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Omnicom Group (NYSE: OMC) announced mixed second-quarter 2018 results relative to expectations on Tuesday morning. The marketing communications specialist highlighted solid profitability and organic growth across most of its industry disciplines, but also a troublesome revenue decline from its core North American market.
With shares down more than 9% in response, let's take a closer look at what Omnicom had to say as it enters the second half of the year.
IMAGE SOURCE: GETTY IMAGES.
Omnicom Group results: The raw numbers
| Metric | Q2 2018 | Q2 2017 | Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $3,859.6 million | $3,790.1 million | 1.8% |
| Net income (available for common shares) | $364.2 million | $328.6 million | 10.8% |
| Net income per common share (diluted) | $1.60 | $1.40 | 14.3% |
DATA SOURCE: OMNICOM GROUP.
What happened with Omnicom this quarter?
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Omnicom doesn't offer specific quarterly financial guidance. But analysts, on average, were anticipating earnings of only $1.55 per share on higher revenue of $3.90 billion.
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Revenue was reduced by $49 million, or 1.3%, because of Omnicom's adoption of ASC 606 accounting standards at the start of the year.
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The remaining top-line increase consisted of 2% organic growth -- near the low end of management's stated annual expectation for a range of 2% to 3% -- a 2.1% contribution from foreign exchange rates, and a 1% decrease in acquisition revenue (net of dispositions).
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On a geographic basis, organic revenue grew 11.2% in the Euro markets and other Europe, 8.5% in Asia-Pacific, and 2.5% in Latin America. That growth was partially offset by declines of 2.9% in North America -- where, for perspective, the company generated nearly 57% of total sales last year -- 2.2% in the U.K., and 8% in the Middle East and Africa.
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By "fundamental discipline," advertising revenue grew 1.6%, CRM Customer Experience revenue increased 7.1%, Public Relations revenue climbed 2.7%, Healthcare jumped 4.8%, and CRM Execution and Support sales declined 4.4%.
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Quarterly EBITDA increased 1.6% to $609.3 million.
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Omnicom Health Group acquired the pharmaceutical communications business of Elsevier in Japan during the quarter. The acquired business will operate under Omnicom's EMC subsidiary as EMC K.K. going forward.
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Omnicom also recently entered into a definitive agreement to divest Sellbytel Group to Webhelp Group. The transaction is still subject to regulatory approval, but should close in the third quarter.
What management had to say
During the subsequent conference call, Omnicom CEO John Wren called it a "good" quarter, noting that organic growth was achieved in nearly every area of the portfolio. He also reminded investors that Omnicom is continuously evaluating its portfolio to align its capabilities with its strategic plans -- hence its impending disposition of Sellbytel.