Omnicom Endures 22% Drop, Auto Group Hard-Hit

by , Oct 21, 2009, 12:10 PM
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Media agency holding company Omnicom Group continues to suffer -- but the company says its client spending is showing stability.

Third-quarter net income slipped 22.6% to $165.5 million during the period, with worldwide revenue sinking 14.4% to $2.8 billion.

Higher interest expenses, lower dwindling margins and deep cuts in client spending are the reasons for the drop. In looking at just organic growth -- factoring out acquisitions and divestitures as well as the impact of currency fluctuations -- revenue would have declined 11%.

Omnicom's stock sank 3% to just under $37.00 in midday trading.

John Wren, president and CEO of Omnicom Group, said the auto group continues to be in upheaval -- especially with its own Chrysler business, which is undergoing an ownership change and has been struggling with massive declining sales.

Chrysler could be looking to change media agencies for its $1 billion ad account, which could result in a big hit for Omnicom's PHD media unit. Chrysler's U.S. media spending dropped 35% to $1.1 billion in 2008, according to industry estimates.

Auto revenues have been down across the globe -- around 30%, according to company officials. Automotive fees account for 10.9% of the agency's revenues.

"There is a lot of activity in the auto sector at the moment," says Wren. "Our challenge with Chrysler, which for 2009 will contribute 1% of our revenue, is at risk. We are engaging in other pitches for other automakers. We're expecting to win a fair amount of those pitches."

Company officials note that there are continued areas of growth in Asia and the developing market, but business in Eastern and Western Europe was still suffering.

Among specific categories, Omnicom Executive Vice President and CFO Randy Weisenburger says health care business was up, but telecommunications billings were down 15%, with financial revenues about the same amount. Food and beverage revenues were down 5% to 6%.

In forming an umbrella digital division, Omnicom Digital, Wren believes it is important to rally around one executive -- in this case Jonathan Nelson, who is CEO of Omnicom Digital. The new unit is essentially a holding company of its digital agencies: OMG Digital, Agency.com and Tribal DDB.

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