NEW YORK (AdAge.com) -- Omnicom Group reported a 21% falloff in net income for the first quarter, proving right prognosticators who said agencies would feel the real impact of the recession beginning in 2009.
Profit for the quarter fell sharply to $164 million, compared with $209 million in the first quarter of 2008. Worldwide revenue dropped 14% to $2.7 billion, down from $3.2 billion for the same quarter last year. Omnicom's organic revenue was also depressed, which was attributed partly to its exposure to beleaguered client Chrysler.
While Omnicom is first out of the gate with first-quarter earnings, it's hard to determine if its results will be mirrored by the rest of the industry. But this is the first indicator of just how severely the recession has affected the marketing world and its agencies.
Ad sector fared best
While the recession has depressed ad spending among marketers generally, affecting all four of Omnicom's marketing disciplines (advertising, public relations, customer relationship management and specialty), it's notable -- even surprising -- that the ad sector took the lightest hit. Omnicom's numbers dent the theory that creative shops will be hurt the most as marketers look to cut back on big campaigns in favor of more focused direct- and customer-relationship marketing efforts or public relations programs.
Omnicom's ad business fell 12%, while its CRM business was down 13% year over year. Omnicom's specialty discipline, which includes its specialty-media, recruitment-advertising and health-care businesses, suffered a 20% drop year over year, while the PR group posted its third consecutive quarter of negative growth, falling 17% from the same period last year. (The company does not break out digital revenue.)
On a conference call with investors this morning, Randall Weisenburger, exec VP-chief financial officer, said Omnicom's "specialty media has been in decline due to technological changes."
"Recruitment advertising is our most economically sensitive business and was down almost 40% for the quarter, and health-care is down in line with the overall market," he said.
Despite a huge win earlier this year, Omnicom's PR business, which began to show signs of trouble in the third quarter of last year, continued to slide. Mr. Weisenburger blamed a lack of organic growth. "While [our PR] agencies have performed well in winning new business, projects from existing clients have slowed across our agencies and across markets," he said. As part of a joint venture called One Voice, Omnicom's two biggest PR agencies, Fleishman-Hillard and Ketchum, snagged what may turn out to be the biggest PR pitch of the year last month when they won the Philips global account, which executives with knowledge of that review said "easily" will be worth between $10 million and $20 million.
More account wins
In late February Omnicom also nabbed a huge piece of business from Hewlett-Packard when Omnicom Media Group won the tech giant's $1 billion global media-planning and -buying business. HP also awarded Omnicom all advertising, direct-marketing, media-buying, search-engine-marketing and interactive business for its technology group, which includes business products such as storage and servers, managed services, and software.
Omnicom's domestic revenue in the first quarter of 2009 decreased 8% to $1.5 billion, down from $1.6 billion the year before, while its international revenue totaled $1.2 billion, a drop of 20% from $1.5 billion in the first quarter of 2008.
Omnicom's organic revenue growth was also negative, with a drop of 7%. But Mr. Weisenburger said he believes that number was a bit distorted. "While overall economic conditions were very difficult, our organic growth decline in the quarter was somewhat skewed by four isolated areas," he said. "The declines in recruitment marketing, our specialty and newspaper businesses, and our Chrysler business accounted for more than 30% of our overall organic decline. And these businesses, which are mostly U.S. focused, accounted for almost 45% of our U.S. organic decline."