Omnicom Boosts Net Income 11.4% to Over $1 Billion in 2014

Holding Company Posted Strong Domestic Revenue Growth

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John Wren
John Wren

Omnicom, the second largest agency holding company, posted a strong second half of the year after its planned mega-merger with Publicis Groupe was called off in May.

For the full year, worldwide revenue grew 5% to $15.3 billion, while organic revenue was up 5.7%, and net income passed the $1 billion mark, with an 11.4% increase to $1.1 billion.

The holding company nearly doubled its 2013 full-year revenue growth of 2.6%, according to the company's last full-year report.

In the fourth quarter of 2014, worldwide revenue increased 3.4% to $4.2 billion compared to the same period in 2013. Organic revenue was up 5.9%. Net income for the quarter increased 9.7% to $329.5 million compared to the same period last year.

The strong margins were "on plan" and grew despite currency declines, said Omnicom CEO John Wren in a call with analysts to discuss the earnings results.

Diluted net income per common share in the fourth quarter increased 15% to $1.30 per share vs. $1.13 per share during the fourth quarter of 2013. That beat analyst expectations of $1.26 per share , while the company met revenue forecasts of $4.16 billion for the quarter.

In the third quarter, Omnicom's net income jumped 24.4% compared to the same period in 2013.

Omnicom owns ad agency networks including TBWA/Chiat/Day, BBDO, as well a Omnicom Media Network and PR shops FleishmanHillard and Ketchum.

Regional results, new business and economic outlook

For the year, domestic revenue was up 7.7% to $8.15 billion, and international revenue for the year increased 2.1% to $7.17 billion.

During the fourth quarter, domestic revenue increased 8.8% to $2.24 billion, while international revenue decreased 2.2% to $1.96 billion.

North America growth was driven by the strong performance of the media business, as well as solid growth in PR and specialty healthcare business, said CFO Philip Angelastro in the call. He cited positive performance in Germany and Spain, but French and Dutch markets are "still struggling."

The loss of a government client in Chile had an impact on the company's results in South America and will continue to impact results in the region through the middle of 2015, said Mr. Wren. Telecom also continued to be impacted by the loss of Blackberry.

Still, the company's net new business wins totaled over $1 billion for the quarter.

Client budgets are growing consistent with GDP growth in most markets, Mr. Wren said during the Q&A with analysts. He pointed out that U.S. macroeconomic changes have aided Omnicom clients, including declines in oil commodity prices that have helped consumer spending.

He said the company did well despite changes a "divergence for first time in central bank policies and actions."

A "significant change" in foreign exchange rates contributed to a 3.1% reduction in revenue in the fourth quarter and those changes will likely impact reported results in 2015, said Mr. Wren.

Results by discipline

For the full year, the holding company saw organic revenue growth across disciplines: advertising increased 9.1%; CRM increased 1.9%; public relations increased 4.1%; and specialty communications increased 3.1%.

For the quarter, specialty communications grew fastest, increasing 9.4%. Advertising increased 8.5%, CRM increased 1.0%, and public relations increased 8.5%.

Both Messrs. Wren and Angelastro cited strength in the media business. When asked what drove that growth, especially as media agencies complain about getting squeezed, Mr. Wren said, "The complexity of the marketplace caused people to pay more attention to media."

Programmatic buying contributed $20 million, or just under 2% of total revenue growth for the holding company during the fourth quarter. For the full-year, it contributed about $140 million.

It's unclear how much of that revenue is tied to pass-through costs, such as owned digital media inventory. The company also has a large barter operation within its media agency network.

Mr. Wren said there's more integration of agency resources with analytics informing planning and creative across agencies. The company is seeing the trend play out as it "broadens the reach and functionality of the Annalect data management platform," which Omnicom began investing in in 2013, said Mr. Wren. Annalect is Omnicom's central digital media buying and data and analytics group.

It was an active year for the holding company. Just months after its merger with Publicis, the third largest agency holding company, collapsed, longtime CFO Randall Weisenburger left the company to start his own private-equity fund. Omnicom promoted Mr. Angelastro to replace him.

Publicis reports fourth quarter and full year results on Thursday.

CORRECTION: An earlier version of this article quoted Omnicom CEO John Wren as saying strong margins were "unplanned." He said they were "on plan."

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