Omnicom (OMC) Beats on Q2 Earnings, Misses on Revenues

Despite a challenging macroeconomic environment, global marketing and corporate communications firm Omnicom Group Inc. OMC reported relatively healthy second-quarter 2016 results driven by modest organic growth. Net income for the reported quarter was $324.1 million or $1.36 per share versus $310.0 million or $1.26 in the year-ago quarter. Reported earnings per share beat the Zacks Consensus Estimate by a couple of cents.

Revenues

Revenues improved 2.1% year over year to $3,884.9 million, but missed the Zacks Consensus Estimate of $3,910 million. Higher revenues for the reported quarter were primarily driven by a 3.4% rise in organic growth. Acquisitions, net of dispositions led to a 0.3% increase in revenues, while adverse foreign exchange rates decreased revenues by 1.6% on a year-over-year basis.

Quarterly Performance

By business discipline, organic revenues for Advertising were up 7.7% year over year to $2,066.0 million; CRM (customer relationship management) organic revenues decreased 2.7% year over year to $1,178.7 million; PR (public relations) organic revenues of $349.6 million were almost flat on a year-over-year basis; and Specialty organic revenues of $290.6 million increased 4.4% year over year.

Across regional markets, North America reported a 3.2% growth in organic revenues to $2,329.7 million. Asia Pacific recorded a 4.5% increase in organic revenues to $400.2 million, while that of UK and Euro & Other Europe improved 3.3% ($363.7 million) and 4.3% ($630.1 million), respectively. Organic revenues from Latin America recorded a 1.7% year-over-year increase to $98.9million, while that of Middle East and Africa declined 1.2% to $62.3 million.

Operating income for second-quarter 2016 was $561.8 million compared with $538.6 million in the year-ago quarter for respective margins of 14.5% and 14.2%. Earnings before interest, taxes and amortization (EBITA) for the reported quarter improved 4.3% year over year to $590.3 million.

OMNICOM GRP Price, Consensus and EPS Surprise

OMNICOM GRP Price, Consensus and EPS Surprise | OMNICOM GRP Quote

Acquisitions

During the reported quarter, Omnicom acquired Rabin Martin, a global health strategy consulting firm. Rabin Martin's high-profile client base will augment Omnicom Public Relation's already-strong healthcare offerings. By merging the expertise of both the companies, Omnicom is likely to set itself apart from its peers and leverage the burgeoning healthcare market to drive top-line growth.

During the second quarter of 2016, Omnicom acquired BioPharm Communications, a leading communications agency that serves 17 out of 25 major pharmaceutical companies across the globe. The acquisition will enable Omnicom to expand its leadership position in a highly competitive data-driven healthcare market.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $722 million for the first six months of the year, versus $756.8 million in the prior-year period. The company had a total debt of $5,034 million as of Jun 30, 2016, compared with $4,548 million in the year-ago period. Cash and short-term investments aggregated $1,537 million at quarter end, compared with $1,362 million a year ago.

From 2006 through Jun 30, 2016, Omnicom distributed over 110% of net income to shareholders through dividends and share repurchases. Omnicom achieved a 45.3% return on equity (ROE) for the twelve months ended Jun 30, 2016.

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 with the healthy quarterly results of the company and its continued acquisition spree.

Omnicom currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry that look promising include Accenture plc ACN, YuMe, Inc. YUME and Clear Channel Outdoor Holdings Inc CCO, each carrying a Zacks Rank #2 (Buy).

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