Omnicom Beats Earnings Expectations for the First Quarter of 2016

Organic Revenue Across Disciplines Led by Advertising, Which Increased 7.9%

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Omnicom on Tuesday reported earnings for its first quarter of 2016 that beat analyst expectations, as well as an organic revenue increase led by North America and its advertising services category.

Net income increased 4.4% during the quarter, to $218.4 million, compared to the same period last year. The company's worldwide revenue in the first quarter increased 0.9% to $3.5 million from $3.47 million.

Omnicom's portfolio includes Omnicom Media Group's OMD and PHD, BBDO, DDB, Fleishman-Hillard and TBWA, among other agency networks.

"The effect of large currency swings in 2015 continue to negatively impact us in the first quarter," said Omnicom CEO John Wren in an earnings call. However, he said he expects those exchange rates to moderate to more neutral levels in the second half of 2016. Speaking to the broader economy and geopolitical environment, he attributed "uncertainty for consumers and corporations and a cautious approach to spending" to "capital market swings, unchartered actions of central banks around the world and tragic events in Brussels, Paris and other cities."

The advertising services company beat analyst expectations of earnings per share of $0.87 and growth with an 8.4% increase in earnings of $0.90, according to estimates from Yahoo Finance. Revenue fell short of expectations of a 1.6% increase to $3.52 billion.

Organic revenue, excluding one-time factors such as acquisitions and external forces such as currency fluctuations, increased 3.8% in the first quarter of 2016. By region, organic revenue increased 4.5% in North America, 2.2% in the U.K., 3.0% in various European markets, 5.1% in Asia Pacific and 1.7% in Africa & the Middle East, while organic revenue decreased 7.8% in Latin America.

Advertising led organic revenue growth across the company's four marketing disciplines, with an increase of 7.9%. CRM decreased 0.7%, PR decreased 0.9% and specialty communications increased 2.2%.

Mr. Wren also talked about a goal toward more agency integration under a new approach called "Connected Brilliance." He didn't go into detail on how the company would incentivize its various agencies, which have their own P&Ls, to work together. It's a "formal and informal practice" meant to preserve the originality and independence of the agency brands while providing customized and integrated services to clients, he said.

The company also recently introduced a new central approach for PR and healthcare. For the struggling PR business, which encompasses around 6,000 people across 10 agencies – Ketchum, FleishmanHillard and Porter Novelli being the three largest -- it moved Porter Novelli CEO Karen Van Bergen into a new role overseeing all PR operations. Healthcare also got a new lead tasked with customizing teams from various healthcare groups to service clients.

"We're seeing an increasing number of briefs coming from multinational clients looking for different types of services to be included in our responses," said Mr. Wren. He said that while there's a lot of similarity across the largest groups, some also tout specialists that others don't have access to. Having a single team leader familiar with all of the people and capabilities across agencies "increases the opportunity of winning new business," he said.

The goal, he added, is also to more efficiently provide resources and "know how" across various agencies in areas like technology, production and analytics.

Mr. Wren also spent a few minutes discussing diversity efforts, which have included hiring 12 chief diversity officers across networks and diversifying the board. Independent board members now include four women and two minority members, he said.

The Omnicom results follow a fourth quarter in 2015 in which the group saw revenue decrease 1% year-over-year, and net income increase 0.6% to $331.6 million. Organic revenue in the last quarter was up 4.8%.

The company had said weakening foreign currencies had an impact on revenue in 2015, and will continue to affect worldwide revenue. But it also said it's optimistic that it can deliver 30 basis points of margin improvement and further cost improvements in 2016, through "IT, real estate, back-office services and purchasing," said Omnicom CFO Phil Angelastro at the time.

Omnicom also got some positive news in December on the heels of winning a large portion of the P&G media business. The win sparked the launch of a third agency called Hearts and Science.

Revenue from the P&G win likely won't kick in until later this summer, said Mr. Wren.

In December 2015, the Omnicom board adopted a retirement age policy for directors, effective December 31, 2017, that mandates that no director can be nominated for election or re-election if they are 75 or older, according to the company's 2016 Proxy. The company today announced that two current Board members -- Errol Cook and Gary Roubos -- will step down as directors prior to the 2016 annual meeting in May. The company also announced the appointment of new independent director, Deborah J. Kissire, a former vice chair and regional managing partner at Ernst & Young.

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