Omnicom’s Q1 Revenue Dips 14%

NEW YORK Omnicom Group said first-quarter net income slid 21 percent to $164.5 million, or 53 cents a share, on a 14 percent decline in global revenue to $2.75 billion. About 7.8 percent of that decline, or $232 million, was attributed to the strengthening of the dollar.
 
Organic revenue in the quarter dropped 6.6 percent. A full 45 percent of that decline occurred in the U.S. The period was impacted by reduced spending from Chrysler and drops in recruitment advertising and in specialty media. By sector, advertising was off nearly 13 percent; CRM, 13 percent; public relations, 17 percent; and specialty media, 20 percent. (Download complete Omnicom Q1 financials.)
 
In a conference call with analysts, Omnicom CEO John Wren said: “Given the global economic decline, the results are in line with our expectations.”
 
When asked about the client-spending outlook, Wren added: “Our major clients are in the same conservative mode as we are. People are encouraged, hopeful that we are in bottoming-out mode and the worst is over. Cautious optimism is prevalent with most major clients. People who are optimistic are looking at the back end of this year and the beginning of next. I think you’ll see a similar level of conservatism in Q2 [as in Q1].”
 
In response to a question, Omnicom CFO Randy Weisenberger addressed the company’s exposure to its largest client, Chrysler, which is scrambling to finalize deals to avoid a Thursday bankruptcy deadline. “We are very well positioned overall,” he said. “If Chrysler goes into reorganization, our exposure is limited, maybe even zero. If the scenario went the other way and [Chrysler’s] brands go away and we have to shut our [Detroit] office, it would be around $25-30 million. But I think that’s an extremely unlikely set of events.”
 
Weisenberger said commission and project income “adjusted very fast” to the economic downturn. “I don’t think those [declines] will get much worse, knock wood,” he said. Fees on the other hand take time to renegotiate and that impact is still being felt on the company’s bottom line, he added.
 
Total executive incentive compensation was reduced by $20-25 million, helping to offset severance costs of $38 million in the first quarter, double the amount in the year-earlier period. That headcount reduction should contribute $125 million in savings, on an annualized basis.
 
There was some good news in the otherwise somber Q1 results: Omnicom won about $975 million in new business, which should contribute to results in the second half, Wren said.
 
Weisenberger reassured analysts about the company’s current liquidity picture, saying Omnicom has $2.4 billion in cash and uncommitted credit, plus an additional $370 million in committed credit. He also pointed out that during the quarter, Standard & Poor’s reaffirmed the company’s credit ratings and removed Omnicom from its standing of “CreditWatch with negative implications.”