Marketing communications conglomerate Omnicom Group's (NYSE:OMC) latest quarterly report revealed moderate organic revenue growth that had been stalled by currency headwinds and business dispositions. Home to global agencies like BBDO and TBWA, the advertising and PR behemoth also completed a strategic acquisition late in the third quarter that reflects its ongoing efforts to accelerate revenue growth. As we review highlights of the last three months below, note that all comparative numbers refer to those of the prior-year period.
Omnicom Group: The headline numbers
|Metric||Q3 2020||Q3 2019||Change|
|Revenue||$3.62 billion||$3.71 billion||(2.4%)|
|Net income||$290.2 million||$298.9 million||(2.9%)|
|Diluted earnings per share||$1.32||$1.32||0%|
Significant details from the third quarter
- Omnicom generated organic revenue growth of 2.2%. This was negated by 3.1% in lost revenue due to business dispositions, and 1.5% of negative currency translation.
- Advertising, the company's largest segment, increased revenue by 1.8% to $2 billion, while organic revenue in the segment rose by 3.4%.
- In Customer Relationship Management (CRM), the Consumer Experience segment posted organic revenue growth of 1.8% to $636 million, while organic revenues in the Execution and Support segment declined 1.5% to $337 million.
- The PR business's top-line decreased by 5.3% to $337 million, which translated to an organic revenue dip of 3.8%.
- As has been the trend all year, Omnicom's smallest business line, healthcare (i.e., advertising, communication, and media services for healthcare clients), exhibited the fastest growth rate. Healthcare revenue increased by 8.6% to $286 million, or 9.5% on an organic basis.
- Operating profit fell by $29 million to $473 million. However, after adjusting for a prior-year gain from the sale of the company's European business-process-outsourcing subsidiary Sellbytel, operating profit was flat, and operating margin increased 40 basis points to 13.1%.
- The lack of change in diluted earnings per share between the current and prior periods is due to a reduction of 6.5 million shares in Omnicom's share float since the third quarter of 2018. The company's current weighted average share count (used to calculate third-quarter 2019 earnings per share) stands at 219.4 million. Year to date, it has repurchased $540 million worth of its own shares.
Customer technology is a focus area for growth
Because of its scale as one of the world's largest advertising and marketing companies, Omnicom faces constant challenges in its efforts to generate revenue growth beyond the low single-digit percentages. But in pursuit of that goal, it has been investing in "digital transformation." In other words, it's sharpening its capabilities to assist clients in the use of technologies such as artificial intelligence to enhance yields on marketing spends and improve customer-facing communications.
On Sept. 26, its CRM subsidiary, Omnicom Precision Marketing Group (OPMG), acquired a majority equity position in Germany-based Smart Digital GmbH, which specializes in customized online customer interaction technology designed to boost brand presence and increase customer loyalty. On Omnicon's earnings conference call, CEO John Wren discussed that deal, tying it to OPMG's 2018 purchase of a majority stake in digital transformation consulting firm Credera:
Smart Digital's services and technology platforms are used to deliver large-scale real-time personalization solutions that enable individual brand experiences and increase loyalty across all consumer touch points. It significantly strengthens OPMG's offerings in decision sciences, automation and machine learning.
Smart Digital follows on the heels of the Group's acquisition of Credera. Credera overlays management consulting and digital transformation on top of OPMG's existing CRM and digital offerings. In a little more than a year, Credera has helped us forge stronger relationships and partnerships with many of our multinational clients. We've continued to invest in its growth and are currently launching new offices in New York and Chicago. The acquisitions of Smart Digital and Credera have built upon OPMG's already strong ability to work with clients from the very beginning of developing and marketing transformation strategy all the way through to campaign execution.
Looking ahead to fiscal 2020
Omnicom doesn't provide forward earnings estimates. However, during the earnings call, management did note that effects from the dispositions of underperforming businesses will moderate after the next two quarters. The company has signaled that it will likely pursue additional technology-oriented, earnings-accretive acquisitions in fiscal 2020. Such purchases should supplement both its top and bottom lines, and also increase Omnicom's profile as a stable, if not spectacular, stock investment candidate.