Omnicom Revenue Hit by Foreign Exchange Rates in First Quarter

Organic Revenue Grows Around the World but Final Accounting Undermined by Strong Dollar

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Omnicom Group's net income for the first quarter of 2015 increased 1.8% from a earlier to $209.1 million, the New York-based agency-company giant reported Tuesday morning.

Its organic revenue, excluding one-time factors such as acquisitions and external forces such as currency fluctuations, increased 5.1% from the first quarter of last year. But overall global revenue slipped 0.9% to $3.47 billion due to the impact of foreign exchange rates, the company said.

The results met analyst expectations of a 1% decline in revenue to $3.47 billion, according to Yahoo Finance.

Omnicom's portfolio includes BBDO, DDB, Fleishman-Hillard, TBWA and OMD.

Domestic revenue for the first quarter of 2015 increased 4.6% to $1.96 billion. International revenue decreased 7.3% to $1.5 billion. But organic revenue was all growth, rising 4.8% in North America, 9.3% in the United Kingdom, 2.7% in Omnicom's European markets, 6.7% in the Asia Pacific region, 3.4% in Latin America and 10.6% in Africa and the Middle East.

By discipline, the company said, advertising increased 7.7%, CRM increased 2.6%, public relations increased 3.1% and specialty communications increased 2.6%.

This year's first-quarter results come on the heels of a decent fourth quarter in which the company boosted total revenue 3.4% and organic revenue 5.9%. Net income for the fourth quarter increased 9.7%.

At this time last year, the holding company was still set to merge with French holding company Publicis Groupe, but was cryptic about when the deal would close. A month later, the competitors called off the merger. In the first quarter of 2014, Omnicom reported a 3% year-over-year increase in revenue and flat net income.

Omnicom CEO John Wren said during an earnings call that Omnicom had a strong new business quarter, with wins including the consolidation of Wells Fargo media and digital business at OMD and Organic; TBWA's Thompson Reuters, Travelers and Royal Caribbean wins; and Bacardi's consolidation with BBDO and OMD. Billings from new business wins totaled $1.1 billion for the quarter, not including Bacardi, the company said.

"We had solid growth, margins remained strong and we are on track to meet targets for 2015," Mr. Wren said during the call. Omnicom CFO Phil Angelastro added, "We're cautiously optimistic about Europe."

Mr. Wren also addressed a number of media trends, such as the plethora of streaming services, and introduced Omincom Media Group CEO Daryl Simm just prior to the analyst Q&A section of the call.

"Our industry is undergoing a major transformation as new digital tools emerge," said Mr. Wren. "We need to make sure our people can apply technology across disciplines."

Mr. Simm, not a usual presence on Omnicom's earnings calls, answered a number of questions related to the upcoming upfront and issues surrounding media, such as allegations that some media agencies in the industry are getting rebates from media sellers and vendors without disclosing that to their clients.

"We've seen above average growth in digital driven by premium video, which we see a continued and increased interest in. We have to look at the whole environment on a more fluid basis than we had in the past," he said. "On the TV upfront side, expect a continuation of the cautious approach we saw this past year."

Regarding rebates, Mr. Simm said, "Our media agencies in the U.S. don't seek rebates. The U.S. is not a rebate-based marketplace from a negotiation standpoint. Media agency clients in the U.S. receive all the value that gets negotiated in the U.S. on their behalf, whether it's quantitative or qualitative benefits. Our buyers are pushing hard to extract a maximum value out of those vendors to meet the individual client expectations. For all of the clients we engage with we have comprehensive contracts that govern not only services but the specific performance requirements as well. It's the cornerstone of trust on which we run our business."

Mr. Wren added: "There's been innuendo and comment against the industry. Clearing the air on this is a positive thing."

Referring to the talk at an Association of National Advertisers meeting that put the issue on the front burner, Mr. Wren said, "It's odd that no specific allegation came against anybody even though they had redacted contracts and other things. There's now a working group between the ANA and 4As to go through this. As quickly as the ANA and 4As get to a conclusion the better off we're all going to be."

Organic revenue from programmatic ad buying grew 10% between the fourth quarter of last year and the first quarter of this year, said Mr. Angelastro.

In terms of potential acquisitions, Mr. Wren said that the holding company will be looking at more mid-sized acquisitions as it gets more aggressive on the M&A front. "Expect that over time we'll be doing more, but no big-bang type things," he said. "They'll be sensible midsized acquisitions that fit our strategic growth areas in the U.S., in certain product areas and in certain key emerging markets."

After the earnings call, Mr. Wren added, he had a two-hour meeting scheduled with an acquisition candidate.

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