Omnicom Group (OMC 2.77%) announced another stronger-than-expected quarter on Tuesday morning, highlighting continued modest organic revenue growth and an expected decline in revenue from acquisitions, net of dispositions, over the past year.
With shares of the public-relations and marketing leader up around 2.2% on the day, let's take a deeper look at how Omnicom kicked off the second half of the year.
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Omnicom Group results: The raw numbers
| Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$3,719.5 million |
$3,791.1 million |
(1.9%) |
|
Net income (available for common shares) |
$263.3 million |
$252.6 million |
4.2% |
|
Net income per common share (diluted) |
$1.13 |
$1.06 |
6.6% |
Data source: Omnicom Group.
What happened with Omnicom Group this quarter?
- Both the top and bottom lines compared favorably with investors' expectations for revenue of $3.69 billion, and earnings of $1.10 per diluted share.
- The revenue change consisted of 2.8% organic growth and a 1% increase from foreign exchange, offset by a 5.7% decline in acquisition revenue, net of dispositions.
- Organic revenue growth was driven by a 4.7% increase from the advertising segment, 0.1% growth in customer relationship management, 5.1% growth from specialty communications, and a 0.4% decline from public relations.
- On a geographic basis, organic revenue rose 2.1% in North America, 3.8% in the U.K., 7.8% in the Euro Markets and Other Europe segment, and 1.4% in Asia-Pacific. Organic revenue declined 5.4% in Latin America and 1.6% in the Middle East and Africa.
- Earnings before interest, taxes, and amortization of intangibles (EBITA) grew 2.1% year over year to $492.1 million. EBITA margin expanded 50 basis points to 13.2%.
- Net debt at the end of the quarter was $3.115 billion, including total debt of $4.966 billion and cash, cash equivalents, and short-term investments of $1.851 billion.
- Omnicom has generated free cash flow of just over $1.171 billion through the first three quarters of the year.
- The company acquired Perceptive, a leading customer-intelligence agency based in Auckland, New Zealand. Perceptive will operate as a separate division of Clemenger Group within Omnicom's BBDO Worldwide network.
- Omnicom also acquired Verve Search, a multilingual SEO strategy leader based in Southwest London in the U.K. Verve will operate as a division of OMG UK within the Omnicom Media Group network.
What management had to say
During the subsequent conference call, Omnicom CEO John Wren reminded investors that the disposition process the company started in the fourth quarter of 2016 was "substantially completed" by April of this year. That means Omnicom will still be lapping that process in its financial statements through early next year.
In addition, Omnicom is striving to help some of the world's largest brands navigate the effects of technological disruption across multiple industries. But more than anything, this could be a perfect chance for Omnicom to demonstrate its relative strength.
Wren elaborated:
Given the challenges many of our clients are facing, there is a significant opportunity for Omnicom to help them transform the way they approach their customers. Marketing needs to be tied into advertisers' broader strategy, including sales, service, product innovation and other functions with the consumer at the center. With this in mind, we continue to transform the way we are organized in a manner that allows our management, people, and agencies to effect change by offering clients the most creative minds with access to the latest tools in the marketplace.
The future
Omnicom doesn't offer specific forward revenue or earnings guidance. But Wren did warn that visibility tends to be limited in the fourth quarter by a seasonal rise in less predictable project work.
Later in the call, CFO Philip Algelastro stated that Omnicom anticipates that foreign exchange will have a roughly 2% positive impact on sales, assuming rates stay constant, while the impact of acquisitions, net of disposition activity, should reduce revenue by 4.75%.
All things considered, this was another unsurprising -- if slightly better-than-anticipated -- quarter from Omnicom as the company builds its enviable portfolio of agencies through strategic acquisitions, and evolves its business to better suit the needs of its clients. As such, I think long-term investors should still be more than happy with Omnicom's position today.
