Omnicom (OMC) Up 2.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Omnicom (OMC). Shares have added about 2.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Omnicom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Omnicom Q4 Earnings, Revenues Exceed Estimates

Omnicom reported solid fourth-quarter 2018 results wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of $1.77 per share beat the consensus mark by 11 cents and increased on a year-over-year basis.

Total revenues of $4,086.7 million beat the consensus estimate by $10.6 million but decreased 2.2% year over year on a reported basis. The year-over-year decrease was due to negative foreign exchange rate impact of 2% and a decrease in acquisition revenues, net of disposition revenues of 2.4%, partially offset by organic revenue growth of 3.2%.

Revenues by Segment

Advertising segment revenues of $2,319.9 million increased 2.3% year over year on a reported basis and 4.4% organically. The segment accounted for 56.8% of total revenues in the reported quarter.

CRM Consumer Experience revenues of $688.1 million declined 3.5% year over year on a reported basis but improved 4.2% organically. The segment contributed 16.8% to total revenues.

CRM Execution & Support revenues of $427.7 million decreased 27.3% year over year on a reported basis and 3.7% organically. It accounted for 10.5% of total revenues.

PR (public relations) revenues of $370.1 million declined 0.7% year over year on a reported basis but improved 1.5% organically. It contributed 9% to total revenues.

Healthcare revenues of $280.9 million were up 19.2% year over year on a reported basis and 7.6% organically. It accounted for 6.9% of total revenues.

Revenues by Regions

Revenues from United States came in at $2,135.2 million, up 0.2% year over year on a reported basis and 2.6% organically. The region accounted for 52.2% of total revenues in the reported quarter.

Revenues from UK came in at $377.2 million, down 0.3% year over year on a reported basis but up 2.4% organically. It accounted for 9.2% of total revenues.

Euro & Other Europe revenues of $770.3 million declined 7.4% year over year on a reported basis but improved 5.7% organically. The region contributed 18.9% to total revenues.

Revenues from Asia Pacific came in at $446.2 million, down 2.7% year over year on a reported basis but increased 2.9% organically. It accounted for 10.9% of total revenues.

Latin American revenues of $131.9 million declined 11.7% year over year on a reported basis but improved 1% organically. It contributed 3.2% to total revenues.

Revenues from the Middle East and Africa were $97.2 million, up 2.5% year over year on a reported basis and 4.2% organically. It accounted for 2.4% of total revenues.

Operating Results

Operating profit in fourth-quarter 2018 increased 0.1% year over year to $627.2 million. Operating margin increased to 15.3% from 15% in the year-ago quarter. Operating expenses of $3,459.5 million were down 2.6% from the year-ago quarter.

Earnings before interest, taxes and amortization or EBITA for the reported quarter were $650 million, slightly down from $653.5 million in the year-ago quarter. EBITA margin came in at 15.9% compared with 15.6% in the year-ago quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $1,641.8 million in 2018 compared with $1,675.4 million in 2017. Capital expenditures were $195.7 million.

The company had a total debt of $4,892 million at the end of 2018 with cash, cash equivalents and short-term investments of $3,658 million compared with a respective $4,925 million and $3,796 million in 2017.

For the twelve months ended Dec 31, 2018, return on invested capital (ROIC) and return on equity (ROE) were 29.6% and 51.4%, respectively. During the period from 2009 through Dec 31, 2018, Omnicom distributed 104% of net income to shareholders through dividends and share repurchases.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Omnicom has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Omnicom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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