Young & Rubicam, the parent company of top PR agency Burson-Marsteller, is so far delivering what analysts expected of its Spring initial public offering. The company, whose closest contenders are Interpublic and Omnicom, is expected to hold its buy/recommend rating when it releases this week its earnings report for the second quarter.
Y&R's IPO and recent Interpublic acquisition negotiations have created a dose of drama that's triggering mainstream and business press coverage for a somewhat esoteric industry which generally receives attention when crises erupt or PR fails miserably. Edelman was taken on by a naive press earlier this year when news of a proposed PR plan for Microsoft [MSFT] fell into reporters' hands. BM, on the other hand, has received little negative publicity for working with the government of South Korea because this kind of counsel comes with few public details. These differences underscore the diverse ways PR is viewed.
Interpublic is the colossal New York-based ad and marcom conglomerate that recently announced its intention to acquire long-time PR brands Shandwick and Golin/Harris. Interpublic already owns Weber Public Relations Worldwide. The Interpublic deal is being closely watched because fees generated by the trio rival Burson-Marsteller's top billing status.
Y&R is expected to announce tomorrow its earnings and it's impossible for us to pinpoint exactly what will be released, but indications are that the company's IPO success will continue. Kevin Lavan, a senior VP at Y&R, told PR NEWS that he can't comment on the earnings report at this juncture. But he reiterated that company executives, at IPO road shows, said Y&R "would deliver full-year, double-digit growth."
Bottom Line at BM
Overall, PR's ties to the financial community have been linked to the core of professionals who handle IR for public companies, but there has been little crossover into the agency world at large. While all of the major agencies, with the exception of Edelman, are owned by holding companies, a majority of small- and mid-sized agencies are privately held.
Now, adding another layer to that trend is the Y&R transition from a company with closely held shares to one that reported raising $350 million with its IPO.
BM accounts for about 20 percent of Y&R's revenue, according to Kevin Gruneich, an analyst with Bear, Stearns & Co, Inc. Y&R posted $298.2 million in revenue, net income of $4.1 million, and diluted earnings per share of 7 cents for the period ending March 31, 1997, according to documents filed with the Securities and Exchange Commission.
Bear, Stearns forecasts earnings per share of $1.35 for 1999 and if Y&R stays true to what analysts expect, that's further proof that PR can be a hardy revenue stream.
No Surprises, Please
In investor relations, the crux of whether you're proactively managing communications for publicly held companies relies on the tenuous task of meeting what the financial community has forecast. Boom profits are indeed a good thing, but avoiding unexpected news is what really matters in the beginning.
"Meeting analysts' expectations is the important thing. And what's also important is telling people what you're going to do and then doing it," says Kevin O'Connor, CEO of Doubleclick. The Internet advertising firm, based in New York, unveiled its IPO this year and although it has posted losses for both quarters, it's adhering to plans it announced when raising capital to secure its market share.
Managing expectations was echoed by all the experts we spoke with.
"The question is 'Are you going to deliver what analysts have predicted?' And based on that, the role of IR is to manage those expectations. And that's the same [thought process behind a] prospectus. You want the investor to have a feeling that the ROI is commensurate with the risk," adds Fred Kaplan, president of Strategic Business Consultants, Inc., Wyncote, Pa. (Y&R, 212/210-3870; Bear Stearns, 212/272-2000; Fred Kaplan, 215/572-9400; Doubleclick, 212/271-2542; Salomon Smith Barney, William Bird, 212/816-6000)
An IR Tale
When Greg Jones came on board Medialink as VP of marcom in January 1997, he knew his PR role would vary greatly from the role he had at A&E, where he was VP of public affairs and communications.
That's because one week before Jones arrived, Medialink went public.
"Where PR and IR come in is making sure the companies' messages are unified and coherent. I had come from a privately held company where the message strategy was at the customer base," Jones says. "Handling communications for a public company alters the way you deliver messages to your publics because you always have to bear in mind the impact the information has on those following your stock."
Objectives of an IR Program
- Make the stock attractive as an investment product
- Attain and maintain the highest sustainable price for the stock
- Achieve a price-to-earning ratio above the industry average
- Build a broad and diversified shareholder base
- Build a liquid but stable trading market for the stock
Source: Nasdaq