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Omnicom (OMC) Slightly Beats Q4 Earnings, Slips on Revenues

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Global marketing and corporate communications firm Omnicom Group Inc. (OMC - Free Report) reported relatively healthy fourth-quarter 2017 results on modest organic growth. Net income for the reported quarter was $254.4 million or $1.09 per share compared with $350.3 million or $1.47 per share in the year-ago quarter. The year-over-year decrease in earnings was primarily attributable to higher tax expenses due to "Tax Cuts and Jobs Act."

Excluding non-recurring items, adjusted earnings for the reported quarter were $1.55 per share compared with $1.47 in the year-earlier quarter and beat the Zacks Consensus Estimate by a penny. For full year 2017, adjusted earnings were $5.10 per share compared with $4.78 in 2016.

Revenues

Quarterly revenues declined 1.5% year over year to $4,176.6 million and missed the Zacks Consensus Estimate of $4,206 million. Acquisitions, net of dispositions, led to a 5.5% decrease in revenues, partially offset by favorable foreign exchange rate impact of 2.4% and organic growth of 1.6%. For full year 2017, revenues were $15,273.6 million compared with $15,416.9 million in 2016.

Omnicom Group Inc. Price, Consensus and EPS Surprise

 

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

Quarterly Performance

During the quarter, the company realigned its CRM (customer relationship management) discipline into two separate categories, namely CRM Consumer Experience and CRM Execution & Support. The CRM Consumer Experience includes Omnicom Precision Marketing Group's Digital / Direct agencies as well as Consulting & Branding agencies, Shopper Marketing agencies and Experiential Marketing agencies.

On the other hand, CRM Execution & Support includes Field Marketing, Sales Support, Merchandising & Point of Sale and other Specialized Marketing and Custom Communications agencies. Omnicom also realigned and renamed the Specialty Communications discipline as Healthcare and it exclusively includes agencies offering Healthcare Marketing and Communication services.

By business discipline, revenues for Advertising were down 4% year over year to $2,257.8 million; CRM Consumer Experience revenues increased 2.8% year over year to $727 million; CRM Execution & Support revenues increased 1.8% year over year to $593.4 million; PR (public relations) revenues of $362.8 million improved 1.1% on a year-over-year basis; and Healthcare revenues of $235.6 million decreased 1.8% year over year.

Across regional markets, North America revenues reduced 8.2% year over year to $2,263.6 million. Asia Pacific recorded a 0.8% decrease in revenues to $458.8 million, Euro & Other Europe improved 15% to 831.5 million, while the U.K. recorded a 5.4% improvement to $378.5 million. Revenues from Latin America increased 9.1% year over year to $149.4 million, while that of Middle East and Africa were up 2.2% to $94.8 million.

Operating income for the quarter was $620.1 million compared with $601.9 million in the year-ago quarter for respective margins of 14.8% and 14.2%. Earnings before interest, taxes and amortization or EBITA for the reported quarter were $647.1 million, up from $631.4 million in the year-earlier quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $1,675.4 million in 2017 compared with $1,649.6 million in the prior-year period. The company had a total debt of $4,925 million at year-end 2017 with cash and short-term investments of $3,796 million compared with respective tallies of $4,949 million and $3,023 million in 2016.

For the twelve months ended Dec 31, 2017, return on invested capital (ROIC) and return on equity (ROE) aggregated 24.1% and 45.6%, respectively. During the period from 2008 through Dec 31, 2017, Omnicom distributed 105% 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 #3 (Hold). Some better-ranked stocks in the broader industry include The Brink's Co. (BCO - Free Report) , Automatic Data Processing, Inc. (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brink's has a solid long-term earnings growth expectation of 20.6%. It has a positive earnings surprise history, surpassing estimates thrice in the trailing four quarters with an average beat of 18.6%.

Automatic Data Processing has a healthy long-term earnings growth expectation of 11%. It has a positive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 5.5%.

Paychex has a healthy long-term earnings growth expectation of 7.8%. It has a positive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 1.8%.

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