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Omnicom Starts 2018 on a High Note

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Omnicom Group (NYSE: OMC) announced strong first-quarter 2018 results on Tuesday morning, detailing healthy organic growth and broad-based gains across its various business disciplines.

With shares of the marketing communications leader up around 3% in response as of this writing, let's take a closer look at how Omnicom kicked off the new year.

Omnicom Group results: The raw numbers

What happened with Omnicom this quarter?

  • Omnicom doesn't provide specific earnings guidance each quarter. But for perspective, investors were looking for lower earnings of $1.06 per share on roughly the same revenue.
  • Omnicom's revenue was reduced by $42.5 million, or approximately 1.2%, due to the adoption of new accounting standards at the start of calendar 2018.
  • The change also included 2.4% organic growth, 4.2% decline in acquisition revenue net of dispositions -- roughly in line with expectations provided last quarter -- and a 4.2% favorable contribution from foreign exchange rates.
  • On a geographic basis, organic revenue increased 3.1% in the U.K, 9.7% in the Euro markets and Other Europe, 7.3% in Asia Pacific, and 3.1% in Latin America. Meanwhile, North America declined 0.1%, and Africa fell 8.5%.
  • By "fundamental discipline," advertising revenue increased 1.6%, CRM Customer Experience revenue grew 6.9%, CRM Execution and Support climbed 1.2%, Public Relations rose 0.7%, and Healthcare increased 2.7%.
  • Quarterly EBITDA increased 0.7% to $449.2 million.
  • It acquired Brain Group, a digital marketing agency based in Munich. Brain Group's Brainagency brand will be merged with Omnicom's OMD Munich subsidiary, while its BrainConsulting and CrazyLegs brands will operate as separate divisions of OMG Germany.

What management had to say

During the subsequent conference call, CFO Philip Angelastro noted that organic growth this quarter fell within management's expectations for an annual range of 2% to 3%. He also pointed out that while Omnicom's dispositions continue to exceed revenue gained from more recent acquisitions, that should change in the coming quarters -- particularly as Omnicom laps its disposition of its print business, Novus, during last year's second quarter.

Omnicom CEO John Wren stated that the company is "pleased" with its performance to start the year, and remains "cautiously optimistic that the back half of the year will be stronger than the first half."

Looking forward

Assuming currencies remain stable, Angelastro predicted that foreign exchange could have a positive impact to revenue of 3% in the second quarter, and roughly 2.5% for the full year. In addition, acquisitions (net of dispositions) should reduce revenue by around 1% in Q2, then range between flat and positive 1% for the rest of 2018.

"As we've done in the past, we will continue to pursue strategic acquisitions that enhance our service offerings and make internal investments at our agencies that are consistent with our strategic plans," Angelastro added.

All told, there was little not to like about Omnicom's first quarter. And with shares still reeling from its mixed report in February, I can't blame the market for bidding up Omnicom stock in response today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Omnicom Group. The Motley Fool has a disclosure policy.