Omnicom's Organic Revenue Declined 23% Last Quarter

Omnicom reported a revenue decline of nearly a quarter compared to its performance last year for Q2. Organic revenue declined 23% year over year, Omnicom reported, primarily due to the business impact of the coronavirus pandemic. This is expected to be the worst of the impact of the pandemic based on forecasts from agency CEOs and others, Omnicom CEO John Wren said in an earnings call this morning. Omnicom's stock value was also down over 5% today. For the first half of the year, organic revenue declined 11.7% globally. Unprecedented impact "The decrease was unprecedented and across all disciplines except our healthcare specialty," Philip Angelastro, evp and chief financial officer, said, while Wren noted that the events and field marketing practice was among the most impacted. Omnicom reported organic growth of 3.2% for its health care practice in Q2. Organic revenue from advertising decreased 26.6% for quarter, while CRM execution and support was the hardest hit at 27.6%, CRM consumer experience declined 25.6% and PR by 13.9%. In the U.S., Omnicom reported organic revenue decline of 20.7% for Q2, while other markets in North America accounted for a 29.6% organic revenue decline. The Middle East and Africa region was the hardest hit, with a 39.4% decline, while Europe reported a 29.4% decline. Asia Pacific, by comparison, reported an organic revenue decline of 18.6% and Latin America reported a 24.1% decline. In the earnings call, Wren outlined some of the steps Omnicom took during the quarter to weather the impact of the pandemic. This included "difficult and permanent" changes in response to declines in client spending, such as laying off 6,100 employees and getting rid of over 1,000 square feet of office space, as well as temporary measures like executive pay cuts, furloughs, freezes on new hires and reductions in freelance hiring. The annualized impact of the changes was around $500 million. Wren first announced a series of cost-cutting measures, including furloughs and layoffs, in an internal memo shared in April. "To the extent that we had to take cost actions, we took them now," Angelastro said, not ruling out that further actions could be necessary in the second half of the year. "We are confident that our people have done a good job managing the cost base." Contingency plans Fielding a question about organic revenue growth in June, Wren said the most drastic change was when they saw was when they saw "the first real decline," in March, adding there wasn't a "discernible marked difference" over the course of the next three months. He also noted that Omnicom had seen business improve in markets that had reopened while cautioning that he "couldn't predict with any confidence what is going to happen." "Overall [market] visibility has improved over the last couple of months but remains low," Wren said, noting the possibility of second waves of the virus and uncertainties around the timing of any further government stimulus programs. He also explained that a key part of Omnicom's strategy involved contingency plans in different markets. During Omnicom's Q1 earnings call, Wren criticized former DDB global CEO Wendy Clark for leaving the agency "in the middle of a crisis." This time around, he focused on DDB's new chief executives, DDB global CEO Marty O’Halloran and DDB North America CEO Justin Thomas-Copeland. Wren said that Chuck Brymer did "exceptional" as the interim CEO following Clark's departure. "These changes demonstrate we have a deep bench of exceptional leaders within Omnicom," he said in reference to DDB's new global and North America CEOs. 'The worst is behind us' Wren pointed to recent new business wins, including Clorox consolidating its U.S. media account with OMD, as a cause for optimism and proof that Omnicom's people can "work from anywhere" as offices slowly begin to reopen with an uncertain future. "We think the worst is behind us with Q2 the low point for year over year revenue declines," Wren said. "Over the second half we expect performance to vary by geography based on how local government have responded to Covid-19." Wren also said that Omnicom expected industries hit especially hard by the pandemic, such as travel and entertainment, to continue to struggle. "As a result of the repositioning actions of Q2," he said. "We expect margins of Q3 and Q4 to be approximately in line with those of the previous year." He also discussed Open 2.0, a series of initiatives to address systemic racism announced yesterday alongside the release of Omnciom's U.S. Equal Employment Opportunity Commission (EEOC) data, which showed that just 5.5% of professionals and 2.7% of Omnicom executive managers were Black. Wren commended Omnicom svp, chief diversity officer Tiffany R. Warren for her work over the last decade and said that she and her team led the discussion over the holding companies' next steps. He said that the initiatives would "drive increased representation and retention of all people of color" and that progress would be measured in the aggregate across all Omnicom agencies and be an important factor in the compensation of Omnicom executives and agency CEOs.