"The U.S. is stabilizing...and if we get a good upfront market and some encouraging signs, I think we will see steady improvements through the rest of the year," President-CEO John Wren said in his first-quarter earnings conference call.
One sign: Omnicom is maintaining staffing somewhat above what current business dictates so as to be ready to grow with existing clients and with business picked off from rivals.
Said Exec VP-Chief Financial Officer Randall Weisenburger: "We want to make sure that the agencies are sufficiently staffed to try to take advantage of some of those share growth opportunities ... even if that has a bit of an impact on margins today." He said Omnicom's goal is to have the highest profit margins and growth rates in the industry.
For the first quarter, Omnicom revenue increased 11.8% to $1.94 billion. Net income was flat at $128.6 million; diluted earnings per share were 69¢ vs. 68¢ a year ago. Analysts were expecting 70¢, according to Thomson First Call. Omnicom's margin-operating income divided by revenue-fell to 11.5% from 13.2%.
Advertising, customer relationship management and specialty communications all grew; PR fell 1.1%. PR has been the industry's most-depressed discipline, but Mr. Weisenburger predicted Omnicom's PR revenue will start to grow in coming quarters.
U.S. revenue grew 7.6%; Europe rose 21% as reported results benefited from a weak dollar. Foreign currency fluctuations accounted for more than half of Omnicom's increased worldwide revenue. Organic growth-revenue excluding acquisitions and foreign exchange-was just 2.6%.
Mr. Wren said business conditions in Europe, primarily Germany, remain weak. That is the one region Omnicom early this year singled out for staff cuts; it's cut more than 500 jobs in Europe.
Mr. Wren said new-business activity slowed during the Iraq war, but he expects activity to pick up now.
"Intuitively, when you look at some of the problems that some of our competitors are having, it will follow in the coming weeks that more and more accounts will probably go into review," he said. He didn't single out rivals. Looking to this month's upfront, when advertisers start to buy time for the fall TV season, Mr. Wren said all signs point to a "good upfront market."
"That's going to be one of the catalysts which shows there is a real foundation for spending in new products and other things," he said. "That's what we're planning for."
May 2 close: $62.88
52-week high/low: $92.20/$36.50
Q1 revenue: $1.94 B, +11.8%
Q1 income: $128.6 M, flat
Q1 EPS: 69¢
Analysts expected: 70¢
Stock quote: "The U.S. is stabilizing...," says CEO John Wren. "We will see steady improvements through the rest of the year."