Omnicom Suffers Rough Q4

NEW YORK Omnicom Group said its fourth-quarter net income, pulled down by a shortfall in year-end project work and the strengthening dollar, dropped nearly 14 percent to $271 million, or 88 cents a share, from $314 million, or 96 cents a share, a year earlier. 
 
While Omnicom had not posted a quarterly decline in recent years, the company still managed to outperform analysts’ consensus forecast of 84 cents a share for the company.
 
Worldwide revenue in the quarter fell 7 percent to $3.4 billion, with organic revenue declining 2 percent.
 
Omnicom is the first of the big marketing communications holding companies to release fourth-quarter earnings and it was an unusually somber investors’ call for a company with the most consistent recent earnings growth in the industry.

CEO John Wren described the fourth quarter as the most “difficult” period Omnicom has faced since 1992. CFO Randy Weisenberger echoed Wren’s tone, calling events in the marketplace “fairly unprecedented.” Wren said Omnicom, which counts troubled Chrysler Corp. among its largest clients, expects the next nine months will be the industry’s “most difficult” period, with some easing in the economy by the fourth quarter, which he hoped will spur ad spending. 
 
In the call, Wren referred to “aggressive severance action” taken in the fourth quarter, which cost the company $55 million in severance, year over year, but generated $215 million in savings. (In December, Omnicom confirmed it was cutting around 5 percent of its worldwide staff of 70,000.) He said he did not know what additional staffing cuts are yet be made. “We’re still waiting for clients to finalize spending, but we don’t expect anything like the fourth quarter,” Wren said, saying he expects that any cuts going forward will be “surgical.”
 
Omnicom didn’t quantify the amount of project revenue lost, but Weisenberger estimated it to be a “couple hundred million in revenue” that is typically not forecasted because it tends to be unused client budget money that is used in last-minute work.

 
In other cost controls enacted in the fourth quarter, Wren said Omnicom eliminated open positions, cut back on non-client travel, reduced incentives for senior management and froze or delayed certain salary increases.

U.S. revenue for the fourth quarter fell nearly 5 percent while international revenue was off 9 percent. Revenue from Euro-currency countries declined 8 percent, the U.K. dropped 19 percent and in other parts of the world, revenue fell 6 percent. Advertising revenue declined 8 percent; CRM, 3 percent, PR, 10 percent and specialty, 15 percent.

For the full year, Omnicom said net income increased 2.5 percent to $1 billion from $976 million. Earnings per share rose 7.5 percent to $3.17 from $2.95.
 
The two top Omnicom execs declined to forecast full-year results, but Wren said: “We should be able to outperform global GDP — that’s been our history,” adding that “the other side of the equation is adjusting our costs in an unstable economy.”
 
After the investors call, Omnicom’s stock rose 1.81 percent to $28.62.