Dentsu logs 1st profit drop in 6 yrs, to buy back shares

By Mariko Katsumura and Nathan Layne

TOKYO, May 12 (Reuters) - Japan's top advertising company, Dentsu Inc (4324.T: Quote, Profile, Research, Stock Buzz), posted its first annual profit fall in six years and forecast a smaller-than-expected recovery this year as a sluggish economy offsets a boost from the Beijing Olympics.

Dentsu also announced that it would spend up to 60 billion yen ($580 million) to buy back nearly 11 percent of its own stock, saying its shares looked cheap after losing about one-fifth of their value so far this year.

Smaller rivals Hakuhodo DY Holdings Inc (2433.T: Quote, Profile, Research, Stock Buzz) and Asatsu-DK Inc (9747.T: Quote, Profile, Research, Stock Buzz) are also expected to come out with lacklustre earnings numbers this week as advertisers rein in spending given a murky outlook for the Japanese economy.

Dentsu, the world's fifth-biggest advertising company behind Omnicom Group (OMC.N: Quote, Profile, Research, Stock Buzz), WPP Group (WPP.L: Quote, Profile, Research, Stock Buzz), Interpublic Group (IPG.N: Quote, Profile, Research, Stock Buzz) and Publicis (PUBP.PA: Quote, Profile, Research, Stock Buzz), forecast group operating profit to grow 4 percent to 58.4 billion yen in the year to March 2009.

The outlook falls short of the market consensus of 61.9 billion yen from 13 analysts polled by Reuters Estimates.

"Big clients in every sector are operating in a tough environment, and it is natural to assume that advertising expenditure will get squeezed," Dentsu Managing Director Setsuo Kamai told a news conference.

For the year ended March 31, Dentsu said operating profit fell 11 percent to 56.13 billion yen, missing the market consensus of 57.9 billion yen and marking the first decline since 2002 -- after the IT bubble burst.

Annual sales fell 1.7 percent to 2.06 trillion yen.  Continued...