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Omnicom (OMC) Down 7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Omnicom (OMC). Shares have lost about 7% in that time frame, underperforming the S&P 500.

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

Omnicom Surpasses Q2 Earnings Estimates

Omnicom reported solid second-quarter 2019 results wherein its earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of $1.68 per share beat the consensus mark by 7 cents and increased 5% on a year-over-year basis.

Total revenues of $3.7 billion beat the consensus estimate by $8 million but decreased 3.6% year over year on a reported basis. The year-over-year decrease was due to negative foreign exchange rate impact of 2.6% and a decline in acquisition revenues, net of disposition revenues of 3.8%, offset by organic revenue growth of 2.8%.

Revenues by Segment

Advertising segment revenues of $2.1 billion increased 1.3% year over year on a reported basis and 4.4% organically. The segment accounted for 56% of total revenues in the quarter.

CRM Consumer Experience revenues of $659.5 million declined slightly year over year on a reported basis but increased 1.9% organically. The segment contributed 18% to total revenues. CRM Execution & Support revenues of $326.1 million decreased 34.6% year over year on a reported basis and 2.6% organically. It accounted for 9% of total revenues.

PR revenues of $349.3 million declined 3.7% year over year on a reported basis and 1.3% organically. It contributed 9% to total revenues. Healthcare revenues of $291 million were up 7.5% year over year on a reported basis and 8.4% organically. It accounted for 8% of total revenues.

Revenues by Regions

Revenues from United States came in at $2billion, up 0.7% year over year on a reported basis and 3.2% organically. The region accounted for 54% of total revenues in the quarter.

Revenues from Other North America came in at $113.2 million, up 6.2% year over year on a reported basis and 11.8% organically. The region accounted for 3% of total revenues. Revenues from UK came in at $361 million, down 0.7% year over year on a reported basis but up 5.7% organically. It accounted for 10% of total revenues.

Euro & Other Europe revenues of $674.9 million declined 13.4% year over year on a reported basis but improved 1.5% organically. The region contributed 18% to total revenues. Revenues from Asia Pacific came in at $407.6 million, down 6.1% year over year on a reported basis but increased 1.9% organically. It accounted for 11% of total revenues.

Latin American revenues of $96.9 million declined 15.8% year over year on a reported basis and 2.4% organically. It contributed 3% to total revenues. Revenues from the Middle East and Africa were $61 million, down 13.1% year over year on a reported basis and 8.3% organically. It accounted for 2% of total revenues.

Operating Results

Operating profit in the quarter decreased 1.5% year over year to $573.7 million. Operating margin increased to 15.4% from 15.1% in the year-ago quarter. Earnings before interest, taxes and amortization (EBITA) for the reported quarter were $594.9 million, down from $609.3 million in the year-ago quarter. EBITA margin came in at 16% compared with 15.8% in the year-ago quarter.

Cash Flow

The company used $97.3 million in operating activities and generated free cash flow of $473 million in the quarter. Capital expenditures were $21.6 million. It paid $145.6 million as dividends to common shareholders.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Omnicom has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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