Omnicom posts strong Q3 with revenue rising 12.6%

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Despite a drop in new business, Omnicom Group reported strong third-quarter results, aided by cost controls, easier comparisons and an accounting change.

Net income rose 36.5% to $126.1 million, or 68 cents a share. When last year's income is adjusted to track with a 2002 change in accounting for goodwill, income increased 10.6%. Revenue rose 12.6% to $1.77 billion.

Alexia Quadrani, managing director of Bear, Stearns & Co., said Omnicom delivered "a very solid quarter. It's a tough market out there; it's lucky they are growing at all." The continued growth is in stark contrast to rival Interpublic Group of Cos. and WPP Group, which saw revenue fall last quarter.

Organic revenue growth-factoring out acquisitions and currency changes-was 4.7%, said Randall Weisenburger, exec VP-chief financial officer. In a conference call with analysts, he noted third-quarter figures benefited from easier year-over-year comparisons. But he said the agency company also has been controlling costs and that units produced strong results despite the weak ad market.

Omnicom also bought growth; acquisitions accounted for 4.9% in revenue growth. Year-to-date, it has paid $181.9 million in earn-outs on acquisitions. Earn-out obligations continue to grow; as of Sept. 30, it still owed $154.9 million in 2002 earn-outs.

Omnicom's one disappointment was the end of its streak of $1 billion-plus in new business per quarter, due to the losses of Gillette Co.'s media assignment and the Qwest account. Omnicom added $876 million in net new business.


"The overall environment remains difficult" in spite of encouraging signs, such as healthy earnings reported by some large media companies, said Mr. Weisenburger. Since most of Omnicom's revenue is fee-based, he said it doesn't benefit immediately from increased media spending. President-CEO John Wren noted more than half of the company's business is in marketing-communications services, so media buying is only a part of the total revenue.

Traditional advertising revenue-42.4% of Omnicom's total-rose 7.3%, while marketing-services revenue grew 16.8%, aided by strength in health-care advertising and customer-relationship marketing.

Omnicom's results have met or exceeded forecasts by credit-ratings agencies, which should help lift the shadow of possible credit downgrades, said Mr. Weisenburger. He noted Omnicom is close to completing negotiations with banks to renew its $500 million credit lines and will announce the agreement in three to four weeks, which he said should lead credit agencies to take it off their watch lists. Concerns about a separate $850 convertible-debt issue due in February 2003 are "overdone," he said. Omnicom has the cash to fund them if needed and six months to refinance a second convertible issue due in August 2003, he said.

Moody's Investors Service and Standard & Poor's both placed the company on watch last June. "I'm hopeful this is another step out of the penalty box," said Mr. Weisenburger. "Putting out another stable quarter of performance is going to be helpful with that."

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