NEW YORK (AdAge.com) -- The fourth quarter of 2008 was the toughest period marketing conglomerate Omnicom Group has seen in the past 16 years, thanks to the banking-system meltdown and severe credit freeze, Omnicom chief John Wren said today.
Profit in the quarter fell 14% to $271 million, compared with $314 million in the fourth quarter of 2007, the company reported, while global revenue slipped 7.0% to $3.4 billion.
Omnicom is the parent of global ad-agency networks BBDO Worldwide, DDB Worldwide and TBWA Worldwide; California-based Goodby, Silverstein & Partners; and media agencies and public-relations shops such as Ketchum and Fleishman-Hillard. Nearly half of Omnicom's business stems from U.S. clients.
Nearly every agency under the Omnicom umbrella experienced some loss of revenue in the last quarter of 2008. The downward swing was due to not only broad pullbacks in client spending but also declines in project revenue. Project revenue tends to be heavier in the last quarter of the year, when clients dole out leftover marketing dollars.
Strongest sector: CRM
Of the various marketing disciplines, customer-relationship management continued to be the strongest sector, while traditional advertising, public relations and specialty marketing (which includes health-care and recruitment advertising) continued to worsen.
New-business activity in the fourth quarter of 2008 was fairly light. The estimated $1 billion consolidation of Renault-Nissan's media account for Europe, the Middle East and Africa at Omnicom media agency OMD was "both an important save and important win," said Randall Weisenburger, exec VP-chief financial officer, who was also on the call. OMD was already the incumbent on the Nissan global media business, and it beat Aegis' Carat, Renault's incumbent agency of eight years, in the pitch.
"The fourth quarter was probably the most challenging quarter that the company has faced since 1992," said Mr. Wren, speaking on a conference call with analysts. That year "was the last hard, serious recession that the company faced. The one earlier in this decade happened very quickly and seemed to pass very quickly."
Still, it's noteworthy that for the full year, Omnicom managed to post slightly better profits than it did in 2007. Net income for the 12 months ended Dec. 31, 2008, increased 2.5% to $1.3 billion from $976 million in the same period in 2007.
Those results came in part due to a series of drastic cost-savings measures implemented in the fourth quarter, including the elimination of thousands of jobs, salary freezes, reduced incentive compensation for executives and trimmed travel budgets.
Watching its costs
Omnicom isn't finished watching its costs. "We continue to be in an unusual period of time. ... Client spending patterns haven't fully settled down yet," Mr. Wren said. Automotive clients continue to be extremely cautious, he said, while package-goods companies are holding steady on spending.
"We think the first nine months of this year are going to be difficult," Mr. Wren said, later adding: "Our focus during this crisis will be helping our clients grow their business. That is our No. 1 priority."
Omnicom's acquisition activity continues to be slow for two key reasons: The company is concentrating on organic growth, and valuations haven't come down as quickly as expected.
"[We're] making sure our own house is in order before buying a new one," Mr. Weisenburger said, and "many sellers' expectations have not yet fully adjusted to the current economic environment."