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Omnicom Group Inc. Weathers a Tough Market

By Steve Symington – Jul 18, 2016 at 3:50PM

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The marketing and communications specialist delivered solid second-quarter results.

Image source: Omnicom Group.

Shares of Omnicom Group (OMC 0.78%) were little changed after the marketing and communications company reported second-quarter 2016 results on Thursday morning. But don't take the market's seeming indifference as a sign that Omnicom's performance wasn't good, as it did continue to grow sales and earnings despite both the ongoing negative effects of foreign currency exchange and an uncertain macroeconomic environment.

Let's take a closer look at Omnicom's latest quarter.

Omnicom Group results: The raw numbers

 

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$3,884.9 million

$3,805.3 million

2.1%

Net income (available for common shares)

$326.1 million

$313.9 million

3.9%

Net income per diluted share

$1.36

$1.26

7.9%

YOY: YEAR OVER YEAR. DATA SOURCE: OMNICOM GROUP, INC. 

What happened with Omnicom Group this quarter?

  • Revenue growth was comprised of 3.4% organic growth -- which excludes currencies, acquisitions, and divestments -- a 0.3% increase in revenue from acquisitions, and a 1.6% decrease from the negative impact of foreign exchange.
  • Advertising organic revenue grew 7.7%, public relations increased 0.1%, specialty communications rose 4.4%, and CRM declined 2.7%.
  • On a regional basis, organic revenue increased 3.2% year over year in North America, 3.3% in the U.K., 4.3% in Euro markets and other Europe, 4.5% in Asia-Pacific, 1.7% in Latin America, and declined 1.2% in Africa and the Middle East.
  • Omnicom generated free cash flow of $376.1 million during the quarter, helping continue to fund its acquisitions and capital returns.
  • Omnicom also maintained its long-standing streak of returning more than 100% of net income to shareholders through dividends and repurchases:

IMAGE SOURCE: OMNICOM GROUP. 

  • Omnicom Media Group acquired a controlling interest in Omnicom Media Group Schweiz AG (OMG Switzerland), its Switzerland-based affiliate and "market-leading full service media agency" with 110 employees. 

What management had to say 
During the subsequent conference call, Omnicom CEO John Wren said that 44% of total revenue came from outside the U.S. He also said that:  

Our results were solid during the quarter even in the face of continued currency headwinds. [...] It's too early to fully assess the impact resulting from the ongoing Brexit discussions and upcoming U.S. elections. So far the most significant effect is the continuing weakness of the British pound on our reported revenues. Additionally, when combined with backdrop of recent terrorist related events, clients have become more cautious with the most immediate effect being the cancellation of some customer events, which has had an impact on some of our share and businesses.

Looking forward 

Omnicom doesn't typically provide specific financial guidance, but it seems reasonable to anticipate some volatility going forward given Wren's comments on Brexit and the upcoming U.S. elections. Later in the call, Wren also reminded investors that when oil prices fell earlier this year, Omnicom endured similar caution from customers in some Middle Eastern countries, canceling events as a result. With oil seemingly stabilizing, he noted that those markets could be set to rebound in the coming year. Similarly, while Brexit and the like will inevitably slow decision making in many markets, he said, "[W]e expect the volatility and the uncertainty surrounding the Brexit vote to subside and for our agencies to adapt to the post-Brexit marketplace."

In the end, despite seeing another muted reaction to an otherwise decent quarter, Omnicom keeps rewarding investors with its consistent results and sustained ambitious capital returns, all as it continues to successfully navigate the shift from traditional to digital advertising.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Omnicom Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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