Publicis scales back sales growth target after weak Q3

* Sales growth lags rivals in third quarter

* CEO blames standstill in Sept as U.S (Other OTC: UBGXF - news) . clients cut back

* CEO admits Publicis (Paris: FR0000130577 - news) losing market share to rivals

* Shares (Berlin: DI6.BE - news) fall 9 pct (Adds shares, analyst, context)

By Leila Abboud

PARIS, Oct (HKSE: 3366-OL.HK - news) 21 (Reuters) - Publicis' sales slowed markedly in the third quarter, hurt by weakness in the United States where customers delayed or cut marketing projects, forcing it to cut its annual organic growth target to 1 percent from 2.5 percent.

The results are the latest setback for the world's third-biggest advertising agency by sales, which has been lagging rivals WPP (LSE: WPP.L - news) and Omnicom in terms of growth 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 1 billion euros of market value and making Publicis the biggest loser in the French blue-chip index. The company's shares are trading near six-year lows based on price-to-earnings ratio, and at a discount to peers.

"The impact on earnings is unlikely to be significant, but the issue is sentiment," wrote Citibank analyst Thomas Singlehurst, who has a "buy" rating on the shares.

Chief Executive Maurice Levy said the unexpected slowdown started in September and affected customers in the United States in the automobile, pharmaceutical, and consumer goods sectors.

"It (Other OTC: ITGL - news) 's not just one company or one contract that caused the disappointing quarter -- things were simply not as good as they need to be in the United States," said Levy. He said Latin America was also weak because of Brazil's recession.

Asked to explain a weaker performance than rivals who are also heavily exposed to the U.S. market, Levy blamed the lingering fallout from last year's failed merger with Omnicom as well as differences in the client portfolios.

MERGER FALLOUT

Publicis' problems began in May last year when a mega-merger with Omnicom fell apart over governance and control issues, forcing Levy to scramble to reposition the group. He splashed out $3.7 billion to buy digital agency Sapient to expand on the technology side of the ad business.

But the deal's benefits have taken time to materialise and in the meantime Publicis has lost market share to competitors. Sapient was a bright spot in the third quarter, with the unit growing at 5 percent after a weak start to the year.

Third-quarter group sales were 2.33 billion euros, giving an organic growth rate of 0.7 percent.

Analysts had been expecting organic sales growth of 2.1 percent in the third quarter, according to company consensus.

Publicis' organic growth rate was worse than second-largest ad agency Omnicom's at 6.1 percent, and fifth-largest Interpublic Group at 7.1 percent.

Levy also said some of the Publicis teams may have been distracted by the pressures of trying to keep important media buying contracts. The agency recently lost part of a contract with 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 place their messages from television to the web to try to cut costs and ensure they are using online, mobile and digital ads effectively.

Such media buying contracts account for most of ad agencies' profits, while the creative work of designing ads is less lucrative. A debate over billing practices and rebates in media buying has also fuelled distrust, prompting some companies to put their agencies under review and an investigation by a trade association for large advertisers.

Analysts said Publicis, which along with IPG was the most exposed to the $27 billion in media buying contracts under review, had done quite well in the initial battle to keep customers with losses offset by wins at Citibank and Etihad.

However, with about half of the reviews finished, Publicis still faces risks at major clients Procter & Gamble, L'Oreal , and Twenty-First Century Fox.

Smaller competitor Havas (Other OTC: HAVSF - news) will report sales after market on Thursday and WPP on Monday. (Additional reporting by Joseph Sotinel; Editing by Andrew Callus and Keith Weir)