Omnicom's Organic Rev Up 3.4% In 2Q 2016

Omnicom’s worldwide revenue in the 2Q 2016 increased 2.1% to $3.85 billion from $3.81 billion in the 2Q 2015. Worldwide revenue for the six months ended June 30, 2016 increased 1.5% to $7.38 billion from $7.27 billion in the same period in 2015.

Organic revenue, which excludes the impact of currency fluctuations, acquisitions and asset sales, was up 3.4% and operating income was up 4.3%, to $561.8 million from $538.6 million.

It's too soon to assess how the Brexit and the U.S. presidential elections will impact the industry, says CEO John Wren during a conference call with investors Thursday. The weakness of the British pound is hurting its revenues, but the most immediate effect is the cancellation of events by clients. "What is clear is the decision creates uncertainty and may slow down decision-making in some markets." That said, the fundamentals of the business are sound, he says.

The holding company expects to see more growth in the back half of the year thanks to several new account wins, which includes P&G, Delta, Carnival, and Ancestry. Omnicom's big win with Volkswagen won't start impacting its bottom line until 2017. "We start January 1," says Wren.



Revenue was slowed by a negative impact of foreign exchange rates of 1.6% when compared to the second quarter of 2015. The biggest contributor to this negative currency effect was its UK operations - its second biggest single market outside of North America. All told, its European business represents a quarter of all revenue with the UK composing two-fifths of this: 10% of total revenue. 

The Middle East and Africa were the worst performers, with organic revenue down 1.2%. The Asia-Pacific region was up 4.5%, with growth in greater China over 3.5%. Continental Europe was up 4.3%, despite laggards France and Netherlands, North America was up 3.2%, UK posted a 3.3% jump and Latin America was up 1.7%.

Media, advertising and healthcare operations were top drivers of growth. Advertising increased 7.7%, public relations increased 0.1% and specialty communications increased 4.4%, while CRM decreased 2.7%. "With respect to our media operations, we outperform the industry," says Wren.

U.S. TV advertising is strong where pricing is up double digits in some cases, he says, adding that this money does not directly correlate to revenue growth. TV's strength is partly due to advertisers getting burned last year. "A year ago, we did see some significant scatter premiums so you see some advertisers moving to the upfront to avoid big premiums." TV is also benefiting from supply versus demand, they say.

Clients continue to direct their budgets towards digital media despite viewability, fraud, and transparency concerns, says Wren.

Omnicom is hitting back after ANA's transparency report that claims the holding company collected media rebates on its U.S. deals. "We said from the outset we do not seek or retain rebates," says Wren. The group's outside counsel has asked the ANA to provide its specific findings but "no findings have been provided." For its part, Omnicom contacted all of its clients to review its contracts. There is more scrutiny, but the contacts written between clients and agencies are "very comprehensive in nature" and we see no change in that, says Wren.

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