Omnicom (OMC) Beats on Q3 Earnings Despite Lower Revenues

Global marketing and corporate communications firm Omnicom Group Inc. OMC reported relatively healthy third-quarter 2017 results on modest organic growth. Net income for the reported quarter was $286.9 million or $1.13 per share compared with $278.2 million or $1.06 per share in the year-ago quarter. The year-over-year increase in earnings despite lower revenues was primarily attributable to lower operating expenses. Earnings for the reported quarter beat the Zacks Consensus Estimate by three cents.

Revenues

Revenues declined 1.9% year over year to $3,719.5 million but exceeded the Zacks Consensus Estimate of $3,713 million. Acquisitions, net of dispositions, led to a 5.7% decrease in revenues, partially offset by favorable foreign exchange rate impact of 1% and organic growth of 2.8%.

Omnicom Group Inc. Price, Consensus and EPS Surprise

 

Omnicom Group Inc. Price, Consensus and EPS Surprise | Omnicom Group Inc. Quote

Quarterly Performance

By business discipline, revenues for Advertising were down 1.4% year over year to $1,946.1 million; CRM (customer relationship management) revenues decreased 4.5% year over year to $1,149.4 million; PR (public relations) revenues of $345.9 million declined 0.5% on a year-over-year basis; and Specialty revenues of $278.1 million increased 4.2% year over year.

Across regional markets, North America revenues reduced 6.5% year over year to $2,107.5 million. Asia Pacific recorded a 1.8% decrease in revenues to $411.2 million, Euro & Other Europe improved 11.7% to 660.1 million, while the U.K. recorded a 2.8% improvement to $357.6 million. Revenues from Latin America saw an increase of 4.6% year over year to $117.7 million, while that of Middle East and Africa declined 2.7% to $65.4 million.

Operating income for the quarter was $464.2 million compared with $453.1 million in the year-ago quarter for respective margins of 12.5% and 12%. Earnings before interest, taxes and amortization or EBITA for the reported quarter were $492.1 million, up from $482.1 million in the year-earlier quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $1,171.3 million for the first nine months of 2017 compared with $1,134.4 million in the prior-year period. The company had a total debt of $4,966 million at quarter end, with cash and short-term investments of $1,851 million.

For the twelve months ended Sep 30, 2017, return on invested capital (ROIC) and return on equity (ROE) aggregated 20.2% and 48.9%, respectively. During the period from 2007 through Sep 30, 2017, Omnicom distributed 106% of net income to shareholders through dividends and share repurchases.

Moving Forward

Omnicom has a track record of strengthening its business and expanding its global client base through acquisition of complementary companies. We remain encouraged by the healthy quarterly results of the company and its continued acquisition spree.

Omnicom currently has a Zacks Rank #2 (Buy). Other stocks in the broader industry worth considering include Accenture plc ACN, Gartner, Inc. IT and Stantec Inc. STN, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accenture has a long-term earnings growth expectation of 10.3%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 2.6%.

Gartner has a long-term earnings growth expectation of 16%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 5.4%.

Stantec is currently trading at a forward P/E of 18.2x.

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