Omnicom returns to positive organic growth, Wren speaks on Delta variant
Omnicom is growing again.
“We’ve rounded the corner into positive growth,” Chairman-CEO John Wren said on his second-quarter earnings call today as the holding company returned to positive organic revenue growth for the first time since being punched by the pandemic.
The company’s worldwide revenue in the second quarter of 2021 increased by 27.5% to $3.6 billion from $2.8 billion in the second quarter of 2020. Omnicom Group’s net income for this year’s second quarter was $348.2 million compared to a net loss of $24.2 million in the same quarter last year.
In April, the company had predicted it would return to organic growth in the second quarter of this year.
Omnicom’s worldwide revenue change can be attributed to a number of factors: an increase in revenue from the positive impact of foreign currency translation of 5.4%, a decrease in acquisition revenue (net of disposition revenue) of 2.2% and an increase in revenue from organic growth of 24.4%.
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.”
In May, Wren sent an internal memo detailing back-to-work plans. A back-to-work microsite is active, breaking down the plan into stages for each agency.
Wren is seeing some “temporary” issues when it comes to companies in certain industries.
“The other thing which will be temporary is going to be certain industries where we've already seen some concern about the adjustments that have had to be made to certain clients' supply lines and certain components that there might be a delay in receiving them,” Wren said. “But we see that as a temporary issue as do most of our clients, at least the ones that I've been speaking to.”
Compared to last year's second quarter, organic growth increased across all of Omnicom's fundamental disciplines including Advertising (29.8%) CRM Precision Marketing (25.0%), CRM Commerce and Brand Consulting (15.2%), CRM Experiential (53.0%), CRM Execution & Support (22.7%), Public Relations (15.1%) and Healthcare (4.5%).
Omnicom organic revenue also grew double-digits across all regions, including 19.9% in the United States, 37.1% in other North American markets, 23.8% in the United Kingdom, 34.5% in other European markets, 27.9% in Asia Pacific, 20.8% in Latin America and 42.8% in the Middle East and Africa.