Omnicom sticks to revenue target after aborted merger

Tue Jul 22, 2014 11:37am EDT

(Reuters) - Omnicom Group Inc, the No.1 U.S. advertising company, said it was sticking with its annual organic revenue growth target, showing little effect from its aborted $35 billion merger with France's Publicis Groupe.

In contrast, the French company warned earlier on Tuesday it would be "very difficult" to meet its annual organic sales growth target, partly due to the failure of the proposed merger.

Omnicom shares, which have gained 9 percent since the deal fell apart in May, rose as much as 1.4 percent on Tuesday.

"(Omnicom) seem to have been much less distracted by the deal collapse than their former partner," Exane BNP Paribas analyst Adrien de Saint Hilaire said.

Omnicom forecast full-year organic revenue growth of around 4 percent in February. The company's revenue rose around 2.5 percent in each of the last two years.

The reiteration of the forecast allayed some concerns that Omnicom's second-quarter earnings would suffer because management was focused on completing the merger.

"I think right now we think from an operations or efficiencies standpoint our companies are making all the right moves and the underlying operating performance right there," Chief Executive John Wren said in post-earnings call.

Omnicom is home to agencies such as BBDO Worldwide, TBWA Worldwide and Goodby, Silverstein & Partners, creator of the famous "Got Milk?" campaign.

INCREASED AD SPENDING

The company reported a better-than-expected 6.4 percent rise in revenue to $3.87 billion in the quarter ended June 30, helped by an increase in ad spending, particularly in the United States.

Omnicom's organic revenue grew 5.8 percent in the quarter.

Analysts on average were expecting revenue of $3.8 billion, according to Thomson Reuters I/B/E/S.

U.S. ad spending has been gaining momentum as consumer goods companies try to encourage reluctant consumers, suffering from stagnant wages, to crack open their wallets.

The growing popularity of private label brands has also pushed national brand owners such as Kraft Foods Group Inc to increase marketing budgets.

Global ad spending rose nearly 6 percent to $545.4 billion in 2014 and is expected to reach $662.7 billion by 2018, according to statistics website Statista. (bit.ly/1jT5QjT)

Omnicom, whose clients include McDonald's Corp Adidas AG and Apple Inc, said ad revenue increased 10.5 percent in the quarter.

Revenue from the United States, which accounts two thirds of the total, rose 7.8 percent, while international revenue increased 4.9 percent.

Net income available for common shareholders rose 13.2 percent to $318.9 million.

Excluding items, the company earned $1.20 per share, beating the average analyst estimate of $1.17 per share.

Omnicom's operating margin slipped to 14.2 percent, from 14.4 percent a year earlier. The deal with Publicis was expected to boost the company's margins.

Smaller rival Interpublic Group of Cos Inc reported better-than-expected quarterly revenue last week, boosted by strong growth in the UK and higher ad spending in its core U.S. market.

(Reporting by Abhirup Roy and Lehar Maan in Bangalore; Editing by Kirti Pandey, Saumyadeb Chakrabarty and Ted Kerr)