Omnicom Group Inc (OMC) reported second-quarter 2014 net income of $325.2 million or $1.23 per share versus $289.5 million or $1.09 in the year-ago quarter. The increase in earnings was driven by rise in revenues.
Excluding one time items, adjusted earnings stood at $1.26 per share in the reported quarter. The adjusted earnings per share exceeded the Zacks Consensus Estimate of $1.17.
Revenues
Quarterly revenues rose 6.4% year over year to $3,870.9 million, exceeding the Zacks Consensus Estimate of $3,796 million. From a geographical perspective, domestic revenues improved 7.8% over the prior-year period to $2,053.3 million. International revenues increased 4.9% year over year to $1,817.6 million.
Higher revenues for the reported quarter were primarily driven by a 5.8% rise in organic growth, impact of foreign exchange rates led to a 0.7% increase in revenue, partly offset by a 0.1% decline due to acquisitions (net of dispositions).
Non GAAP earnings before interest, taxes and amortization (EBITA) for the reported quarter improved 4.7% year over year to $574.2 million.
Quarterly Performance
Segment-wise, organic revenues for Advertising were up 10.5% year over year to $1,944.6 million; CRM (customer relationship management) organic revenues increased 1.1% year over year to $1,298.3 million; PR (public relations) organic revenues of $357 million reflected a 4.1% year-over-year rise; and Specialty organic revenues of $271.0 million highlighted a 0.2% hike year over year.
Across regional markets, North America led the performance with growth of 7.9% ($2184.9 million) in organic revenues. Latin America recorded an increase of 7.8% ($112.7 million), Asia Pacific recorded an increase of 5.1% ($401.5 million), while organic revenues for Europe and Africa Mid East increased 2.1% ($1,108.7 million) and 2.0% ($63.1 million), respectively.
Balance Sheet & Cash Flow
Omnicom generated free cash flow of $759.4 million for six months ended Jun, 2014, versus $702.2 million in the prior-year period. The company had a total debt of $4,063 million as of Jun 30, 2014, compared with $4,051 million year ago. Cash and short-term investments aggregated $1,545 million as of Jun 30, 2014, compared with $1,415 million a year ago.
Omnicom has a share buyback program in place, under which it repurchased shares worth $7.6 million in the second quarter of 2014. Over the past decade, Omnicom has consistently distributed more than 100% of net income to shareholders through dividends and share repurchases. Omnicom achieved a 31.5% return on equity (ROE) for the twelve months ended Jun 30, 2014.
Others
Earlier in May 2014, Omnicom and Publicis Groupe SA (PUBGY) terminated their $35 billion merger proposal, putting an untimely stop to a deal that would have possibly created the world’s largest advertising agency. The deal was called off due to regulatory hurdles, management conflicts and complication in finishing the transaction within a rational time period.
The reported earnings were affected by $1.8 million of pre-tax charges related to Omnicom's proposed merger with Publicis Groupe.
Outlook
Omnicom has a track record of strengthening its business and expanding its global client base through the acquisition of complementary companies. The company’s geographically-diversified business mix continues to benefit from the growing demand in developing regions like Asia Pacific, Latin America and Africa.
Omnicom currently has a Zacks Rank #2 (Buy). Other stocks that look promising and are worth a look include FTI Consulting, Inc (FCN) and Stantec Inc (STN), both carrying a Zacks Rank #2 (Buy).
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