Omnicom Group Inc. (OMC)

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Omnicom Group Inc. (OMC)

Q3 2010 Earnings Call Transcript

October 19, 2010 8:30 pm ET

Executives

Randall Weisenburger – EVP and CFO

John Wren – President and CEO

Analysts

Alexia Quadrani – JPMorgan

John Janedis – UBS

Brian Shipman – Jefferies

Matt Chesler – Deutsche Bank

Ben Swinburne – Morgan Stanley

Craig Huber – Access 342

Dan Salmon – BMO Capital Markets

Peter Stabler – Credit Suisse

David Bank – RBC Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Omnicom third quarter 2010 earnings release conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions) As a reminder, this conference call is being recorded. At this time, I would like to now introduce you to today’s conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Randall Weisenburger

Thank you, and good morning. First, thank you all for taking the time to listen to our third quarter 2010 earnings call. We hope everyone has had a chance to review our earnings release. We have posted to our website both the press release and a presentation covering the information that we will present this morning. This call is also being simulcast and will be archived on our website.

Before we start, I’ve been asked to remind everyone to read the forward-looking statements and other information that is included on page one 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.

We will begin the call with some brief remarks from John Wren. Then following John’s remarks, we will review our financial performance for the quarter. And then both John and I will be happy to take questions.

John Wren

Good morning, everyone. And thanks for joining our call. We are pleased to announce strong third quarter results that continue the progress we have made during 2010 and show improvements over last year. In particular, I want to highlight three things today. First, organic growth continues to trend positively across our businesses, and globally we achieved 6.7% growth, making this our strongest quarter of the year.

Second, while improvements in the economy are consistent from region to region, we have been pleasantly surprised by the continued growth in the United States and renewed strength in Europe’s major markets. Third, as we look forward to 2011 and 2012, we have identified a number of actions which will allow us to improve our margins towards our goal of returning to 2007 levels.

Additionally, we expect to increase our acquisition activity in emerging markets; form additional alliances with new partners, especially in the areas of emerging technologies; and divest the several slow-growth, low margin businesses. All of these positive trends are occurring in the midst of an economic picture that is generally improving, but still fragile.

In the US, we are seeing continued growth in our business as the economy slowly recovers. Following the strong quarter growth in the first and second quarters, our third quarter growth was 8.4%, even after accounting for the loss of the Chrysler business. The Chrysler loss globally reduced our organic growth for the quarter by 1.5%. And for those that haven’t been following it, we have two more quarters to cycle through the impact of Chrysler. Despite that loss, the overall automobile category, which represents about 11% of our business, grew by 8%.

Also in the US, with respect to clients, every client that I speak to seems to have a renewed focus on top-line growth. With that said, we are going to continue to remain cautious, wait for their budgets at least until after we understand the implications of the upcoming elections and until the unemployment picture in the US starts to improve.

Outside of the US, we are also seeing an improving picture. We continue to see double-digit top-line growth in Asia and the Middle East. Growth in Africa and South American remained strong and in line with our expectations. In Europe, we are pleased with the release in the UK and France and we have also seen improvement in Germany. In the other countries in Europe, the picture remains mixed as the economies try to recover.

When turning to disciplines, we also continue to see growth across all of our discipline. All of the areas showed strong growth in the quarter over last year. And each discipline showed strong sequential quarter with the exception of our specialty line of business. While still in line with our third quarter expectations, it was less than the first six months of the year due to more difficult comps. Our growth is also coming from across the spectrum of industries we serve. Revenues are up in every significant industry category with the exception of travel and entertainment, which showed a modest decline for the quarter compared to 2009.

In general, in looking at organic growth, it seems to be continues to be driven by the strong retention strategies we have in place and our focus on delivering value to our existing clients. It is also the result of our success in generating new business wins. For the quarter, we generated in excess of $900 million in new business. And we continue to see a pretty robust pipeline and our agencies continue to work to provide innovative solutions to meet the evolving needs of our clients and prospective clients.

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