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Omnicom (OMC) Beats on Q4 Earnings but Misses Revenues

Supriyo Bose
Updated

Despite a challenging macroeconomic environment, global marketing and corporate communications firm Omnicom Group Inc. OMC reported relatively healthy fourth-quarter 2016 results, driven by modest organic growth. Net income for the reported quarter was $350.3 million or $1.47 per share compared with $331.6 million or $1.35 per share in the year-ago quarter.

The significant year-over-year increase in earnings was primarily attributable to top-line growth. Earnings for the reported quarter beat the Zacks Consensus Estimate by a couple of cents.

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For full year 2016, the company recorded earnings of $1,148.6 million or $4.78 per share compared with $1,093.9 million or $4.41 per share in 2015.

Revenues

Revenues improved 2.1% to $4,241.8 million from $4,153.3 million in the year-ago quarter but missed the Zacks Consensus Estimate of $4,257 million. Higher revenues for the reported quarter were primarily driven by a 3.6% rise in organic growth. Acquisitions, net of dispositions, led to a 0.3% increase in revenues, partially offset by adverse foreign exchange rates of 1.8% on a year-over-year basis.

For full year 2016, revenues increased 1.9% year over year to $15,416.9 million, largely due to organic growth.

Quarterly Performance

By business discipline, revenues for Advertising were up 5.0% year over year to $2,352.6 million; CRM (customer relationship management) revenues decreased 5.2% year over year to $1,235.3 million; PR (public relations) revenues of $358.9 million increased 8.7% on a year-over-year basis; and Specialty revenues of $295 million increased 5.5% year over year.

Across regional markets, North America revenues remained relatively flat at $2,467.1 million. Asia Pacific recorded a 6.7% increase in revenues to $462.7 million, Euro & Other Europe improved 4.5% to 723.1 million, while the U.K. saw a decline of 11% to $359.1 million. Revenues from Latin America saw a significant increase of 47.3% year over year to $137 million, while that of Middle East and Africa increased 28.4% to $92.8 million.

Operating income for the fourth quarter was $601.9 million compared with $575.5 million in the year-ago quarter for respective margins of 14.2% and 13.9%. Earnings before interest, taxes and amortization or EBITA for the reported quarter were $631.4 million, up from $604.0 million in the year-earlier quarter.

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Omnicom Group Inc. Price, Consensus and EPS Surprise

 

Omnicom Group Inc. Price, Consensus and EPS Surprise | Omnicom Group Inc. Quote

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $1,608.2 million for the twelve months ended Dec 31, 2016 compared with $1,614.7 million in the prior-year period. The company had a total debt of $4,949 million at year-end 2016, compared with $4,571 million in the year-ago period. Cash from operating activities for 2016 was $1,931.2 million compared with $2,172.3 million in 2015.

For the twelve months ended Dec 31, 2016, return on invested capital (ROIC) and return on equity (ROE) aggregated 24.3% and 49.8%, respectively. During the ten-year period from 2007 through Dec 31, 2016, Omnicom distributed 106% 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.

Omnicom currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include National CineMedia, Inc. NCMI, JCDecaux SA JCDXF and Social Reality, Inc. SRAX, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National CineMedia has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 29.2x.

Pioneer Power has a long-term earnings growth expectation of 2.8% and is currently trading at a forward P/E of 28.7x.

Barloworld has a long-term earnings growth expectation of 15% and is currently trading at a forward P/E of 5.6x.

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Omnicom Group Inc. (OMC): Free Stock Analysis Report
 
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Social Reality Inc. (SRAX): Free Stock Analysis Report
 
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