Omnicom Exceeded Earnings Expectations Globally but Continues to Struggle in North America

In an earnings call today, holding company Omnicom revealed that it exceeded earnings expectations globally during the first quarter but continues to struggle with growth in the critical North American market.

Omnicom Group reported first-quarter net income of $264.1 million, a 9.2 percent increase from 2017’s first quarter. Worldwide revenue totals for the quarter were reported at $3.6 billion, up 1.2 percent from the same period last year.

U.S. growth compared with the first quarter of 2017 was down 0.1 percent. Growth in other regions was more promising, with 3.1 percent growth over the first quarter of 2017 in the U.K., 9.7 percent growth in Europe, 7.3 percent in Asia Pacific and 3.1 percent in Latin America. The Middle East and Africa saw a decline of 8.5 percent, however.

Omnicom Group CEO John Wren noted that growth in the U.S. during the quarter was offset by losses in Canada. He also explained that Omnicom was “still cycling through” several client losses at the holding company’s U.S. agencies in 2017, while more recent wins were not yet reflected in earnings. For example, Dunkin’ Donuts named BBDO as its new creative agency of record hours after the call.

“We won’t see the addition of that revenue until later on in the year,” Wren said, adding that the company should be able to make up for sluggish growth in the first quarter, which is anticipated to continue into the second quarter as well, in the second half of year.

Overall, Wren said Omnicom was “pleased with our financial performance in the first quarter” and “cautiously optimistic that the back half of year will be stronger than the first half.”

He argued that the company is “not underperforming,” adding, “We know full well what and why we’re performing at the level we are. There’s a lot of activity underlying the numbers, but you have to look at the sheer size of the U.S. in our portfolio to understand why you’re not getting larger growth.”

Omnicom Group expects organic growth to increase in the region for the second half of the year and is “cautiously optimistic” it can reach 2-3 percent for 2018.

Wren also addressed broader issues facing the industry, including the recent resignation of WPP CEO Martin Sorrell.

“In many ways I have a great deal of respect for Martin,” Wren said, adding that he has “competed against him for many years” and that Sorrell did so “very honorably.”

“I know he was in the process of evaluating his own portfolio,” Wren said, referencing widespread speculation that WPP could break up and sell off some of its assets. Omnicom, it seems, is not a likely buyer. “That’s not a key focus for our acquisition dollars.”

In terms of the pressures facing the industry, Wren discussed increased client demands and consumer empowerment.

“It’s no longer simply about targeting people, being able to reach them,” he said. “Now you have to reach that consumer, engage them in the type of creative of interest to them and do that at scale. Being able to deliver the right message to the right person in the right context on the right platform is becoming table stakes in our category.”

Wren believes Omnicom’s investments in providing clients with a consumer-centric strategy will continue to differentiate the company’s offerings, saying the holding company’s application of data and analytics to “deliver one to one consumer marketing at scale” sets it apart.

He also explained that client conflict is becoming less of an issue for the holding company, as it continues to pursue new business models for working with clients, freeing up agency resources.

“Quite a number of clients really want Omnicom solutions,” he said, “[and they are] no longer looking for specific brands or specific aspects of our business.”