Omnicom Earnings Decline 22% for Quarter

Despite Client Spending Cutbacks and Friction With Chrysler, President-CEO Wren Remains Optimistic

By Published on .

Most Popular

NEW YORK ( -- Double-digit declines continue at Omnicom Group, which today reported a third-quarter drop in net income of about 22% to $166 million, compared with earnings of $214 million a year ago. For the first nine months, profit slid to about $564 million from $730 million over the same period in 2008.

John Wren
John Wren
With marketers making significant cuts in advertising and marketing spending, Omnicom -- parent of agency networks such as DDB Worldwide and BBDO Worldwide, and media agencies OMD and PHD -- also posted quarterly revenue declines. Those declines were slightly steeper in international markets than they were domestically: In the U.S., revenue in the quarter declined $227 million, or about 13%, while international revenue dropped $252 million, or about 16%.

The fate of one marketer relationship was a particular topic of discussion. Omnicom President-CEO John Wren, on a conference call with analysts this morning, addressed his holding company's strained relationship with longtime client Chrysler. He acknowledged that revenue derived from the automaker is now at risk, but was optimistic that the company is poised to pick up business from other car clients now reviewing their agency relationships.

"We have our challenges with Chrysler which for 2009 will contribute about 1% of our revenue, so that I believe is at risk," Mr. Wren said. "Having said that, we are also engaged in a number of pitches for other automakers and we're fully expecting to win our fair share of those pitches," he noted, perhaps indicating that Omnicom is confident that one shop in the final round for Volkswagen's U.S. business, Goodby, Silverstein & Partners, will prevail.

"The Detroit office of BBDO is still under contract with Chrysler and therefore it's not available to be pitching other business at the moment. ... We're honoring the contract and will see what the outcome is."

Chrysler last year ranked among the top 50 advertisers in the U.S., and while it still has a sizable budget, the automaker has slashed marketing spend amid the downturn.

Despite the company's sagging performance, Mr. Wren sounded more optimistic on the call than he has on past earnings reports this year. "Third-quarter results were in line with our expectations," and "client spending, while significantly down from 2008, is showing signs of stability," he said.

Omnicom's geographic mix of business in the third quarter was split about 47% international, 53% domestic. The most challenged international markets were Japan, Korea and most markets in Eastern and Western Europe, with the exception of France.

He noted that the so-called BRIC markets -- Brazil, Russia, India and China -- and other developing countries are showing signs of a recovery, and in the U.S., "there are even a few signs of positive growth, with the exception of areas of discretionary client spending -- like events and sports marketing, and recruitment advertising -- and troubled sectors like auto."

Other highlights of the call included an estimate of Omnicom's net new business activity in the quarter, at about $1 billion. Headcount reduction has continued at the holding company. Omnicom took a charge of $33 million in severance in the quarter and $102 million year-to-date.

Additionally, as he has during past earnings calls this year, Mr. Wren hinted that Omnicom is opportunistic and out in the marketplace eyeing attractive purchase targets. "You can expect more acquisition activity from us," he said. Geographically, the company is looking at acquisitions in the Middle East, China and India, and in terms of discipline is looking for "sensibly priced digital extensions of Omnicom's portfolio."