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Omnicom Is Starting to See the Fruits of Its Strategic Direction

Steve Symington, The Motley Fool

Omnicom Group (NYSE: OMC) released first-quarter 2019 results early Tuesday. Similar to its previous quarterly update in February, the marketing and corporate communications leader saw its modest organic growth masked by the negative impacts of strategic business dispositions and foreign currency exchange.

This time, however, the market was more than pleased, sending Omnicom shares up 5.7% when all was said and done today. Now that the dust has settled, let's dig deeper for a better understanding of what Omnicom accomplished over the past few months.

Team working on business strategy with a notebook computer

IMAGE SOURCE: GETTY IMAGES.

Omnicom Group results: The raw numbers

Metric

Q1 2018

Q1 2017

Growth (YOY)

Revenue

$3.469 billion

$3.630 billion

(4.4%)

Net income (available for common shares)

$263.2 million

$264.1 million

(0.3%)

Net income per common share (diluted)

$1.17

$1.14

2.6%

DATA SOURCE: OMNICOM GROUP. YOY = year over year. 

What happened with Omnicom this quarter?

  • Omnicom's net income in the first quarter of 2018 was bolstered by one-time tax items of $13.3 million, or $0.06 per share.
  • Omnicom doesn't offer quarterly financial guidance. But these results were technically mixed relative to analysts' consensus estimates, which called for lower earnings of $1.09 per share on slightly higher revenue of $3.49 billion.
  • The change in revenue consisted of 2.5% organic revenue growth, a 3.4% foreign exchange headwind, and a 3.6% decrease in acquisition revenue (net of dispositions).
  • Organic revenue declined 3% in Latin America but climbed in every other geography, including growth of 2% in the U.S., 6.1% for other North American markets, 1.3% in the UK, 4% for Euro markets and Other Europe, 2.1% in the Asia-Pacific region, and 12.8% in the Middle East and Africa.
  • Measured by "fundamental discipline," organic growth was driven by a 6.8% increase from healthcare and 5.1% from advertising. CRM organic sales fell 0.6%, CRM execution and support declined 3.3%, and public relations dropped 0.5%.
  • Omnicom's TBWA\Worldwide subsidiary acquired a majority interest in Belgium-based creative agency De Vloer during the quarter. De Vloer will operate as a separate brand within the TBWA\Belgium group. 
  • Omnicom also sold outsourced-sales support and services company MarketStar during the quarter, as well as a "few other small businesses" in its portfolio as part of its ongoing strategy to divest non-core assets.

What management had to say

During the subsequent conference call, Omnicom Chairman and CEO John Wren credited the company's growth to "broad participation across all of our agencies, disciplines, and client sectors."

Wren added:

We've made significant strides in changing our services, capability and organization. We are pleased with our financial performance in the first quarter, which continue to reflect the benefits of our strategies. While it is early in the year, we're on track for where we expect to be for the full year 2019.

Check out the latest earnings call transcripts for companies we cover.

Looking forward

Management didn't specifically address forward financial guidance in Omnicom's earnings release. But during the Q&A portion of the call, management did indicate that it remains content with previous full-year guidance calling for 2019 organic sales growth of roughly 2% to 3%. 

After coupling the progress in its strategic direction with Omnicom's relative bottom-line outperformance this quarter -- and with shares little changed over the past year as of yesterday's close -- it's no surprise to see the stock rallying in response to this strong report.

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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.