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Why Is Omnicom (OMC) Down 2.2% Since the Last Earnings Report?

It has been about a month since the last earnings report for Omnicom Group Inc.OMC . Shares have lost about 2.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Omnicom Beats Q1 Earnings on Modest Organic Growth

Omnicom reported solid first-quarter 2017 results, with year-over-year increases in revenues and earnings on modest organic growth. Net income for the reported quarter was $241.8 million or $1.02 per share compared with $218.4 million or 90 cents per share in the year-ago quarter. The significant year-over-year increase in earnings was primarily attributable to top-line growth.

Excluding non-recurring items, adjusted earnings for the reported quarter were $0.97 per share compared with $0.90 in the year-earlier quarter. Adjusted earnings for the reported quarter marginally beat the Zacks Consensus Estimate by $0.01.

Revenues

Revenues improved 2.5% year over year to $3,587.4 million and exceeded the Zacks Consensus Estimate of $3,564 million. Higher revenues for the reported quarter were primarily driven by a 4.4% rise in organic growth. Acquisitions, net of dispositions led to a 0.7% decrease in revenues, while adverse foreign exchange rates further led to a 1.2% decline on a year-over-year basis.

Quarterly Performance

By business discipline, revenues for Advertising were up 6.5% year over year to $1,920.8 million; CRM (customer relationship management) revenues decreased 4.4% year over year to $1,071.0 million; PR (public relations) revenues of $325.3 million increased 2% on a year-over-year basis; and Specialty revenues of $270.3 million increased 5.3% year over year.

Across regional markets, North America revenues improved 0.8% year over year to $2,139.3 million. Asia Pacific recorded a 5.8% increase in revenues to $375 million, Euro & Other Europe improved 4.6% to 578.4 million, while the U.K. saw a decline of 8.2% to $309.2 million. Revenues from Latin America saw a significant increase of 41.6% year over year to $106.6 million, while that of Middle East and Africa improved 39.4% to $78.9 million.

Operating income for the first quarter was $409.9 million compared with $392.1 million in the year-ago quarter for respective margins of 11.4% and 11.2%. Earnings before interest, taxes and amortization or EBITA for the reported quarter were $440.3 million, up from $420.4 million in the year-earlier quarter.

Balance Sheet & Cash Flow

Omnicom generated free cash flow of $355.3 million for the reported quarter compared with $353.1 million in the prior-year period. The company had a total debt of $4,943 million at quarter end, with cash and short-term investments of $2,486 million.

For the twelve months ended Mar 31, 2017, return on invested capital (ROIC) and return on equity (ROE) aggregated 21.8% and 52.0%, respectively. During the period from 2007 through Mar 31, 2017, Omnicom distributed 107% of net income to shareholders through dividends and share repurchases.

Moving Forward

Omnicom has a track record of strengthening its business and expanding its global client base through acquisition of complementary companies. We remain encouraged by the healthy quarterly results of the company and its continued acquisition spree.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

Omnicom Group Inc. Price and Consensus

Omnicom Group Inc. Price and Consensus | Omnicom Group Inc. Quote

VGM Scores

At this time, the stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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