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Omnicom (OMC) Up 1.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Omnicom (OMC - Free Report) . Shares have added about 1.1% in that time frame, outperforming the S&P 500.

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

Omnicom Q3 Earnings and Revenues Exceed Estimates

Omnicom reported solid third-quarter 2018 results wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of $1.24 per share beat the Zacks Consensus Estimate by 3 cents and came ahead of the year-ago figure by 11 cents.

Total revenues of $3,714.3 million beat the consensus mark by 24 million but decreased 0.1% year over year. The year-over-year decrease was due to negative foreign exchange rate impact of 1.7% and a decrease in acquisition revenues, net of disposition revenues of 0.9%, partially offset by organic revenue growth of 2.9%.

Revenues by Segment

Advertising segment revenues of $1,992.1 million increased 2% year over year.  The segment accounted for 53.6% of total revenues in the reported quarter.

CRM Consumer Experience revenues increased 0.6% year over year to $637.7 million. The segment contributed 17.2% to total revenues.

CRM Execution & Support revenues decreased 13.9% year over year to $465.6 million. It accounted for 12.5% of total revenues.

PR (public relations) revenues of $356 million improved 0.7% on a year-over-year basis. It accounted for 9.6% of total revenues.

Healthcare revenues of $262.9 million were up 10.5% year over year. It contributed 7.1% of total revenues.

Revenues by Regions

Across regional markets, Asia Pacific recorded a 6.5% increase in revenues to $437.9 million. Revenues from United States came in at $1,992.7 million.

However, revenues from the Middle East and Africa were down 2.6% to $63.7 million. Other North America revenues reduced 10.7% year over year to $102.8 million and that of Latin America declined 13.3% year over year to $102 million. Euro & Other Europe declined 0.3% to $657.9 million and the U.K. recorded revenues of $357.9 million, down 0.1% year over year.

Operating Results

Operating profit in third-quarter 2018 increased 6.8% year over year to $502.3 million. Operating margin increased to 13.5% compared with 12.6% in the year-ago quarter. Operating expenses of $3,212 million were down 1.8% from the year-ago quarter.

Earnings before interest, taxes and amortization or EBITA for the reported quarter were $527.5 million, slightly up from $498.1 million in the year-ago quarter. EBITA margin came in at 14.2% compared with 13.4% in the year-ago quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $274.1 million in third-quarter 2018 compared with $373.8 million in the prior-year quarter. The company had a total debt of $4,868 million at the end of the reported quarter with cash, cash equivalents and short-term investments of $2,106 million compared with a respective $4,966 million and $1,851 million in 2017.

For the twelve months ended Sep 30, 2018, return on invested capital (ROIC) and return on equity (ROE) aggregated 20.6% and 48.2%, respectively. During the period from 2008 through Sep 30, 2018, Omnicom distributed 105% of net income to shareholders through dividends and share repurchases.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Omnicom has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Omnicom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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