Net Income up 37%; Cost Controls and Increased Revenue Cited

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NEW YORK ( -- Despite a drop in new business, Omnicom Group today reported strong third-quarter results, aided by cost controls and easier comparisons to the year-ago period.

Omnicom reported net income of $126.1 million, or 68 cents a share, a 37% increase vs. the same quarter last year. Factoring out accounting changes related to goodwill amortization, net income rose 10.6%.

$1.8 billion in revenue
Revenue grew 12.6% to $1.77 billion. Organic revenue growth, which factors out acquisitions, was up 4.7%, an improvement over 1.5% in the second quarter and 3.7% in the first, Chief Financial Officer Randall Weisenburger said. In a conference call with analysts, Mr. Weisenburger said the company has been controlling costs and that Omnicom units have continued to produce strong results in spite of the weak ad market.

Omnicom is the parent

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company of advertising agency networks TBWA Worldwide, DDB Worldwide and BBDO Worldwide.

Expected to meet projections
Omnicom's quarterly performance puts the agency holding company in line to meet its forecast of 10% revenue and net income growth for the year, even as the economy and fears of war with Iraq have affected business activity, CEO John Wren said. Revenue for the first nine months of this year was up 10.1% to $5.42 billion and net income rose 10.3% to $442 million in that period.

The reports were in sharp contrast with gloomy forecast coming from rival holding companies. Last week, Interpublic Group of Cos. lowered its guidance for the fourth quarter, and WPP Group warned that results will remain weak into next year.

Omnicom's one disappointment in the quarter 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. Mr. Weisenburger noted that while last quarter's $876 million in net new business was below Omnicom's internal goal, the fourth quarter is off to a strong start and the company is still on track to deliver $4 billion in new business for the year.

Difficult environment
"The overall environment remains difficult" in spite of encouraging signs, such as the healthy earnings reported recently by large media companies, Mr. Weisenburger said. He said most of Omnicom's revenue is fee-based, so it will not benefit immediately from increased media spending by clients. Mr. Wren added that more than half of the company's business is in the marketing communications services, so media buying is only a part of the total revenue.

Traditional advertising revenue, which made up 42.4% of Omnicom's total for the quarter, rose 7.3%, while marketing services revenue grew 16.8%, aided by strength in health-care advertising and customer relationship marketing. CRM revenues rose 20.2% with strength across all of Omnicom's units, Mr. Weisnburger said, while specialty communications rose 15.9% with strength in health-care communications offsetting weakness in recruitment and financial advertising.

Public relations revenues managed to grow 9% in the quarter, although Mr. Weisenburger said it "continues to be a very difficult segment." Year-to-date, PR is the only segment showing negative revenue growth, down 4.8%.

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