• by Steve McClellan  @mp_mcclellan, April 18, 2017

Omnicom reported today that its first-quarter revenue was up 2.5% to nearly $3.6 billion with a 10.7% gain in net income to $241.8 million. The income boost was partly accelerated by a change in accounting rules that helped the firm nearly double its profit growth to $23.4 million.

Organic revenue growth was 4.4% across the holding company, although North America lagged in growth — just over 1%. Company executives on a conference call Tuesday morning with investors and analysts said part of the issue is underperformance by a number of the firm’s field marketing, event and branding operations.

The company also said it struck a number of deals in Q1 to sell off many of those operations, which it no longer sees as “strategic” going forward. This month, the firm sold its print media business Novus to a buyer it did not disclose on the call.

In the long term, those asset sales should have a positive impact on organic growth. This year, however, asset sales will outstrip acquisitions as the holding company realigns its portfolio. That will have a negative $24 million impact on 2017 revenues, according to company CFO Phil Angelastro who was on the investor call.

Revenue at programmatic firm Accuen was flat. CEO John Wren noted that more clients are opting out of programmatic packages that the unit sells as a product for a “fully disclosed” alternative where the firm serves more as an agent.

Wren said the company was “off to a good start” to the year, noting all regions posted positive organic revenue growth, including 8%-plus gains in the UK and Europe, over 9% in Asia Pacific and 5.4% in Latin America.

Wren said while the current macroeconomic and geopolitical atmosphere has clients feeling “cautious,” for now, the firm is sticking with the 3% to 3.5% organic revenue growth guidance it gave earlier for full-year 2017. 

Pivotal analyst Brian Wieser posted a note positing that Omnicom’s “portfolio pruning” is significant: 

“Specifically, management stated that dispositions should exceed acquisitions by 3.5% to 4.5% for the full year, equal to around $600 million. The majority of this activity appears to relate to the newly announced sale of Novus, one of a handful of specialist agencies within the industry focused on print-based media owners.

"As a business unit which had around 250 employees (per several company job posting sites), we can guess that this division would have generated $40-50 million in net revenue excluding pass through activities, and perhaps $10mm in operating income.

"Because Omnicom books pass-through activity (including principal trading, which occurs at Novus in our understanding) as GAAP revenue, we can see how the disposal of a unit with a significant volume of this activity will have an automatic improvement in” profit margins.

Interpreting Omnicom’s quarterly results, added Wieser, “remains a challenging endeavor when comparing them versus peers given the scaled and mostly non-specified presence of remaining principal-based or pass-through activity in organic revenue figures at Omnicom. These activities extend beyond the company’s trading desk, Accuen, to include revenue streams associated with entities such as Icon (barter) and OmNet (proprietary trading of traditional media).”