Omnicom grows, but slows on organic

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Omnicom Group continued its winning streak, with first-quarter net income of $128.6 million, a 34.9% increase from $95.3 million in 2001, as revenue rose 8.2% to $1.73 billion.

The sharp increase in net income was largely due to the elimination of goodwill charges and the conversion of a convertible-bond issue into equity in late 2001. Eliminating those factors, net income rose 9.7%, according to Omnicom's management. Fully diluted earnings per share rose 30.8% to 68 cents, from 52 cents in 2001, or 9.7% from 62 cents, once adjusted for the goodwill change.

Revenue growth was a result of a strong, $1 billion-plus new-business drive in the quarter, said President-CEO John Wren. Organic growth (expansion excluding acquisitions) was 3.7%, with acquisitions supplying 5.6% growth and foreign exchange cutting growth 1.1%, he said.

Traditional advertising media revenue, 45% of Omnicom's total, grew 9.1%, while marketing services grew 7.5%; U.S. revenue grew 14%, while international revenue was flat. Among marketing services, revenue for customer relationship management rose 14.6% while specialty communications rose 12.8%, mainly thanks to growth in health-care advertising. Meanwhile, public relations was down 9.3% and remains "the biggest challenge," according to Chief Financial Officer Randall Weisenburger.

Mr. Wren reaffirmed Omnicom's forecast of 10% revenue growth for the year, saying year-over-year comparisons will get easier in the second half since the company only began to feel the recession in the second half of 2001.

WILLING BUT NOT READY

"There are quite a number of clients who are really prepared to increase their spending, but no one wants to be first," said Mr. Wren. The market needs a catalyst such as Procter & Gamble Co.'s decision in 1993 to increase spending, which led to an ad recovery at the end of the last recession, he added. (P&G says it will increase marketing spending; see story, P. 8.)

That low visibility bothered some analysts, who quizzed the two executives repeatedly about their new business totals during a conference call. Both Mr. Wren and Mr. Weisenburger defended the figures, saying much of new billings from existing clients and new business overseas are not announced publicly and fail to make most industry tallies.

Salomon Brothers' William Bird said the 10% target is credible, but noted the stock could take a hit in the short term because of slower organic growth of 3.7% vs. 4.7% in the fourth quarter. Omnicom's organic growth has fallen far from the lofty 13.8% it posted in last year's first quarter.

TakingStock: Omnicom Group (OMC)

May 3 close: $87.01

52-week high/low: $98.20/$59.10

Market cap: $16.4 B

First quarter:

Analysts' EPS forecast: $0.68

EPS: $0.68 fully diluted

Revenue: $1.73 B (+8.2%)

Net income: $128.6 M (+34.9%)

StockQuote: Omnicom's year-over-year net income has grown every quarter since the first quarter of 1994, when it reported a loss.

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