Omnicom Group (OMC -0.77%) announced slightly better-than-expected second-quarter results on Thursday, as the impacts of recent agency dispositions and the foreign exchange headwinds were partially offset by modest organic growth. Shares of the public relations specialist climbed around 2.4% as investors absorbed the news.
Let's have a closer look, then, at how Omnicom finished the first half of the year, as well as what investors can expect looking forward.
Image source: Omnicom Group.
Omnicom Group results: The raw numbers
| Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$3,790 million |
$3,885 million |
(2.4%) |
|
Net income (available for common shares) |
$328.1 million |
$324.1 million |
1.2% |
|
Net income per common share (diluted) |
$1.40 |
$1.36 |
2.9% |
Data source: Omnicom Group.
What happened with Omnicom Group this quarter?
- Top-line growth was comprised of 3.5% organic growth -- which excludes currencies, acquisitions, and divestments -- a 1.5% negative impact from foreign exchange rates, and a 4.4% decline in acquisition revenue, net of dispositions.
- Organic revenue growth included a 4.2% increase in advertising, 3.7% growth from CRM, 2.2% growth from specialty communications, and a 0.3% decline from public relations.
- Geographically, organic revenue grew 0.2% in North America, 9.3% in the U.K., 7.8% Euro Markets and Other Europe, 7.1% in Asia-Pacific, 5% in Latin America, and 20.4% in the Middle East and Africa.
- Earnings before interest, taxes, and amortization of intangibles (EBITA) increased 0.6% year over year, to $594 million.
- Net debt at the end of the quarter was $3.075 billion, including $4.949 billion in total debt and cash, cash equivalents, and short-term investments of $1.874 billion.
- Omnicom has generated free cash flow of $797.5 million so far this year.
- Acquired MOBILE STRATEGY, a creative full-service digital agency based in Amsterdam and founded in 2010 that focuses on mobile CRM/loyalty, mobile commerce, and mobile content & campaigns. MOBILE STRATEGY will operate within the TBWA\Netherlands Group.
- Omnicom continued to return more than 100% of net income to shareholders through dividends and repurchases:
Omnicom's net cash returned to shareholders through dividends and share repurchases as of June 30, 2017. Image source: Omnicom Group.
What management had to say
During the subsequent earnings conference call, Omnicom CEO John Wren called it a "solid quarter," noting the company's organic growth was in line with expectations, while it also met its margin targets and remains on track to achieve a 50 basis-point margin improvement for the rest of the year.
Wren also stated that though Omnicom doesn't anticipate additional significant agency dispositions in 2017, net acquisition disposition revenue will continue to be negative in the second half of the year.
"We're pleased that our financial performance continues to reflect the excellence of our people and agencies," Wren insisted. "We've had a strong first half of the year and are well-positioned to deliver on our internal targets for the full-year 2017."
Looking forward
Omnicom doesn't provide specific revenue or earnings guidance. But CFO Philip Angelastro did state the company expects the impact of foreign exchange to be "slightly negative" in the third quarter, and positive 0.0125% in the fourth quarter. Even so, Omnicom continues to expect currencies to have a negative 30- to 40-basis point impact on revenue for the full year.
In the end, there were no significant surprises in Omnicom's second-quarter results. Instead, the company continued to position itself to benefit from the future trends of its industry. So while it may not be the most exciting stock on the market right now, I think investors should be happy with where Omnicom Group stands today.
