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Omnicom Drives Solid Organic Growth Amid Currency, Divestment Headwinds

Steve Symington, The Motley Fool

Omnicom Group (NYSE: OMC) released second-quarter 2019 results on Wednesday after the market closed, detailing a relatively quiet -- if slightly better-than-expected -- performance in which the marketing and corporate communications specialist steadfastly worked to navigate today's increasingly complicated consumer environment.

With shares down around 1% on Thursday afternoon as of this writing, let's take a closer look at what Omnicom had to say.

Team working on business strategy with a notebook computer.

IMAGE SOURCE: GETTY IMAGES.

Omnicom Group results: The raw numbers

Metric

Q2 2019

Q2 2018

Growth

Revenue

$3.72 billion

$3.86 billion

(3.6%)

Net income (attributable to Omnicom)

$370.7 million

$364.2 million

1.8%

Net income per common share (diluted)

$1.68

$1.60

5%

DATA SOURCE: OMNICOM GROUP.

What happened with Omnicom this quarter?

  • Net income this quarter was boosted by favorable one-time tax adjustments of $11 million.
  • Omnicom does not provide specific quarterly financial guidance. So for perspective, these results compared favorably to analysts' consensus estimates for lower earnings of $1.61 per share on roughly the same revenue.
  • The revenue decline was caused by a 3.8% drop in acquisition revenue (net of dispositions) -- largely driven by last year's divestment of Sellbytel -- and a 2.6% negative impact from foreign currency exchange. These headwinds were only partially offset by the company's 2.8% organic revenue growth.
  • Organic revenue climbed 3.2% in the U.S., 11.8% in other North American markets, 5.7% in the U.K., 1.5% in the Euro Markets and Other Europe, and 1.9% in the Asia-Pacific region. Organic revenue declined 2.4% in Latin America and 8.3% in the Middle East and Africa.
  • As measured by "fundamental discipline," organic growth increased 4.4% from advertising, 1.9% from CRM consumer experience, and 8.4% in the healthcare segment. Meanwhile, organic sales declined 2.6% from CRM execution and support and 1.3% in public relations.

What management had to say

During the subsequent conference call with analysts, Omnicom chairman and CEO John Wren called it a "good" quarter," with organic growth essentially in line with the company's internal targets.

"The results continue to demonstrate the consistency and diversity of Omnicom's operations, our ability to deliver consumer-centric strategic business solutions to our clients, and our best-in-industry creative talent combined with market-leading digital, data, and analytical expertise," Wren added.

Looking forward

Also during the call, CFO Philip Angelastro suggested the impact of acquisitions, net of dispositions, would continue to be negative by roughly 3% in the third quarter before abating slightly to negative 1.5% in the fourth quarter. And assuming currencies remain steady -- perhaps unlikely given current macroeconomic and trade uncertainties -- foreign exchange should have a smaller negative impact of 1% and 0.5% in the third and fourth quarters, respectively.

Meanwhile, Wren suggested once again that Omnicom is "well-positioned to deliver" on its full-year target for organic sales growth of 2% to 3%.

In the end, there were no big surprises from Omnicom as it enters the second half of the year -- which helps explain why shares are down modestly right now, more or less in line with the broader market's movement today. But I think patient, long-term shareholders should still be encouraged with the company's position and strategic direction.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.