Earnings Preview: Omnicom Group


Omnicom Group Inc. (OMC) will report its fourth-quarter and FY11 earnings on Tuesday, February 14, 2012.

The current Zacks Consensus Estimate for earnings per share (:EPS) is 95 cents, representing an annualized growth rate of 13.99%.  

With respect to earnings surprises, over the trailing four quarters, OMC outperformed the Zacks Consensus Estimate in all the quarters. The average earnings surprise was 6.66%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter Highlights

On October 18, Omnicom Group posted decent operating results for the third quarter of 2011.

Omnicom’s net income in the quarter grew 16.7% year over year to $203.7 million from $174.6 million in the third quarter of 2010. Earnings per share (:EPS) expanded by 26.3% from 57 cents in the year-ago quarter to 72 cents in the reported quarter. EPS also beats the Zacks Consensus Estimate of 70 cents.

Total revenue was $3,380.9 million, up 12.9% year over year from $2,994.6 million in the corresponding quarter of the previous year. Revenue surpassed the Zacks Consensus Estimate of $3,293.0 million. Domestic and International revenue rose 5.3% and 21.8% to reach $1,703.2 million and $1,677.7 million, respectively.

Agreement of Estimate Revisions   

In the last 30 days, one analyst increased the company’s earnings per share (:EPS) estimate for the fourth quarter of 2011 while three analysts decreased the same for the quarter. However, for fiscal 2011, one analyst raised its estimate while two decreased the same. For fiscal 2012, two analysts increased estimate in the last 30 days, while 3 decreased the same.

Magnitude of Estimate Revisions   

Estimates over the last 30 days remained static at 95 cents for the fourth quarter of 2011, representing a year-over-year growth of 13.99%.

Estimate for fiscal 2011 remained static at $3.30 over the last 30 days. For fiscal 2012, the average remained static at $3.65, as the positive and negative movements of the analyst estimates had an offsetting effect on each other over the last 30 days. These estimates represented a year-over-year growth of 22.35% for 2011 and 10.42% for 2012.

Recently, Omnicom Group Inc. announced the increase of the company's quarterly cash dividend by 20%, raising it from 25 cents to 30 cents per outstanding share of the  company’s common stock.

The company’s board has declared a dividend of 30 cents per share, which is payable on April 2, 2012 to Omnicom Group common shareholders of record at the close of business as of March 5, 2012.

Our Take   

Omnicom is likely to foresee revenue growth, on the backdrop of improving US and international ad market, fueled by rising consumer spending. Moreover, the company’s customized, cost effective business mix alongside acquisitions and client base expansion appear favorable.

Omnicom is one of the largest advertising, marketing and corporate communications companies in the world extending customized mix of traditional media advertising; customer relationship management (:CRM), public relations (:PR), and specialty communications services in all the major markets across the globe. It directly competes with its peers, such as The Interpublic Group of Companies Inc. (NYSE:IPG - News), Publicis Groupe SA (PUBGY.PK) and WPP plc (WPPGY).  

We currently maintain a long-term Neutral recommendation on the stock. The company has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

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