Omnicom Group CEO John Wren warns of further 'cost savings' as clients cut spend due to pandemic
Omnicom Group reported on Tuesday a 1.8 percent decline in revenue to $3.4 billion for the first quarter of 2020, and an overall organic revenue increase of 0.3 percent.
The holding company broke down its first quarter organic revenue results as such: advertising services decreased 0.1 percent; CRM consumer experience fell 1.3 percent; CRM execution and support declined 0.9 percent; public relations increased 0.2 percent and healthcare spiked 9.6 percent.
By region, Omnicom reported that first quarter organic revenue increased 1.7 percent in the U.S.; other North America grew 0.6 percent; the U.K. increased 3.7 percent; Europe decreased 2.3 percent; Asia Pacific increased 2 percent; Latin America fell 5 percent; and the Middle East and Africa declined 28.4 percent.
“As the impact of COVID-19 continues to evolve around the world, we’re focused on three key areas: the safety and well-being of our people, continuing to effectively serve our clients, and preserving the strength of our business,” Omnicom Group CEO-Chairman John Wren said on an earnings call. “While we only felt a partial impact from COVID-19 in the first quarter, it certainly negatively affected our financial performance relative to the exceptions we had when we last spoke in February.”
Wren said Omnicom “will continue to quickly reduce costs” but the cost savings will be partially offset by “the decline in revenue we expect in the second quarter and for the remainder of the year.”
The cost-cutting measures Omnicom has already taken include layoffs, furloughs and salary reductions across its agencies, including DDB, BBDO, Zimmerman and TBWA. Wren said clients in sectors most vulnerable to the pandemic—including travel and entertainment, oil and gas, automotive and nonessential retail—have begun cutting their marketing spend and, if that continues, more furloughs and layoffs could be carried out.
“We also expect that in the second quarter, we will continue to evaluate our portfolio of agencies to identify businesses that are non-core or underperforming for potential realignment or disposition,” Wren said, noting that the company will look “thoughtfully” at the business, client by client and agency by agency, for cost savings that could include reducing real estate.
Wren also commented on Wendy Clark's departure on the call—the former DDB Worldwide CEO left recently to become the global CEO of Dentsu Aegis Network. Wren said he was “off-put" that she would “move on in the middle of a crisis.”
According to Wren “certain businesses were impacted much more than others in the first quarter” due to the coronavirus pandemic and “March was more affected than January and February.” Elaborating on that further, he said that March experienced a nearly 3 percent organic revenue decline, while organic revenue increased 3 percent in January and February.
Wren said, as expected, “highly impacted disciplines for us in the first quarter were events and field marketing. The postponement of the Olympics as well as every other major sporting event has compounded the challenges,” he added. CRM, healthcare and public relations are among areas that continue to perform well during the pandemic, according to Wren.
He added that, “with few exceptions,” all of Omnicom's employees continue to work from home, and praised how well they've adapted to the shift. “We've seen firsthand that our people can be just as productive at home as they are in the office,” Wren said, noting that agencies continue to produce work and win business.
Omnicom did not provide guidance for the second quarter, given the uncertainties around the business.