Organic growth is a key financial measure that factors out acquisitions, divestitures and effects of exchange rates.
Last year's second quarter marked the nadir of the deep pandemic-driven recession for the economy and ad business; Omnicom's revenue in second-quarter 2020 tumbled 24.7%. So this year's second quarter had comparatively easy comps vs. the year-ago results.
In its earnings release, Omnicom struck a cautionary note, saying:
"Global economic conditions will continue to be volatile as long as the COVID-19 pandemic remains a public health threat, including as a result of new information concerning the severity of the pandemic, government actions to mitigate the effects of the pandemic in the near-term, and the resulting impact on our clients' spending plans. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides."
'Pressure on staff costs'
Moving forward, Wren predicts an increase in new business activity across industry sectors, including consumer packaged goods, luxury, health care, retail and automotive. As clients start spending again and new business wins come in, the holding company is looking to hire, but competition for talent in the industry is robust.
“We are seeing some pressure on staff costs, particularly in the U.S. as the labor markets remain tight,” Wren said. (U.S. employment in advertising, public relations and related services surged in June, showing its biggest-ever one-month increase.)
Omnicom’s stock price slumped on the earnings news, dropping to its lowest point since March before recovering some of its losses. Shares closed today at $73.07, down 4.3%.
Other holding companies reporting their earnings this week include Interpublic Group of Cos. and Publicis Groupe.
Omnicom continues to adjust its portfolio of offerings. In the second quarter, it sold Icon, a specialty media business, and made two acquisitions—Archbow Consulting, a health-care venture, and a majority stake in Areteans, a global services and solutions business. Some M&A key focus areas for the holding company are precision marketing, martech and digital transformation, commerce, media and health care. Wren says he was personally involved in two acquisitions recently that will likely close in the coming weeks or months.
“It’s almost back to the early 2000s in terms of the number of companies we’re looking at [for mergers and acquisitions],” Wren said.
When asked about how advertisers are reacting to the recent rise of the COVID-19 Delta variant, Wren says there is some hesitancy but also a lot unknown still.
“There's hesitancy on the part of everyone, but we can't predict the future,” Wren said. “One of the things that gives me some comfort is that when you get past the headlines and you read the people that have been impacted, it's people who haven't been vaccinated, received only one shot of a two-shot protocol or already had an existing health problem of one form or another. We’re starting to bring back the vaccinated people, in earnest, after Labor Day. People are encouraged to come back to the office. We do know that we've lived through a hell of a past, and we've done it successfully. So that gives us confidence.”
