Omnicom Reports Positive Third Quarter, but Hints of Trouble Emerge

PR and Specialty Services Shrink Amid Overall Revenue Growth

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NEW YORK ( -- While Omnicom Group reported today that its third-quarter revenue and net income were up slightly, the impact of the recession and financial crisis on its agencies -- PR in particular -- is starting to become more pronounced.
John Wren
John Wren

The holding company managed to generate a net income of $213 million from revenue of $3.3 billion in the third quarter, up from $202 million in net income and $3.1 billion in revenue during the same period last year. Those increases, though, are less aggressive than what the holding company saw in the recent past. From the third quarter of 2006 to the same quarter last year, net income rose from $177 million to $202 million. Revenue during those periods jumped from $2.7 billion to $3.1 billion.

Advertising, CRM are growth areas
Revenues from its advertising and customer-relationhip management disciplines were up 6.9% and 12% respectively, but its PR (-1.2%) and specialty services (-3.2%) disciplines both experienced negative growth. Omnicom's PR agencies include Ketchum, Fleishman-Hillard, Porter Novelli and Cone, and its specialty-services discipline is made up of specialty media, recruitment advertising and health-care practices. Revenue growth for PR, like advertising, has been declining for the past two to three quarters.

"PR was ... experiencing some general softness," Omnicom President-CEO John Wren told investors during a conference call. "The specialty-media category has been impacted by the continuing decline in directory or yellow pages business. Recruitment advertising is probably our most economically sensitive business, and has been feeling the effects of the economy for a couple quarters now. And health-care growth, while positive, slowed in the quarter due to a lower number of new product releases and cuts in medical education."

The negative revenue growth for its PR discipline doesn't necessarily reflect the sentiment of many within the PR industry who say that more money is being funneled their way as a result of marketers reallocating marketing dollars. An executive at an Omnicom PR firm said the agencies have been talking to one another about what's going on.

"What I am hearing from other agencies is that the pipelines are still full but marketers aren't committing to budgets for next year," the executive said. "Considering what's going on, the numbers don't seem that bad. People are being cautious -- they are focusing on programs that are going to deliver value and have messages that break through. People want to be smart for their dollars, and usually PR can be more powerful than core advertising messages."

Then what's the explanation for the negative growth? "It may just be [that marketers are cutting] those extra programs," the executive said. "Instead of having a big event, you're going to have something that might be more social-media oriented. You're seeing a lot of client meetings focus on learning how to use digital to communicate. We're all going to have to learn how to focus on what's really important and authentic and drives value."

Comparing recessions
During the conference call, Mr. Wren discussed how this recession differs from the ones that have come before it. "The last one really wasn't a consumer recession," he said. "You had people that could go into auto dealerships that you still could give credit to buy cars," he said. "Probably the biggest change is the last recession just came and we were in a mode where we were responding to it. This one we've had a longer period of time to anticipate it. It doesn't necessarily make it better. It just makes it feel more realistic."

Mr. Wren and Randall Weisenburger, exec VPchief financial officer at Omnicom, also reiterated that the one upside to the economic turmoil for the holding company is the potential to make acquisitions at attractive prices.

"One benefit of the current crisis should be more realistic pricing expectations from sellers, as there will be fewer strategic and non-strategic bidders for qualified targets," said Mr. Wren.

"I have to say the pipeline of interesting potential investments at prices that, at least at this point, appear to be reasonable is the strongest we've seen in several years," Mr. Weisenburger said. "Maybe there is some good that can result from the financial mess that's out there."

Cautious spending
Mr. Wren said he has seen some cutbacks in spending plans from automotive and retail clients, and "everybody else remains very cautious, but they haven't indicated they're cutting back as of yet."

When asked what repercussions some of the mergers and prospective mergers taking place between clients might have on Omnicom (there is discussion of a Chrysler/General Motors linkup, for example), Mr. Weisenburger said it all depends what side you're on.

"It depends if you're on the winning side or the losing side," he said. "It's going to vary situation by situation. We generally do fairly well in that kind of an environment. But, it's obviously going to be dependent upon the specific relationships the different people have."

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Contributing: Rupal Parekh
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