Omnicom Reports Revenue Uptick

by Steve McClellan, Jul 17, 2012, 11:09 AM

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Omnicom Group reported a 2.1% gain in revenue for the second quarter to a little more than $3.5 billion, with a 2.8% net income gain to $283 million. That was slightly better than the consensus estimate on Wall Street, which had forecast a 1.5% revenue gain for the group.

Organic revenue growth -- a key performance measurement for the ad industry -- was 5.1% for the second quarter. In the U.S., the holding company posted a 4.5% revenue gain to $1.86 billion.

For the first half of the year, Omnicom posted total revenue of $6.8 billion -- up 3.5% -- with a net income gain of 2.2% to $487 million. First-half U.S. revenue was up 4.7% to almost $3.6 billion. Organic revenue for the first half, like the second quarter, was 5.1%.

All things considered -- particularly the macroeconomic issues confronting economies worldwide -- Omnicom CEO John Wren said he was “extremely pleased” with the company's performance in the second quarter. “It’s a difficult time, given the level of global growth,” he said on a Tuesday morning conference call to discuss Omnicom’s second-quarter results. “It's going to remain that way for awhile.”

There was no specific mention of talks that Omnicom has been reportedly engaged in to acquire LBi, the big independent digital shop, for $575 million. But Wren did confirm that there were “a number of acquisitions that almost meet our criteria,” for fit, price and return to shareholders. He alluded to what he termed “fantasy pricing,” that some sellers appear to be holding out for in the marketing services arena.

He said he believed that some recent acquirers in the space had overpaid for acquisitions, but did not mention specific examples. In the past month, Dentsu has agreed to buy Aegis Group for nearly $5 billion, and WPP has agreed to buy independent digital shop AKQA for $540 million. “Historically low” credit markets may be a factor fueling higher prices, he said. But a key focus of Omnicom for any M&A deal is “how do we repay shareholders?”

Asked whether the company would see a financial lift from the upcoming Olympic games in London, Wren replied that if there was one, it would be “muted” at best. “Much of the work has already been done,” he said. CFO Randall Weisenburger, also on the call, noted that the company’s events unit added an additional $10 million to $15 million in second-quarter revenue related to client activities tied to the games. Also, he said, big spenders in July and August tend to spend less post-Olympics.

Wren said the company was able to achieve revenue growth across every geographic region with the exception of the Euro Zone, where economic solutions to the sovereign debt crises and other issues remain elusive.

By company sector, advertising, media, branding and event operations turned in strong performances, while health care and specialty services, impacted by cutbacks in the pharmaceutical category, turned in weaker performances. Auto, consumer products and retail were among the stronger marketer categories in the quarter. Like health care, the telecommunications, financial services and food & beverage categories were weaker.

The company posted net new business of $1 billion for the quarter. Wins included the consolidated global Chevrolet account, won in partnership with Interpublic.

Weisenburger said the company was on track to reach its pre-tax profit margin goal of nearly 15% for the year, which would bring it back up to pre-recession levels.

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