UPDATE 3-Omnicom profit drops 22 pct; awaits ad recovery

Wed Oct 21, 2009 11:48am EDT

* Omnicom Q3 EPS $0.53, matching estimates

* Q3 revenue $2.84 bln vs estimates $2.86 bln

* Sees stable climate, little sequential improvement in Q4

* Seeking acquisitions in Middle East, India, China

* Shares down 3 percent (Adds executive comments from conference call)

By Franklin Paul and Paul Thomasch

NEW YORK, Oct 21 (Reuters) - Omnicom Group Inc (OMC.N) reported a 22 percent fall in third-quarter earnings as a big drop in spending by key advertising clients, like Chrysler, badly hurt revenue -- and will likely do so again in the fourth quarter.

Executives at Omnicom, home to a network of advertising and media agencies including BBDO Worldwide and DDB Worldwide, did offer a somewhat brighter assessment of 2010, however. While spending remained depressed, it had at least stabilized and should pick up slowly next year, they said.

"At this point spending levels from our existing clients is best described as generally stable, with a few exceptions to the positive, which are mostly in the United States, and a few exceptions to the negative which are mostly in Europe," Chief Financial Officer Randy Weisenburger said on a conference call.

Among the businesses where spending appeared most depressed, Weisenburger pointed to auto advertising, sports and event marketing, and recruitment marketing.

The decline in client spending more than offset Omnicom's cost-cutting efforts, driving net income down 22 percent to $165.6 million, or 53 cents a share, which was in line with expectations.

Overall, revenue declined 14 percent to $2.84 billion, just shy of the $2.86 billion average analyst forecast, according to Thomson Reuters I/B/E/S.

Organic revenue, a closely watched industry benchmark that excludes foreign currency fluctuations and recent acquisitions, fell 10.7 percent.

While Omnicom's shares dropped 3 percent after the results, at least one analyst, JPMorgan's Alexia Quadrani, said she was encouraged by the quarter.

"Importantly, the third quarter did not show any further deterioration from the second quarter, which is consistent with our belief that the ad market has bottomed and we should see some improvement -- albeit on easier comparisons -- in the fourth quarter," Quadrani told clients in a note.

Omnicom executives also pointed to easier comparisons in the fourth quarter from a year ago, but conceded that business was unlikely to improve much before 2010.

One reason is Chrysler, which has severely cut back on splashy advertising campaigns. "Is it possible that the auto sector will continue to have a drag as we go into the next quarter?" Omnicom Chief Executive John Wren asked. "I expect so, but probably to a decreasing amount as you go into 2010."

Wren added that Omnicom's agencies were "engaged in a number of other pitches for other auto-makers, and we're fully expecting to win our fair share of those pitches."

He also said that as business begins to improve, the world's largest advertising services company would be back on the prowl for acquisitions. Specifically, he said Omnicom would be interested in agencies in the Middle East, China and India as well as "sensibly-priced" digital deals.

Second to acquisitions, Wren said Omnicom would consider buying back stock, which has climbed 45 percent this year, outperforming the broader market.

On Wednesday, shares of Omnicom fell $1.16 to $36.91 on the New York Stock Exchange. (Reporting by Franklin Paul and Paul Thomasch; Editing by Lisa Von Ahn, Dave Zimmerman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Track China's Leaders