Shares of Omnicom Group (NYSE: OMC) fell modestly on Tuesday after the marketing and communications company reported fourth-quarter 2016 results. Similar to its past several quarterly performances, Omnicom's revenue and earnings crept higher on a year-over-year basis as organic growth continued to help the company weather currency and macroeconomic headwinds.
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Let's take a closer look, then, at both how Omnicom closed the year and what to expect on the road ahead.
Image source: Omnicom Group.
Omnicom Group results: The raw numbers
DATA SOURCE: OMNICOM GROUP, INC.
What happened with Omnicom Group this quarter?
- Revenue growth included 3.6% organic growth -- which excludes currencies, acquisitions, and divestments -- a 0.3% increase in revenue from acquisitions, and a 1.8% negative impact from foreign currency exchange.
- Organic revenue growth comprised a 4.6% increase in advertising, 7.7% growth in public relations, 5.7% growth in specialty communications, and 0.4% growth in CRM (customer relationship management) organic revenue.
- On a regional basis, organic revenue increased 0.6% year over year in North America, 8.5% in the U.K., 6.2% in the Euro markets and other Europe, 9.5% in Asia-Pacific, and 29% in the Middle East and Africa. Organic revenue declined 6.2% in Latin America.
- Earnings before interest, taxes, and amortization of intangibles (EBITA) increased 4.5% year over year, to $631.4 million.
- EBITA margin expanded 40 basis points year over year, to 14.9%.
- Net debt at the end of 2016 was $1.926 billion (including $4.949 billion in total debt, and cash and short-term investments of $3.023 billion), down from $1.951 billion at the end of 2015.
- Omnicom generated free cash flow of just under $1.61 billion in 2016.
- Omnicom maintained its streak of returning more than 100% of net income to shareholders through dividends and repurchases:
Omnicom's net cash returned to shareholders through dividends and repurchases. Image source: Omnicom Group.
What management had to say
During the subsequent conference call, Omnicom CEO John Wren stated:
Later in the call, Omnicom CFO Phil Angelastro echoed his sentiment from last quarter, stating that "the continued weakening of the British pound after the Brexit vote in late June remained a significant drag" and reduced revenue by an estimated $75 million during the fourth quarter. Angelastro also noted that Omnicom endured an increase in volatility of foreign currency markets following the U.S. presidential election in November.
Recall that Omnicom doesn't typically provide specific financial guidance. But Angelastro did suggest that, assuming currencies stay constant -- an admittedly "highly speculative" assumption -- foreign exchange would have a negative impact of roughly 1.25% in both the first quarter and full year of 2017. In the meantime, the company will "continue to reevaluate [its] portfolio of businesses and focus on opportunities for growth."
All things considered, there were no big surprises in Omnicom's report today. And as long as the company continues to weather today's tough business environment, while focusing on driving growth in the areas within its control and rewarding shareholders with ambitious capital returns, I think investors should be more than happy with where it stands.
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