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A Solid Start for Omnicom Group, Inc. in 2016

By Steve Symington - Apr 19, 2016 at 2:40PM

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The marketing and corporate communications company continues to persevere amid economic and political uncertainty.

Omnicom Group (OMC -1.66%) released first-quarter 2016 results Tuesday morning, and shares fell a modest 1% even as the marketing and communications company grew sales and earnings despite continued pressure from foreign currency exchange.

Let's take a closer look at how Omnicom kicked off the year:

Omnicom Group results: The raw numbers

 

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Revenue

$3,499.1 million

$3,469.2 million

 0.9%

Net Income (Available for Common Shares)

$216.9 million

$206.3 million 

 5.1%

Net Income Per Diluted Share

$0.90

$0.83

 8.4%

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

What happened with Omnicom Group this quarter?

  • Top-line growth was driven by 3.8% organic growth -- which excludes currencies, acquisitions, and divestments -- and partially offset by a 0.1% decline in revenue from acquisitions and a 2.8% decrease from the negative impact of foreign exchange.
  • Advertising organic revenue climbed 7.9%, CRM fell 0.7%, public relations slumped 0.9%, and specialty communications rose 2.2%.
  • On a regional basis, organic revenue grew 4.5% year over year in North America, 2.2% in the U.K., 3% in Euro markets and other Europe, 5.1% in Asia-Pacific, 1.7% in Africa and the Middle East, and dropped 7.8% in Latin America.
  • It generated free cash flow of $345.9 million during the quarter, helping continue to fund its acquisitions and ambitious capital returns efforts.
  • Omnicom also maintained its long-standing streak of returning more than 100% of net income to shareholders through dividends and repurchases:

DATA SOURCE: OMNICOM GROUP. 

  • Its DDB Worldwide acquired a controlling interest in Grupo ABC, a leading marketing and communications group in Brazil that provides advertising, CRM, public relations consulting, promotion, events, and digital marketing services to both global and local clients. 

What management had to say 
During the subsequent conference call, Omnicom CEO John Wren said:

2016 marks Omnicom's 30th anniversary, and I'm pleased to report that we're off to a good start. [...] As I look at the broader economy and geopolitical environment, there is still quite a bit of hesitation in the marketplace. The capital market swings we saw in the first quarter, the uncharted actions of central banks around the world, and the tragic events in Brussels, Paris, and other cities is creating uncertainty for consumers and corporations, and a cautious approach to spending. Given this environment, our operational results were very good for the quarter.

Wren also highlighted Omnicom's recent formation of two distinct operating groups: the healthcare-oriented Omnicom Health Group and a PR-centric organization called Omnicom Public Relations group. The former, Wren says, "offers clients a single point access to our network of over 3,000 dedicated communications and scientific specialists working in the largest, strongest individual healthcare specialty units in the business." And the latter is comprised of 10 of Omnicom's leading public relations agencies with 6,000 employees. Together, these groups should afford Omnicom the flexibility to better capitalize on its growth opportunities and cement its industry leadership.

Looking forward 
Omnicom doesn't normally provide specific financial guidance, but Wren did elaborate during the call that while currency exchange continued to pressure results in Q1, "at this point, we expect the impact of foreign exchange rates to moderate to more neutral levels in the second half of 2016." In addition, Omnicom is on track to deliver a margin improvement of 30 basis points for the full year, bringing earnings before interest, taxes, depreciation, and amortization to 13.7% of total revenue. 

Though the market's muted reaction to today's results might not indicate as much, Omnicom continues to demonstrate that it has what it takes to reward investors while also maintaining its industry leadership as it navigates the shift from traditional to digital advertising. As the broader economic and political environment begins to settle, I think Omnicom investors should be more than happy with where their company stands today.

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