Omnicom Accelerates Organic Revenue Growth in Q4

Omnicom Group (OMC -1.03%) released mixed fourth-quarter 2018 results on Tuesday morning, outlining strong earnings and accelerated organic growth -- though the latter was more than offset by the impact of foreign exchange and last quarter's flurry of business dispositions.

With shares of the marketing communications specialist waffling between positive and negative territory throughout the day, let's have a closer look at how Omnicom finished the year.

IMAGE SOURCE: GETTY IMAGES.

Omnicom Group results: The raw numbers

DATA SOURCE: OMNICOM GROUP. YOY = year over year.

What happened with Omnicom this quarter?

• Keep in mind that Omnicom recorded a one-time income tax charge in last year's fourth quarter, related to the 2017 Tax Cuts and Jobs Act. Excluding that, earnings per share would have increased (a still-healthy) 14%.
• Omnicom doesn't provide specific quarterly guidance. So for perspective (while we don't usually pay close attention to Wall Street's demands), consensus estimates predicted lower earnings of $1.66 per share on slightly higher revenue of $4.1 billion.
• The change in revenue comprised:
  • 3.2% year-over-year growth in organic revenue, accelerating from 2.9% last quarter and bringing full-year organic growth to 2.6%
  • a 2% reduction from foreign exchange, near the steeper end of Omnicom's guidance for a 1.5% to 2% headwind
  • a 2.4% decline in acquisition revenue, net of dispositions, slightly above guidance for a 2.5% to 3% drop
  • a 0.9% decrease in revenue related to Omnicom's adoption of new ASC 606 accounting standards at the start of this year
• Organic revenue increased across all geographic regions, including growth of 2.6% in the U.S., 1.3% for other North American markets, 5.7% in the Euro markets and other Europe, 2.9% in the Asia-Pacific region, 2.4% in the U.K., 1% in Latin America, and 4.2% for the Middle East and Africa.
• By "fundamental discipline," advertising organic revenue grew 4.4%, CRM consumer experience revenue rose 4.2%, CRM execution and support fell 3.7%, public relations grew 1.5%, and healthcare rose 7.6%.
• Omnicom Media Group (OMG) Germany acquired United Digital Group subsidiary Media and Performance Marketing (M&PM) during the quarter, accelerating its expansion into the performance marketing niche. M&PM agencies have been rebranded as Resolution, a division of OMG Germany.

What management had to say

During the subsequent conference call, Omnicom chairman and CEO John Wren stated:

2018 was another year of ongoing change for the marketing and advertising industry. We continued to see many of the world's top marketers transform
their marketing organizations to adapt to changing consumer behaviors and new disruptive competitors. For Omnicom, change provides opportunities, challenges and ample room for differentiation. I'm pleased to report that in this rapidly changing environment, our strategies, talent and execution have allowed us to continue to deliver solid financial results.

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Looking forward

Also during the call, Omnicom chief financial officer Phil Angelastro cautioned that any assumptions for the impact of foreign exchange in the coming year are "highly speculative." But assuming currencies remain steady, they would reduce revenue in the first half of 2019 by roughly 2.5% to 3%, and by roughly 1.5% for the full year. Meanwhile, Omnicom's impact of acquisitions, net of dispositions, should reduce revenue by 3% to 3.5% in the first half, and by 2.5% for the full year.

In the end, though today's muted market reaction might not indicate as much, Omnicom essentially delivered just as promised to end 2018. As the company continues to strategically hone its portfolio of businesses through divestments and acquisitions, it should only solidify its central leadership role in today's evolving marketing landscape.