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Omnicom's Earnings Marginally Beat

Zacks Equity Research

Premier global advertising and marketing communications services company Omnicom Group Inc. (OMC) reported relatively solid first quarter 2013 results with a net income of $205.1 million or 76 cents per share compared to $204.6 million or 72 cents in the year-earlier quarter. The earnings for the reported quarter marginally beat the Zacks Consensus Estimate by a penny.

Total revenue in the reported quarter climbed 2.8% to settle at $3,398.9 million and beat the Zacks Consensus Estimate of $3,397 million. From a geographical perspective, domestic revenue accounted for 52.7% of total revenue and rose 4.2% to reach $1,791.6 million, while international revenue (representing the remainder 47.3%) increased 1.2% year over year to $1,607.3 million.

Earnings before interest, taxes and amortization (:EBITA) for the reported quarter improved 2.7% year over year to $397.1 million, while operating income rose 2.5% to $371.7 million.

Based on disciplines, Advertising revenue grew 5.7% to $1,651.9 million in first quarter 2013; CRM (customer relationship management) revenue decreased 1.3% year over year to $1,172.7 million; PR (public relations) revenue of $318.4 million was up 3.7% year over year; and Specialty revenue of $255.9 million was up 2.9%.

Omnicom generated free cash flow of $302.1 million in the reported quarter, down from $310.5 million in the prior-year quarter. The company had a total debt of $4,458 million at quarter-end, compared to 3,193 million in the year-ago period. Cash and short-term investments aggregated $2,090 million at quarter-end compared to $1,509 million in the prior year. Return on equity (:ROE) for twelve months ended Mar 31, 2013 was 29.6% compared to 26.9% for the same period in the preceding year.

The company increased its dividend payout by 33.33% year over year to a quarterly payment of 40 cents per share or $1.60 on an annualized basis. The first quarter 2013 dividend is payable on Apr 2 to shareholders of record as of Mar 5.

Omnicom also has a share repurchase program in place, under which it repurchased shares worth $238.3 million in the reported quarter. Omnicom has consistently returned significant cash to its shareholders. From 2002 to quarter-to-date, Omnicom distributed 100% of net income to shareholders through dividends and share repurchases.

Omnicom has a strong track record of winning new clients and receiving additional deals from the existing ones. The company’s business mix is well diversified geographically and benefits largely from the growing markets. In addition, the company’s efforts in maintaining controlled expenses and strong global reputation are commendable.

However, the company needs to be wary of stiff competition from other players in the industry such as AirMedia Group Inc. (AMCN), Publicis Groupe SA (PUBGY), and Harte-Hanks Inc. (HHS). Omnicom presently has a Zacks Rank #3 (Hold).

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