Optimistic Omnicom sees strong second-half outlook

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Omnicom Group executives are optimistic about a second-half industry improvement, as the company reported another positive quarter.

Omnicom posted $190.7 million in second-quarter net income, up 1.8% from the year-ago period, on revenue of $2.15 billion, up 12.2%. Revenue growth was helped by the U.S. dollar's weakness against the euro and the British pound, which accounted for 6.6 percentage points of the increase, and by acquisitions, which added another three percentage points. Organic-revenue growth-excluding acquisitions and currency fluctuations-was 2.6%, the same rate as in the first quarter.

President-CEO John Wren acknowledged profit margins had been under pressure in the second quarter, but said the impact of the war in Iraq on the U.S. was "far less significant than we had feared." He added that the European economies-Omnicom's largest market outside the U.S.-are stabilizing from the downturn begun last year. International revenue was up 21.1% in the quarter, helped by the dollar's weakness, while U.S. revenue rose 5.8%.

The U.S. market is seeing growth in all areas, except for recruitment advertising, said Randall Weisenburger, Omnicom's chief financial officer. In a conference call with analysts, he noted public relations, which has been lagging behind other marketing communications sectors, has stabilized and posted a 1.4% increase in revenue for the quarter. Advertising revenue was up 14.9%, customer relationship marketing rose 17.7% and specialty communications 1.1%. The weak recruitment advertising revenue offset partly a strong performance by health-care agencies in Omnicom's fold, said Mr. Weisenburger.

While Mr. Wren was optimistic about the second-half outlook, he cautioned it's not a done deal yet. He warned that the growth is mostly incremental spending by companies that had already been spending through the downturn and there are no advertising sectors coming back after being dark. "I don't think the economy has recovered so much that we're going to see a return to historic trends. What you're going to see is improvement," he said.

agency.com deal

Omnicom executives acknowledged the company bought online shop Agency.com in exchange for its preferred stock in Seneca Investments. (AA, July 14). Seneca, a partnership backed by Omnicom, was formed by investment group Pegasus Investors II in 2001, after Omnicom traded its partial stakes in 16 online shops to Seneca in exchange for preferred stock. Seneca later bought full ownership of two, Agency.com and Organic, and restructured them in an attempt to make them profitable. Omnicom bought back ownership of Organic last December.

Mr. Weisenburger said Omnicom retains an interest in Seneca, but he added "I don't think there's anything else in Seneca that we would like to buy."

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