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By Nathalie Tadena 

Earnings season for the advertising holding companies kicks off this week, with first-quarter reports due from Omnicom, Publicis and Interpublic. The world's biggest advertising company, WPP, is expected to post results next week.

The fresh earnings reports come as the overall advertising market remains healthy, despite a slowdown in major markets such as China and Brazil. Publicis-owned ZenithOptimedia is projecting global ad growth of 4.6% this year with a boost from the U.S. presidential election, the Summer Olympics and the UEFA European Championship as well as continued growth in digital ad spending.

A more complex media landscape means marketers need more services to help guide their marketing decisions and investments, which theoretically means more demand for the ad holding companies' services. At the same time, the advertising giants continue to face challenges from clients exerting pressure on fees and increased competition from consulting firm, tech companies and other new entrants that are encroaching on agencies' turf.

There are some company-specific areas of interest to investors, including the state of Publicis' companywide restructuring plans, progress on Omnicom's margin improvement goals and commentary from WPP on a high-profile lawsuit against the former CEO of its J. Walter Thompson agency.

Publicis is projected to report roughly flat organic revenue growth while the other major ad holding companies are expected to post slightly higher growth rates. Evercore analysts estimate 0.5% organic growth for Publicis in the first quarter, 3% for WPP, 3.3% for Omnicom and 3.5% for Interpublic.

Here's the commentary to watch for:

   -- UPFRONT SIGNALS 

With the television industry's key "upfront" ad sales season just weeks away, the ad holding companies may provide useful perspective into the health of the TV ad market and any potential concerns from clients around digital media, such as measurement and viewability, that may be encouraging them to spend more on TV. This year's upfront ad spending commitments could increase 3% to 5%, a reversal from the declines of years past, based on early estimates from media buyers and analysts.

Jefferies analysts, in a recent note, said the "ad environment remains strong" and second-quarter ad growth "continues to look sequentially similar to 1Q."

   -- DIVERSITY INITIATIVES 

A recent lawsuit accusing the former CEO of WPP-owned ad agency J. Walter Thompson of a pattern of racist and sexist behavior has sparked fierce debate about Madison Avenue's diversity and inclusion practices. Advertising companies have previously highlighted diversity initiatives as priorities, but it remains difficult to gauge the progress made. While the lack of diversity in an advertising company's ranks may not have tangible effects on its financial numbers, investors should pay attention to the possible fallout, said Pivotal Research analyst Brian Wieser.

"This matters to investors now much more than it has in the past, as marketers appear ready to fire agencies associated with problematic activities or use such events as a rationale to support changes," Mr. Wieser wrote in a recent note.

Another talent-related issue that ad holding companies may address on this quarter's calls is the potential margin impact from proposed government changes to overtime pay.

   -- MEDIA REVIEW GUIDANCE 

An unprecedented number of big marketers representing an estimated $20 billion to $30 billion in media billings put their media accounts in review last spring. While 2016 has yet to bring the same volume of media reviews, ad holding companies may weigh in on what they are seeing on the new business front and from cost-conscious clients.

"We believe there could be a return of reviews following the Upfront in 2H as advertisers look to reduce costs," wrote Evercore analyst Tracy Young in a recent research note.

Pivotal Research's Mr. Wieser said in an interview that the release of the findings of the Association of National Advertisers-sponsored investigation into agency transparency issues that is expected in the coming months "could be a catalyst" for some more reviews.

Write to Nathalie Tadena at nathalie.tadena@wsj.com

(END) Dow Jones Newswires

April 18, 2016 14:50 ET (18:50 GMT)

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