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08 Sep 2024 03:37

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Omnicom reports 5.2% organic growth in Q2

Revenue of $3.9 billion, with organic growth of 5.2%

Net income of $328.1 million

Diluted earnings per share of $1.65; $1.95 Non-GAAP adjusted

Non-GAAP adjusted EBITA of $589.6 million and 15.3% margin

Omnicom announced results for the quarter ended June 30, 2024.

“Our 5.2% organic growth in the second quarter drove solid growth in adjusted EBITA & EPS, with good performance in our larger markets and disciplines,” said John Wren, Chairman and Chief Executive Officer of Omnicom. “With the rapid adoption of Gen AI, creativity and talent matter more than ever to address the breadth and complexity of consumers. To serve our clients with the best, most advanced capabilities, we continue to strategically align our agencies and invest in robust data and technology, scaled content and production, e-commerce, and retail and performance media – all embedded in our industry-leading Omni platform.”

Revenue

Revenue in the second quarter of 2024 increased $243.9 million, or 6.8%, to $3,853.8 million. Worldwide revenue growth in the second quarter of 2024 compared to the second quarter of 2023 was led by an increase in organic revenue of $188.3 million, or 5.2%. Acquisition revenue, net of disposition revenue, increased revenue by $93.0 million, or 2.6%, primarily due to the Flywheel Digital acquisition in the Precision Marketing discipline during the first quarter of 2024. The impact of foreign currency translation reduced revenue by $37.4 million, or 1.0%.

Organic growth by discipline in the second quarter of 2024 compared to the second quarter of 2023 was as follows: 7.8% for Advertising & Media, 17.6% for Experiential, 2.0% for Healthcare, 1.4% for Precision Marketing, 0.9% for Public Relations, and 1.2% for Execution & Support, partially offset by a decline of 3.8% for Branding & Retail Commerce.

Organic growth by region in the second quarter of 2024 compared to the second quarter of 2023 was as follows: 6.3% for the United States, 4.5% for Euro Markets & Other Europe, 6.9% for the United Kingdom, 24.5% for Latin America, and 8.0% for the Middle East & Africa, partially offset by declines of 0.1% for Asia Pacific and 8.3% for Other North America.

Expenses

Operating expenses increased $284.3 million, or 9.3%, to $3,343.5 million in the second quarter of 2024 compared to the second quarter of 2023.

Salary and service costs increased $182.3 million, or 7.0%, to $2,800.1 million. These costs tend to fluctuate with changes in revenue and are comprised of salary and related costs, which include employee compensation and benefits costs, freelance labor, third-party service costs, and third-party incidental costs. Salary and related costs increased $64.9 million, or 3.7%, to $1,836.9 million, primarily due to our acquisition of Flywheel Digital. Third-party service costs include third-party supplier costs when we act as principal in providing services to our clients. Third-party incidental costs that are required to be included in revenue primarily consist of client-related travel and incidental out-of-pocket costs, which are billed back to the client directly at our cost. Third-party service costs increased $95.3 million, or 13.3%, to $811.1 million, and third-party incidental costs increased $22.1 million, or 17.0%, to $152.1 million, both primarily as a result of organic growth.

Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $16.5 million, or 5.5%, to $314.2 million. The increase is primarily related to our acquisition activity during the year. Increased occupancy costs were partially offset by lower rent expense.

SG&A expenses increased $11.9 million, or 12.0%, to $111.0 million, primarily due to professional fees related to our acquisitions and investments in strategic initiatives.

Operating expenses in the second quarter of 2024 included $57.8 million of repositioning costs, primarily reflecting severance actions related to ongoing efficiency initiatives including strategic agency consolidation in our smaller international markets and the start of our centralized production strategy. Operating expenses in the second quarter of 2023 included a net decrease of $6.5 million related to the $78.8 million gain on disposition of a subsidiary, partially offset by real estate and other repositioning costs of $72.3 million.

Operating Income

Operating income decreased $40.4 million, or 7.3%, to $510.3 million in the second quarter of 2024 compared to the second quarter of 2023, and the related margin decreased to 13.2% from 15.3%. Operating income in the second quarter of 2024 was reduced by $57.8 million of repositioning costs, primarily related to severance. Operating income in the second quarter of 2023 was increased by $6.5 million related to the gain on disposition of a subsidiary of $78.8 million, partially offset by real estate and other repositioning costs of $72.3 million.

Interest Expense, net

Net interest expense in the second quarter of 2024 increased $14.3 million to $41.7 million compared to the second quarter of 2023. Interest expense increased $5.2 million to $62.7 million due primarily to higher outstanding debt, and interest income decreased by $9.1 million due primarily to lower average cash and short-term investment balances.

Income Taxes

Our effective tax rate for the three months ended June 30, 2024 decreased slightly period-over-period to 26.4% from 27.0%.

Net Income – Omnicom Group Inc. and Diluted Net Income per Share

Net income – Omnicom Group Inc. for the second quarter of 2024 decreased $38.2 million, or 10.4%, to $328.1 million compared to the second quarter of 2023. Diluted shares outstanding for the second quarter of 2024 decreased 1.5% to 198.5 million from 201.6 million as a result of net share repurchases. Diluted net income per share of $1.65 decreased $0.17, or 9.3%, from $1.82. Non-GAAP Adjusted Net Income per Share – Diluted for the second quarter of 2024 increased $0.09, or 4.8%, to $1.95 from $1.86. Non-GAAP Adjusted Net Income per Share – Diluted in the second quarter of 2024 excluded $15.9 million of amortization of acquired and internally developed strategic platform assets and $42.9 million of repositioning costs primarily related to severance. Non-GAAP Adjusted Net Income per Share – Diluted in the second quarter of 2023 excluded $10.9 million of amortization of acquired and internally developed strategic platform assets and real estate and other repositioning costs of $54.5 million, partially offset by $55.9 million related to the gain on disposition of a subsidiary. We present Non-GAAP Adjusted Net Income per Share – Diluted to allow for comparability with the prior year period.

EBITA

EBITA decreased $33.6 million, or 5.9%, to $531.8 million in the second quarter of 2024 compared to the second quarter of 2023, and the related margin decreased to 13.8% from 15.7%. EBITA excluded amortization of acquired and internally developed strategic platform assets of $21.5 million and $14.7 million in the second quarter of 2024 and 2023, respectively. Adjusted EBITA increased $30.7 million, or 5.5%, to $589.6 million in the second quarter of 2024 compared to the second quarter of 2023, and the related margin decreased to 15.3% from 15.5%. Adjusted EBITA in the second quarter of 2024 excluded $57.8 million of repositioning costs primarily related to severance. Adjusted EBITA in the second quarter of 2023 excluded $78.8 million related to the gain on disposition of a subsidiary, partially offset by real estate and other repositioning costs of $72.3 million.

Risks and Uncertainties

Current global economic challenges, including geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues could cause economic uncertainty and volatility. The impact of these issues on our business will vary by geographic market and discipline. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in revenue, we can take actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness, and other developments.

 

 

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