Omnicom Takes Big Hits in Q2 Revenue, Profit

NEW YORK Omnicom Group, hit particularly hard in four business segments, reported a steep 24 percent drop in second-quarter profit on a 17 percent decline in worldwide revenue. Organic revenue slipped nearly 11 percent.

The holding company’s recruitment business fell almost 45 percent; automotive, which accounts for 13 percent of the company’s revenue, dropped 30 percent; events and sports marketing was off 40 percent; and not-for-profit dropped 40 percent. A significant factor in the automotive decline was the April 30 bankruptcy of flagship client Chrysler. As a group those operations accounted for almost half of Omnicom’s decline in organic revenue, Omnicom CFO Randy Weisenberger told analysts in a conference call.

But Omnicom CEO John Wren said that while the revenue decline was slightly greater than they expected, the company’s core businesses “broadly performed in line or better than we expected” and revenue levels had stabilized. “We don’t see a recovery, but we feel we’ve hit the troughs,” he said, adding that it will take a couple of quarters to cycle through the current downturn and a couple more before growth occurs.

For the quarter, Omnicom reported net income of $233 million, down from $307 million in the year-earlier quarter; diluted net income per share fell 21 percent to 75 cents a share from 95 cents a share. Worldwide revenue was $2.9 billion, down from $3.5 billion in second-quarter 2008. In the first half, worldwide revenue was off nearly 16 percent to $5.6 billion from $6.7 billion in the same period in 2008.

In the second quarter, domestic revenue dropped 13 percent to $1.5 billion compared to $1.7 billion in the year-earlier quarter, while international revenue decreased 22 percent to $1.3 billion from $1.7 billion.

Weisenberger noted that Omnicom’s operating units have done “an excellent job at adjusting cost structures.” In the second quarter, the company recorded $32 million in onetime severance costs; for the year to date Omnicom has incurred $70 million in severance costs, he said.

Wren said that most of client fee negotiations and reduction in scope of work occurred in the first four months of the year. Weisenberger added that he feels the reduction in agency project work hit a low point in the first half of the year and he doesn’t expect it to worsen in the second half.

During the quarter, the company sold its low-margin Yellow Page business and made three small acquisitions: a research company in China; a media agency for PHD in Australia; and bought out the remainder of a full-service agency in South Africa that is aligned with DDB. Wren said Omnicom is well positioned to make “sensibly priced” acquisitions, but did not address media speculation about whether Omnicom is interested in reacquiring Microsoft’s Razorfish unit, which was once owned by the holding company.

Omnicom competitor Publicis Groupe today reported a 6.6 percent slide in first-half revenue.