Omnicom Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Omnicom Group (OMC)

Q1 2012 Earnings Call

April 17, 2012 8:30 am ET

Executives

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

John D. Wren - Chief Executive Officer, President and Director

Analysts

Tim Nollen - Macquarie Research

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

Craig Huber

Matthew Chesler - Deutsche Bank AG, Research Division

Daniel Salmon - BMO Capital Markets U.S.

James Dix - Wedbush Securities Inc., Research Division

Brian W. Wieser - Pivotal Research Group LLC

Anthony J. DiClemente - Barclays Capital, Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Robert Fishman - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to know 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 First Quarter 2012 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'll be presenting this morning. This call is also being simulcast and will be archived on our website.

But before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's included in the back 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 our present expectations, and actual events or results may differ materially.

I'd 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 the financial performance for the quarter in more detail, and then both John and I will be happy to take questions.

John D. Wren

Good morning. I'm pleased to speak to you this morning about our latest business results, the progress we're making and my thoughts for the rest of the year.

2012 is off to a very good start. First quarter results were strong. Revenues exceeded our internal forecast, and we posted significant improvement in our operating margins. Looking at the balance of the year, we're cautiously optimistic on revenue. The region most at risk is Europe. Major economies outside Europe, I'm happy to say, seem to be improving at a steady pace.

From the cost side, our determination to contain costs and drive operating efficiencies is working, and we are on track to achieve our margin objectives for 2012.

Given an improving but fragile global economy, we at Omnicom are focused on the things we can control. We are continuing to make significant investments in people to broaden our capabilities and service offerings. We're also pursuing, as you know, a multi-pronged digital strategy built around the core idea that all of our agencies must have a strong digital talent and capabilities in order to compete in the future.

As a result, we are helping and pushing our agencies where needed in order to accelerate the expansion of their digital expertise. To achieve our objectives, we're employing an open-source technology approach by partnering with technology leaders to ensure that we have access to the latest innovations and information in the marketplace. These partnerships allow us to integrate the most effective digital strategies within our clients' overall marketing plans. Now I'd like to turn my attention to the first quarter.

Organic growth for the first 3 months was a very strong 5.1%. Revenue growth in the quarter was driven by very positive results in developing markets, and solid performances in the U.S. and the U.K. This was balanced at the euro markets, which experienced only nominal growth. Our advertising business performed very well, while our PR businesses showed improvement for the first time in several quarters.

Looking more closely at revenue by geography, we saw a continued strength in the U.S. with organic growth of 4.4%. U.S. growth was driven by strong results in brand advertising, media, and sports and event marketing and was offset by a decline in our healthcare specialty business.

The U.K. experienced organic growth of 4.1%. While the U.K. growth slowed versus the fourth quarter, the market remains relatively favorable despite the broader challenges in Europe and our individual agencies are performing very well. Euro region growth overall was relatively flat, although the performance by market varied. Germany turned in a solid quarter, France was only slightly negative, and the Netherlands underperformed due primarily to the effects of a client loss.

In the more troubled European markets, Greece and Ireland were negative for the quarter, while the southern European markets had positive growth.

Outside the euro currency area, Russia and Turkey had very strong performances with double-digit growth.

In the first quarter we again had strong performances across Asia, particularly Australia, China and Singapore. In Japan, we are happy to say that we had positive organic growth for the first time since the third quarter of 2010. We again experienced growth across almost all of our industry segments. Revenues during the quarter were particularly strong in auto, food and beverage, retail and technology, while only health care had a negative performance.

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