Omnicom profit jumps 17%, driven by marketing services

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With the help of client spending on the Olympic Games and strong performance from nontraditional marketing services, Omnicom Group, the largest advertising holding company, continued showing growth.

Beating expectations, the parent company of BBDO Worldwide and DDB Worldwide saw an increase in net income of 17% for the third quarter of 2004. Omnicom posted $145.3 million in net income, compared to $124.6 million for the same period last year. Worldwide revenue rose 14% to $2.3 billion, driven by revenue growth of 14% in the U.S. and 15% internationally. Diluted earnings per share increased 20% to 79¢ a share from 66¢ a share.

In a conference call, Omnicom executives were optimistic for the remainder of the year, with the holiday season approaching and a few potential acquisitions in the offing.

However, the close presidential race is throwing some uncertainty over spending during the final part of the year, as clients have been slow to give approval for fourth-quarter discretionary projects amid an uncertain political landscape.

"The base business is strong," said Omnicom President-CEO John Wren. "But this election is so close, nobody knows what to expect. Until the marketplace clears, we won't have much certainty."Mr. Wren characterized the discretionary spending in question as "incremental" and said clients typically don't have to make decisions on these projects until late November.

`not stellar'

Analyst reaction was, by and large, positive. Merrill Lynch analyst Lauren Rich Fine called it a "wonderful quarter" and maintained a buy rating. But analyst Troy Mastin of William Blair & Co. said in a research note that Omnicom's $949 million in new business was "healthy but not stellar, below the $1.1 billion average over the past four quarters."

Omnicom's recent wins include Subway Restaurants, Mars and, more recently, Subaru of America. It lost E-Trade Financial's business this summer.

All of Omnicom's major geographical regions experienced growth, though France was down a bit and the U.K. was flat. For the quarter, the U.K.'s revenue grew 12.2% while its year-to-date growth is nearly 16%.

By discipline, the company experienced the strongest growth rates in marketing services. Advertising grew by only 10.7%, while specialty communications and customer relationship management grew by about 18% and public relations by 14%.

Mr. Wren said Omnicom could complete a few transactions by year's end but gave no details, save for geographical region.

"The only region that's a keen interest to me is Asia-China," he said. "It's business as usual other than that."

Fast Facts

Omnicom Group (OMC)

Third-quarter 2004

Revenue: $2.3 billion, up 14%

Net income: $145.3 million, up 17%

Source: Company report, percent changes vs. year ago period

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