Omnicom Beats on Q1 Earnings, Revs - Analyst Blog

Omnicom Group Inc. (OMC) reported first-quarter 2014 net income of $205.5 million or 77 cents per share versus $205.1 million or 76 cents in the year-ago quarter. The reported earnings were affected by $7.0 million of pre-tax charges related to Omnicom's proposed merger with Publicis Groupe, S.A. (PUBGY)

Excluding the merger-related expenses, non-GAAP net income in the reported quarter stood at $212.3 million or 80 cents per share compared with $205.1 million or 76 cents per share in the year-ago quarter. The adjusted earnings marginally beat the Zacks Consensus Estimate by a penny.

Revenues

Quarterly revenues rose 3.0% year over year to $3,502.2 million, exceeding the Zacks Consensus Estimate of $3,498 million. From a geographical perspective, domestic revenues improved 4.0% over the prior-year period to $1,864.0 million. International revenues increased 1.9% year over year to $1,638.2 million.

Higher revenues for the reported quarter were primarily driven by a 4.3% revenue rise in organic growth, partly offset by a 0.6% decline due to acquisitions (net of dispositions) and a 0.7% drop due to foreign currency translation effects.

Excluding the impact of merger-related expenses, non-GAAP earnings before interest, taxes and amortization (EBITA) for the reported quarter improved 4.3% year over year to $414.1 million, while non-GAAP operating income rose 4.8% to $389.7 million.

Quarterly Performance

Segment-wise, organic revenues for Advertising were up 4.9% year over year to $1,700.6 million; CRM (customer relationship management) organic revenues increased 4.2% year over year to $1,223.5 million; PR (public relations) organic revenues of $325.4 million reflected a 1.2% year-over-year rise; and Specialty organic revenues of $252.7 million highlighted a 5.2% hike year over year.

Across regional markets, Latin America led the performance with a growth of 7.4% ($90.8 million) in organic revenues. Asia Pacific recorded an increase of 5.7% ($359.1 million), while organic revenues for North America and Europe increased 4.8% ($1,993.0 million) and 2.3% ($1,003.6 million) respectively.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $312 million in the reported quarter, versus $302.1 million in the prior-year period. The company had a total debt of $4,039 million as of Mar 31, 2014, compared with $4,458 million year ago. Cash and short-term investments aggregated $2,089 million at quarter-end, compared with $2,090 million a year ago.

Omnicom has a share buyback program in place, under which it repurchased shares worth $7.0 million in the first quarter of 2014. Over the past decade, Omnicom has consistently distributed more than 100% of net income to shareholders through dividends and share repurchases. Omnicom achieved a 29.0% return on equity (ROE) for the twelve months ended Mar 31, 2014.

Omnicom has a track record of strengthening its business and expanding its global client base through the acquisition of complementary companies. The company's geographically-diversified business mix continues to benefit from growing demand in developing regions like Asia Pacific, Latin America and Africa. Omnicom's merger with Publicis will enable it to boost core earnings as the combined company expands its geographical footprint.

Mirroring the muted quarterly performance by the company, investor sentiments were down as shares fell in early morning trade. Investors probably expected a healthy beat in earnings by this advertising giant.

Omnicom currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the industry include Lamar Advertising Co. (LAMR) and MDC Partners Inc. (MDCA), both carrying a Zacks Rank #2 (Buy).