Publicis (XPAR:PUB, Financial), a leading global advertising and media services company based in France, was the largest detractor for the quarter. Investors reacted negatively to the company’s third-quarter revenue shortfall and management’s lower guidance. We believe that the revenue shortfall is partly due to company-specific issues, like a bad quarter for its media division and the Sapient transition led by new management in the U.S. along with broader industry issues. For example, agencies have been reducing their brand spending as more work is being done in-house and internet giant platforms are becoming more dominant. These changes have eroded traditional brands while also providing advertisers with personalization at scale. We believe Publicis’s recent acquisition of Epsilon should significantly boost its ability to deliver personalization at scale. And while the company’s 2019 organic growth in North America appears poor, it’s worth noting that it does not yet include Epsilon’s contributions. Despite the company’s weak results, Publicis retained its OPM (operating profit margin) target of 17.3% in 2019. The company’s margins have expanded as a result of its fast-growing solutions, leaner organization, real estate consolidations and strong performance for Epsilon OPM. Publicis also retains a strong balance sheet and robust cash conversion. We believe it can provide attractive returns for our shareholders over the long term.
From David Herro (Trades, Portfolio)'s Oakmark International Fund fourth-quarter 2019 shareholder commentary.
