* Lowers FY net sales, margin target
* Investors had braced for weak results
* Big consumer goods clients cutting spending
* Has lost two accounts to Omnicom (Writes through, adds reaction)
By Kate Holton
LONDON, Oct 31 (Reuters) - WPP said net sales would not grow this year as a fall in client spending and pressures from rapid technological change kept the pressure on the world’s largest advertising company.
Lowering sales expectations for the third time this year, WPP said its trading was particularly weak in North America where it is still suffering from the loss of two big accounts, VW and AT&T to rival Omnicom, and from lower spending by consumer goods groups Unilever and Procter & Gamble.
“The biggest pressure is coming on the packaged goods companies in particular, which are around 30 percent of our revenue, and they’re under colossal pressure,” Martin Sorrell, chief executive and founder of WPP, told Reuters.
With investors expecting a weak third-quarter following disappointing results from rivals Publicis and Interpublic, WPP shares fell at the open before rising 0.7 percent in morning trading.
However, WPP is still facing its weakest underlying revenue growth since the financial crash in 2009, and its shares were down almost 30 percent this year before Tuesday’s update.
Omnicom has been the one group to perform more strongly in the recent cycle, beating its estimates in October due to better demand in the U.S.
Dominated by the big four groups of WPP, Omnicom, Publicis and IPG, the global advertising industry has been facing fierce competition and rapid change on a number of fronts.
The British group has been hit more than most by the pressures in the packaged goods sector, where its clients such as Unilever, Nestle and Procter and Gamble are cutting spending to counter weak sales.
The overall industry is also facing competition from consultancies including Accenture and Deloitte in the provision of data and analytics, while Google and Facebook are transforming the supply of online ads, and in some cases cutting out the advertising middlemen.
Having recorded organic net sales growth of 3.1 percent in 2016, WPP rattled investors in March when it set a 2017 target of 2 percent before downgrading it in August to between 0 and 1 percent.
On Tuesday the group said it now expected like-for-like net sales growth to come in flat. The headline net sales operating margin was also now expected to be flat, compared with a previous forecast of a 0.3 margin point improvement.
The latest downgrade came despite third-quarter trading holding up reasonably well, with like-for-like net sales down by 1.1 percent, an improvement on the 1.7 percent drop recorded in the second-quarter and a market expectation of -1.4 percent.
In its longer-term outlook, WPP said it thought the pressures should start to ease but analysts at Barclays said it was difficult to call.
”If you cut agency fees in 2017 and get the same service, why not do it again in 2018,“ they said. ”And if consumer goods companies were successful in doing so, why would that pressure not extend to other sectors in 2018.
“It is very hard to answer this key question.”
Reporting by Kate Holton; Editing by Louise Heavens and Keith Weir