The strength of the U.S. dollar continued to suppress revenue growth at Omnicom Group in the first quarter: revenues worldwide were up just 0.9% to about $3.5 billion. The company said currency fluctuations in the first quarter cost it about $97 million in top line growth. Organic growth, which excludes the impact of currency fluctuations, acquisitions and asset sales, was better — up 3.8% globally and 4.5% in the North America market, which accounts for 61% of the company’s business.
Net income at the firm — holding company for numerous advertising and marketing shops, including BBDO, DDB, OMD and PHD — was up 4.4% to $218.4 million. On a conference call with investors Tuesday, Omnicom executives said that so far the firm is on track to hit its profit, margin improvement and organic growth goals for the full year. The organic growth target is 3% to 3.5% while the company hopes to improve operating profit margin for 2016 by about 0.3% (that was achieved in the first quarter).
Omnicom Group CEO John Wren sounded a note of caution on the call, noting that there is “quite a bit of hesitation in the marketplace” due to worrisome economic signs in some regions as well as geopolitical turbulence. Generally speaking, he said, there is a “cautious approach to spending” by clients.
Media, advertising and healthcare operations were top drivers of growth in the first quarter, Wren said. The Latin America region was the worst performer, where organic growth was down nearly 8%, due largely to the troubled Brazilian economy. Troubles in the region were offset a bit by Mexico’s positive double-digit performance.
The Asia-Pacific region was up 5.1%, with China showing signs of strength. Continental Europe was up 3% and the UK posted a 2.2% gain.
The company had a busy first quarter on the organizational front. It regrouped both its health care an PR operations under new umbrella units — Omnicom Health Care Group and Omnicom Public Relations Group respectively. The company’s health care practice has been strong while the PR group has struggled in recent quarters. The objective in both cases is to have sets of managers at the umbrella organizations focused on strengthening service offerings, through acquisitions or organically.
The company also launched a new media agency, Hearts & Science, which is gearing up to serve its charter client Procter & Gamble. Omnicom won the bulk of the package goods giant’s $2.6 billion North America media assignment late last year and the full transition is expected to take nearly a year to complete. Wren noted that a benefit to creating a third media brand is that it will be able to pursue new business pitches that it has been previously excluded from due to conflicts.
The company is also busy trimming back-office costs. Company CFO Phil Angelastro said the firm has ruled out creating regional hub locations given the cost of abandoning real estate leases that are still in effect. Instead the company is aggressively renegotiating new leases at current locations as they come up for renewal. Efficiencies on the IT and tech fronts are also being pursued, he said.
Net new business for the quarter was about $1.25 billion and Angelastro said that at this point the company is expecting to generate roughly $4 billion in net new business for the year which he characterized as “a relatively normal year in that context.”
Executives said that trading desk Accuen grew by $25 million in the quarter.