Omnicom CEO John Wren: 'Worst of the Recession Behind Us'

Holding Company Reports Fourth-Quarter Profit Down 15.3%

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NEW YORK (AdAge.com) -- Despite another double-digit profit decline last quarter at Omnicom Group, CEO John Wren believes the ad industry has finally made it through the worst of the recession.

John Wren
John Wren
"As economies improve, we believe the worst of the recession and its impact is behind us," Mr. Wren said on the company's fourth-quarter earnings call this morning. "While not all of our clients have finalized their 2010 budgets, we anticipate that many will at least modestly increase spending in the second half of this year."

The No. 2 global ad conglomerate reported a 15.3% decline in net income to $229.6 million for the fourth-quarter 2009, down from $271.0 million during the same time last year. For the full year, Omnicom's net income dropped 20.7% to $793 million compared to $1 billion in 2008. The company is home to global ad agency networks such as BBDO Worldwide and TBWA Worldwide, global media shops OMD and PHD, as well PR and direct agencies including Ketchum, Fleishman-Hillard and Rapp.

One of Omnicom's biggest challenges last year was the highly publicized split between its largest ad unit, BBDO, and longtime client Chrysler. In November BBDO announced that it would close its Detroit office in January when its contract with the struggling automaker expired. Chrysler also parted ways with PHD in December.

Mr. Wren told analysts Chrysler's departure didn't impact the company's fourth-quarter numbers but that there "may have been" a year-over-year decline due to the account loss. He wouldn't disclose specifics but said Omnicom's agencies are chasing other auto opportunities. "I can't predict when the results will occur, but I feel we will prosper," Mr. Wren said.

Revenue down
The group's global revenue decreased 3.1% to $3.2 billion for the quarter, down from $3.4 billion last year. U.S. revenue in the quarter fell 7.3% to $1.6 billion compared to $1.8 billion in 2008. Globally, Omnicom's revenue in 2009 took a negative hit of 12.3%, dropping to $11.7 billion from $13.3 billion in 2008. Domestic revenue for 2009 also saw a double-digit decline of 10.3% to $6.2 billion from $6.9 billion in 2008.

"Overall results were in line with our expectations," Mr. Wren said. "They improved when compared to the previous three quarters but still reflect the reductions in annual marketing and advertising spend reductions initiated by clients in the first and second quarter of last year."

Randall Weisenburger, exec VP-chief financial officer at Omnicom, called the fourth quarter a solid finish to "the toughest economic period in our firm's history."

Mr. Wren said that even though cost control will continue to be an issue for Omnicom's agencies and their clients, he "feels good" about the "individual agencies' ability now to focus on growing their businesses" over the next year. "In 2009 we did an excellent job in strengthening and improving our balancing sheet and capital structure," Mr. Wren said. "Together with careful management we are in a very strong position to deploy our capital and grow our business via investing in talent, start-ups and acquisitions." He added -- as he has said on previous earnings calls -- that the company's acquisition strategy will be more aggressive in the near term and will target companies that fulfill specific strategic needs.

Mr. Weisenburger noted that organic growth was stronger than expected for the quarter, despite its 6.3% fall to $211 million. He said the declines in the automotive, events and sports marketing and recruitment businesses accounted for more than 70% of its organic revenue decline. "Auto, our largest sector last year, was down about 25% organically, or $86 million," Mr. Weisenburger said.

Mr. Wren noted that some clients are modestly increasing their budgets. "A positive sign in the U.S. is that the auto sector is starting to spend more," he said.

Mr. Wren said he expects to see sustainable organic growth start to occur in the back half of 2010. "The first quarter of this year will be a little challenged because we are still cycling through cuts initiated in the first quarter of last year," he said. "January numbers, which we have just seen a flash of, were positive and certainly indicate we are moving in the right direction. Once we get into the second quarter we will be against easier comps and should start to see the impact of these modest increases we have been talking about."

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