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Analyst Blog

Omnicom Group Inc. (OMC - Analyst Report) posted decent third quarter 2012 financial results with earnings per share rising roughly 2.8% year over year to 74 cents. Results surpassed the Zacks Consensus Estimate of 73 cents.

Revenue

Total revenue in the quarter climbed a meager 0.8% to settle at $3,406.6 million due to 3.4% in negative currency translation impact, more than offset by 3.5% organic revenue growth and 0.7% positive acquisition impact. Results, however, lagged behind the Zacks Consensus Estimate of $3,420 million.

From a geographical perspective, Domestic revenue accounted for 51.6% of total revenue and rose 3.2% to reach $1,758.1 million in the quarter while International revenue, representing the rest 48.4%, plummeted 1.7% to $1,648.5 million.

Based on disciplines, Advertising revenue (46.6% of total revenue) grew 5.7% to $1,587 million; CRM revenue (37.1%) increased 2.4% to $1,264.6 million; PR revenue (9.2%) was $313.8 million, down 0.3% year over year; and Specialty revenue (7.1%) was $241.2 million, down 0.3%.

Margins

Operating expenses, excluding amortization of intangibles, increased roughly 0.3% to $2,992 million and represented 87.8% of total revenue. Operating margins increased 40 basis points to 11.4% in the quarter. Net interest expense increased 26.3% to $40.3 million.

Cash Flow

During the nine months ended September 30, 2012, Omnicom spent roughly $235.4 million in dividend payments; $158.7 million on capital spending and $714.2 million on repurchasing shares. Free cash flow for the period amounted to $966 million, up 11.6% year over year.

Balance Sheet

Omnicom had a total debt balance of $4,462 million and cash and short-term investments of $1,973 million in the twelve month period ending September 30, 2012. Return on equity for the period was 15.7%.

Omnicom has a strong track record of winning new clients and receiving additional deals from the existing ones. The company’s business mix is well diversified geographically and benefits largely from the growing markets. In addition, the company’s efforts in maintaining controlled expenses and strong global reputation are commendable.

We currently maintain a Neutral recommendation on Omnicom. The stock also bears a Zacks #3 Rank (Hold).

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