Omnicom CEO Says Too Early to Tell If 2016 Will Bring More Major Media Reviews

By Nathalie Tadena 

Advertising holding company Omnicom Group Inc. said it's too early to tell whether 2016 will bring another wave of major media reviews.

An unprecedented number of large marketers, with an estimated $25 billion to $30 billion in media billings, put all or parts of their media accounts into review in 2015, in an attempt to cut back on costs or to test their agencies' digital chops. The wave of reviews left major advertising agencies like Omnicom competing for accounts to hold on to or win over major sources of revenue.

"Whether the pace of 2015 continues into 2016 it is too early to say, but we will not be surprised if the patterns continue," Omnicom Chief Executive John Wren told analysts on the company's earnings call Tuesday, after reporting b etter-than-expected fourth-quarter results.

He noted there are only a few minor accounts currently in review "that are more typical of a normal review year."

In December, Omnicom won the bulk of Procter & Gamble's media planning and buying account in North America-- the most high-profile review of the year as Omnicom beat out Publicis Group's Starcom Mediavest Group, which previously handled the lion's share of the account. Omnicom is launching a third media buying unit to handle the P&G account.

Like the other major advertising companies, Omnicom has been bolstering its digital, analytics and programmatic offerings to keep up with changing consumption habits and better serve clients. The company noted its Accuen programmatic unit reported $45 million in revenue growth for the quarter.

The owner of agencies including DDB, BBDO and TBWA reported that organic revenue--which excludes currency impacts, acquisitions and divestitures--rose 4.8% in the fourth quarter, surpassing analysts' estimates of 4% organic growth. Omnicom posted revenue growth across most of its regional markets, led by Asia Pacific. By discipline, only Omnicom's advertising revenue increased on an organic basis, while organic revenue declined in its CRM, public relations and specialty communications businesses.

The company also signaled its pace of dealmaking may be picking up. Omnicom's DDB recently acquired Brazilian agency Grupo ABC, and its BBDO network recently acquired a majority stake in fashion marketing powerhouse Wednesday Agency Group .

"To the extent we can find acquisitions that fit strategically, culturally and pricing makes sense, we're going to continue to look to do more acquisitions rather than less," Chief Financial Officer Phil Angelastro said. "We expect that activity will pick up...And we've got a pipeline that we continue to pursue."

Mr. Angelastro said the company doesn't expect any change to its capital allocation strategy. There will be less free cash to use to buy back shares should deals happen, but the company will continue to deploy the cash through buybacks as it has done in the past if deals don't materialize, he said.

"Looking forward, the consistency and diversity of our operation and results combined with our very strong liquidity and balance sheet will allow us to capitalize on opportunities when they arise," Mr. Wren said.

Overall, Omnicom's profit increased slightly to $331.6 million, or $1.35 a share, from $329.5 million, or $1.30 a share, a year earlier. Analysts polled by Thomson Reuters had projected per-share earnings of $1.33 a share. Revenue fell 1% to $4.15 billion, including a 5.6% headwind from foreign exchange rates.

Omnicom is aiming to improve its margins by 30 basis points this year and said it is looking to drive greater cost efficiencies in areas such as information technology , real estate, back office services and purchasing.

Omnicom shares rose 2.8% to $71.67 in midday trading.

Write to Nathalie Tadena at [e-mail]

(END) Dow Jones Newswires

February 09, 2016 12:55 ET (17:55 GMT)

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