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Why Is Omnicom (OMC) Down 4.3% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Omnicom Group Inc. (OMC - Free Report) . Shares have lost about 4.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is OMC due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Omnicom Slightly Beats Q4 Earnings, Slips on Revenues

Omnicom reported relatively healthy fourth-quarter 2017 results on modest organic growth. Net income for the reported quarter was $254.4 million or $1.09 per share compared with $350.3 million or $1.47 per share in the year-ago quarter. The year-over-year decrease in earnings was primarily attributable to higher tax expenses due to "Tax Cuts and Jobs Act."

Excluding non-recurring items, adjusted earnings for the reported quarter were $1.55 per share compared with $1.47 in the year-earlier quarter and beat the Zacks Consensus Estimate by a penny. For full year 2017, adjusted earnings were $5.10 per share compared with $4.78 in 2016.

Revenues

Quarterly revenues declined 1.5% year over year to $4,176.6 million and missed the Zacks Consensus Estimate of $4,206 million. Acquisitions, net of dispositions, led to a 5.5% decrease in revenues, partially offset by favorable foreign exchange rate impact of 2.4% and organic growth of 1.6%. For full year 2017, revenues were $15,273.6 million compared with $15,416.9 million in 2016.

Quarterly Performance

During the quarter, the company realigned its CRM (customer relationship management) discipline into two separate categories, namely CRM Consumer Experience and CRM Execution & Support. The CRM Consumer Experience includes Omnicom Precision Marketing Group's Digital / Direct agencies as well as Consulting & Branding agencies, Shopper Marketing agencies and Experiential Marketing agencies.

On the other hand, CRM Execution & Support includes Field Marketing, Sales Support, Merchandising & Point of Sale and other Specialized Marketing and Custom Communications agencies. Omnicom also realigned and renamed the Specialty Communications discipline as Healthcare and it exclusively includes agencies offering Healthcare Marketing and Communication services.

By business discipline, revenues for Advertising were down 4% year over year to $2,257.8 million; CRM Consumer Experience revenues increased 2.8% year over year to $727 million; CRM Execution & Support revenues increased 1.8% year over year to $593.4 million; PR (public relations) revenues of $362.8 million improved 1.1% on a year-over-year basis; and Healthcare revenues of $235.6 million decreased 1.8% year over year.

Across regional markets, North America revenues reduced 8.2% year over year to $2,263.6 million. Asia Pacific recorded a 0.8% decrease in revenues to $458.8 million, Euro & Other Europe improved 15% to 831.5 million, while the U.K. recorded a 5.4% improvement to $378.5 million. Revenues from Latin America increased 9.1% year over year to $149.4 million, while that of Middle East and Africa were up 2.2% to $94.8 million.

Operating income for the quarter was $620.1 million compared with $601.9 million in the year-ago quarter for respective margins of 14.8% and 14.2%. Earnings before interest, taxes and amortization or EBITA for the reported quarter were $647.1 million, up from $631.4 million in the year-earlier quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $1,675.4 million in 2017 compared with $1,649.6 million in the prior-year period. The company had a total debt of $4,925 million at year-end 2017 with cash and short-term investments of $3,796 million compared with respective tallies of $4,949 million and $3,023 million in 2016.

For the twelve months ended Dec 31, 2017, return on invested capital (ROIC) and return on equity (ROE) aggregated 24.1% and 45.6%, respectively. During the period from 2008 through Dec 31, 2017, Omnicom distributed 105% of net income to shareholders through dividends and share repurchases.

Moving Forward

Omnicom has a track record of strengthening its business and expanding its global client base through acquisition of complementary companies. We remain encouraged by the healthy quarterly results of the company and its continued acquisition spree.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

Omnicom Group Inc. Price and Consensus

 

Omnicom Group Inc. Price and Consensus | Omnicom Group Inc. Quote

VGM Scores

At this time, OMC has a nice Growth Score of B, a grade with the same score on the momentum front. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

OMC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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