October 16, 2018 / 11:32 AM / a month ago

Omnicom beats on profit after digital shift, shares surge

(Reuters) - U.S. advertising company Omnicom Group Inc (OMC.N) topped Wall Street expectations for profit in the third quarter as it cut jobs and shifted focus toward digital marketing to better compete with Google and Facebook.

Revenue at the owner of the BBDO and OMD advertising agencies rose 6.9 percent in the euro zone and almost 14 percent in Asia/Pacific while inching higher in the United States, where the firm’s share of ad spending has been falling.

The company said it had cut a total of 8,400 positions in the reported quarter as it sold 19 businesses in its push toward high-growth digital advertising, pushing adjusted earnings per share 3 cents past analysts’ consensus forecast.

Shares in the company gained 6 percent.

“Underlying business performance in terms of reported organic revenue growth was relatively better than we expected and probably drove the slight EPS beat,” said Brian Wieser, a Pivotal Research Group analyst.

The world’s “Big Four” traditional advertising agencies have struggled over the past five years as the direct targeting models of Google (GOOGL.O) and Facebook (FB.O) swallow more advertising spend.

In July, Omnicom acquired Credera, a management and IT consulting firm and also rolled out its people-based precision marketing and insights platform, Omni. It said it would fill 500 positions with “fresh talents” suitable to its current needs.

Such moves come at a time when consulting firms like Accenture (ACN.N) and IBM (IBM.N) have also effectively shrunk business for traditional ad agencies by using data more effectively to target customers.

Overall, Omnicom reported a 2.9 percent rise in organic revenue - a closely-watched measure in the ad industry that excludes foreign exchange rate changes and income from acquisitions.

Analysts on average had expected revenue growth of 2.5 percent, according to research firm FactSet.

Organic revenue in the United States, which accounts for more than half of the company’s sales, grew 0.6 percent. That was the first time the company had broken out the U.S. data in three quarters, and other North American revenue was still 5.4 percent lower.

“I’m cautiously optimistic that our growth in the U.S. will continue to improve,” Chief Executive Officer John Wren said in a post-earnings call.

Net income available for common shares rose to $298.9 million, or $1.32 per share, in the quarter ended Sept. 30, from $263.3 million, or $1.13 per share a year earlier.

Excluding one-time items, Omnicom earned $1.24 per share, edging past analysts’ expectation of $1.21, according to I/B/E/S data from Refinitiv. Revenue fell marginally to $3.71 billion, but beat analysts’ average estimate of $3.70 billion.

(This version of the story corrects company name in paragraph seven to “Credera” from “Cudera”).

Reporting by Sonam Rai and in Bengaluru; Editing by Arun Koyyur

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