to lose revenue that it cannot recover, which will 'materially impact our prior growth and profitability expectations'.
As a result, M&C Saatchi now forecasts a 7% fall in like-for-like net revenues. Its operating profit guidance has been cut to between £26 million and £28 million, down sharply from its previous forecast of £35.2 million.
Chief Executive Zaid Al-Qassab commented, 'A challenging macro environment has been further compounded by the unprecedented US government shutdown, which adversely impacted our high-margin Issues specialism in the fourth quarter.'
The group's shares fell as much as 20% at market opening before settling around 13% lower in early trading.
A Sector Under Pressure
The twin profit alerts underscore the severe pressures facing the advertising and marketing industry. Over the past year, firms have been hit hard as corporate clients rein in spending amidst economic uncertainty, the ongoing US trade war, and the disruptive shift towards artificial intelligence.
This trend was recently echoed by global marketing communications giant WPP, which last month cut its annual outlook again as trading conditions worsened, pledging to accelerate its turnaround plan.
