Omnicom Group (OMC)

Q3 2011 Earnings Call

October 18, 2011 8:30 am ET

Executives

Randall J. Weisenburger - Chief Financial Officer and Executive Vice President

John Wren - Chief Executive Officer, President and Director

Analysts

Matthew Chesler - Deutsche Bank AG, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Craig A. Huber - Access 3:42, LLC

William G. Bird - Lazard Capital Markets LLC, Research Division

Tim Nollen - Macquarie Research

James Dix - Wedbush Securities Inc., Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Omnicom Third Quarter 2011 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to now introduce you to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Randall J. Weisenburger

Good morning. Thank you for taking the time to listen to our third quarter 2011 earnings call. We hope everyone's had a chance to review our earnings release. We've posted to our website both the press release and a presentation covering the information that we'd be presenting this morning. This call is also being simulcast and will be archived on our website.

Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's included on Page 1 of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements are present expectations, and actual events or results may differ materially.

I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials.

We're going to begin the call with some brief remarks from John Wren. Following John's remarks, we'll review our financial performance for the quarter, and then both John and I will be happy to take questions.

John Wren

Thank you, Randy, and good morning, everyone. This morning, I'd like to give you my perspective on our third quarter performance and share with you our thoughts on the progress against our key initiatives. Let me start with our performance for the quarter.

The third quarter reflected very strong operating performance, including significant organic growth and continued margin improvement. Organic growth was up 7.2% over the same period of 2010. Growth was particularly strong in our advertising and CRM businesses, and geographically, all of our major markets experienced solid organic growth. This performance is particularly notable given the worsening of economic and capital market conditions since our last earnings call. We're watching these events carefully to anticipate the impact they may have on our business.

Given this backdrop, our agency management teams are balancing effective growth strategies, with a continued eye towards controlling their expense structures. While we remain cautious about the economy, we are encouraged by our discussions with our clients. Marketers remained focused on investing in their brands and differentiating their products and services, and are seeking agency partners that can provide innovative ideas that help them navigate to an increasingly complex marketing environment. We believe that our agencies have the best talent in the business and help us to compete more effectively.

During the quarter, we also continue to execute on several of our strategic initiatives. We continue to make solid progress on our portfolio review and other initiatives to improve our margin performance. Our margins for the quarter reflected continued improvement. And while there's still work to be done, we remain on course towards achieving our goal of returning to 2007 margins by 2012. Randy will discuss our margin performance in more detail later in the call.

We also continue to execute against our strategic priority of building a deeper presence in rapidly growing markets and disciplines, while still growing our business in the developed markets. During the quarter, we closed transactions in India, Vietnam and New Zealand, and expanded our offerings in healthcare through the acquisition of Synergy in the U.K. Today, over 22% of our revenue is from Asia and Latin America and other rapidly developing markets, up from 18.5% this time last year.

While these acquisitions will further solidify our presence in the developing markets, our agencies in Asia will once again recognized as leaders for creating groundbreaking award-winning work that delivers value for our clients.

In September, Omnicom Group agencies captured the top 2 Network of the Year rankings at the Spike (sic) [Spikes] Asia Advertising Festival in Singapore. For the second consecutive year, DDB was named Network of the Year and BBDO took second. In addition, the DDB Group Singapore and Mudra Communications placed second and third for Agency of the Year. Omnicom agencies also won 4 Grand Prix.

Turning to some of our digital initiatives, our distance-learning digital education program, which we discussed at the beginning of the year, has begun to be rolled out in the fourth quarter. We have always recognized that each of our agencies must develop digital skill sets in their respective disciplines, and they're meeting these demands extremely well. The program will further enhance the development of our talents.

Overall, we are very pleased with both the financial performance of our business and the progress we've made on our strategic initiatives.

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