* Sales growth lags rivals in third quarter
* CEO blames standstill in Sept as U.S. clients cut back
* CEO admits Publicis losing market share to rivals
* Shares fall 9 pct (Adds shares, analyst, context)
By Leila Abboud
PARIS, Oct 21 (Reuters) - Publicis' sales slowedmarkedly in the third quarter, hurt by weakness in the UnitedStates where customers delayed or cut marketing projects,forcing it to cut its annual organic growth target to 1 percentfrom 2.5 percent.
The results are the latest setback for the world'sthird-biggest advertising agency by sales, which has beenlagging rivals WPP and Omnicom in terms ofgrowth and fighting to retain key customers such as Procter &Gamble amid an unprecedented slew of contract reviews.
Shares fell almost 9 percent at the open, wiping out 1billion euros of market value and making Publicis the biggestloser in the French blue-chip index. The company's shares aretrading near six-year lows based on price-to-earnings ratio, andat a discount to peers.
"The impact on earnings is unlikely to be significant, butthe issue is sentiment," wrote Citibank analyst ThomasSinglehurst, who has a "buy" rating on the shares.
Chief Executive Maurice Levy said the unexpected slowdownstarted in September and affected customers in the United Statesin the automobile, pharmaceutical, and consumer goods sectors.
"It's not just one company or one contract that caused thedisappointing quarter -- things were simply not as good as theyneed to be in the United States," said Levy. He said LatinAmerica was also weak because of Brazil's recession.
Asked to explain a weaker performance than rivals who arealso heavily exposed to the U.S. market, Levy blamed thelingering fallout from last year's failed merger with Omnicom aswell as differences in the client portfolios.
MERGER FALLOUT
Publicis' problems began in May last year when a mega-mergerwith Omnicom fell apart over governance and control issues,forcing Levy to scramble to reposition the group. He splashedout $3.7 billion to buy digital agency Sapient to expand on thetechnology side of the ad business.
But the deal's benefits have taken time to materialise andin the meantime Publicis has lost market share to competitors.Sapient was a bright spot in the third quarter, with the unitgrowing at 5 percent after a weak start to the year.
Third-quarter group sales were 2.33 billion euros, giving anorganic growth rate of 0.7 percent.
Analysts had been expecting organic sales growth of 2.1percent in the third quarter, according to company consensus.
Publicis' organic growth rate was worse than second-largestad agency Omnicom's at 6.1 percent, and fifth-largestInterpublic Group at 7.1 percent.
Levy also said some of the Publicis teams may have beendistracted by the pressures of trying to keep important mediabuying contracts. The agency recently lost part of a contractwith food maker Mondolez to rival Dentsu Aegis and Coca-Cola's U.S. media buying to IPG.
Big companies are reviewing which agencies they use to placetheir messages from television to the web to try to cut costsand ensure they are using online, mobile and digital adseffectively.
Such media buying contracts account for most of ad agencies'profits, while the creative work of designing ads is lesslucrative. A debate over billing practices and rebates in mediabuying has also fuelled distrust, prompting some companies toput their agencies under review and an investigation by a tradeassociation for large advertisers.
Analysts said Publicis, which along with IPG was the mostexposed to the $27 billion in media buying contracts underreview, had done quite well in the initial battle to keepcustomers with losses offset by wins at Citibank and Etihad.
However, with about half of the reviews finished, Publicisstill faces risks at major clients Procter & Gamble, L'Oreal, and Twenty-First Century Fox.
Smaller competitor Havas will report sales after market onThursday and WPP on Monday. (Additional reporting by Joseph Sotinel; Editing by AndrewCallus and Keith Weir)
WPP (WPP)
