New Auditors Approve Seneca Transaction; Stock Rebounds

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NEW YORK ( -- Omnicom Group reported another positive quarter, thanks to acquisitions and strong
See the 35-page PowerPoint investor presentation released by Omnicom today.

new business activity, and the agency company seemed to cool some of the fervor involving questions about its accounting.

The company posted $1.92 billion in revenue, up 9.7% over the same period in 2001, and net income of $187.3 million, up 9.2%. Organic revenue growth -- factoring out acquisitions and currency fluctuations -- was 1.5% for the quarter, weaker than the organic rate of 3.7% in the first quarter. The quarter was affected by tough year-over-year comparisons to 2001, which should ease up in the second half, said Randall Weisenburger, chief financial officer.

Diluted earnings per share were $1, up from 81 cents and in line with analyst forecasts.

Good news from auditors
Omnicom did get good news from its new auditor, KPMG, which reviewed its transaction to spin off stakes in Internet shops into Seneca Investments LLC, an e-services holding company formed last year. The auditor, which replaced former Omnicom auditor Arthur Andersen in June, did not recommend any changes to the transaction, said Mr. Weisenburger.

Pressed by analysts, Mr. Weisenburger acknowledged

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that previously reported negotiations to buy two of the e-shops in Seneca, and Organic, are on hold. But he added Omnicom is still interested in acquiring the two shops, although it has no exclusive right and could be outbid by another interested suitor.

Seneca had been under scrutiny since a Wall Street Journal story in June raised questions about Omnicom's accounting practices, leading to a sharp drop in the stock's price.

Ad revenue up 9%
Omnicom reported advertising revenue -- 42.9% of the quarter's total -- grew 9%; customer relationship management revenue was up 15%; and specialty communications revenue rose 26.7% thanks to health-care advertising and acquisitions in that category. Meanwhile, public relations revenue dropped 10.7% for the quarter, due to negative year-over-year comparisons, slowness in new product introductions and weakness in technology. U.S.-based revenue grew 20.8%, aided by acquisitions, while total foreign revenue shrank. U.K. revenue shrank 3.4%, other European markets grew 6.1%, but revenue in the rest of the world shrank 13%.

Omnicom raked in $1.2 billion in net new business during the quarter, a 16% improvement over the same period in 2001.

President-CEO John Wren said the company remains focused on gaining share from its existing clients and that it has succeeded in mitigating account losses by keeping several moving accounts, such as the Charles Schwab & Co., within the holding company. Mr. Wren reaffirmed the company's growth target of 10% in revenue and net income.

Omnicom raised its estimate for earnouts -- future payments due for past acquisitions -- to $418.2 million, including $399 million due through 2005, as of June 30. Omnicom raised the earnout estimate to $394.1 million in July after estimating it at $250 million to $350 million in June.

Increased disclosure
Omnicom had promised more financial disclosure following the June Wall Street Journal story, and the company largely delivered on that promise today with a 35-page PowerPoint investor presentation accompanying its earnings conference call.

Analysts and investors were pleased by the increased detail. Salomon Smith Barney's William Bird called it a "substantial improvement in financial disclosure."

Omnicom's stock surged on the news, up 13% in midday trading to $53.35.

Meanwhile, investors continued to punish Interpublic Group of Cos. a day after it delayed its earnings report for a week. Interpublic stock hit a low this morning of $12.75 -- its lowest point since 1995 -- before recovering to about $13.85 at midday, down 7.6%.

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