Omnicom sees 26.6% decline in advertising business in Q2 FY2020

The company's worldwide revenue in the second quarter of 2020 decreased 24.7% to $2,800.7 million from $3,719.8 million in the second quarter of 2019

e4m by exchange4media Staff
Updated: Jul 29, 2020 9:36 AM
omnicom

Omnicom Group Inc. announced a net loss - Omnicom Group Inc. for the second quarter of 2020 of $24.2 million compared to net income - Omnicom Group Inc. of $370.7 million in the second quarter of 2019. Diluted net loss per share for the second quarter of 2020 was $0.11 per share compared to diluted net income per share of $1.68 for the second quarter of 2019.

Net loss - Omnicom Group Inc. and diluted net loss per share - Omnicom Group Inc. in the second quarter of 2020 included a net after-tax decrease of $223.1 million and $1.03 per share, respectively, as a result of repositioning costs and a net loss on dispositions during the quarter, as discussed further below.

Adjusting for the impact of those items, net income - Omnicom Group Inc. for the second quarter of 2020 would have decreased $171.8 million, or 46.3%, to $198.9 million compared to $370.7 million in the second quarter of 2019 and diluted net income per share - Omnicom Group Inc. would have decreased $0.76, or 45.2%, to $0.92 per share compared to $1.68 for the second quarter of 2019.

Primarily due to the negative effects on the company's revenue arising from the coronavirus disease 2019 ("COVID-19") pandemic, Omnicom's worldwide revenue in the second quarter of 2020 decreased 24.7% to $2,800.7 million from $3,719.8 million in the second quarter of 2019. The components of the change in revenue included a decrease in revenue from the negative impact of foreign currency translation of 1.7%, a decrease in acquisition revenue, net of disposition revenue of 0.1% and a decrease in revenue from negative organic growth of 23.0% when compared to the second quarter of 2019.  

Organic growth in the second quarter of 2020 as compared to the second quarter of 2019 in Omnicom's five fundamental disciplines was as follows: Advertising decreased 26.6%, CRM Consumer Experience decreased 25.6%, CRM Execution & Support decreased 27.6%, Public Relations decreased 13.9% and Healthcare increased 3.2%.

Across the company's regional markets, organic growth in the second quarter of 2020 as compared to the second quarter of 2019 was as follows: the United States decreased 20.7%, Other North America decreased 29.6%, the United Kingdom decreased 23.7%, the Euro Markets & Other Europe decreased 29.4%, Asia Pacific decreased 18.6%, Latin America decreased 24.1% and the Middle East & Africa decreased 39.4%.

Operating profit in the second quarter of 2020 included a pre-tax decrease of $277.9 million due to repositioning costs, comprised of incremental severance charges, right-of-use asset impairments and other real estate costs of $252.8 million, and a net loss on the disposition of certain subsidiaries and other charges of $25.1 million. Operating profit decreased $511.2 million, or 89.1%, to $62.5 million compared to $573.7 million during the second quarter of 2019.  Omnicom's operating margin for the second quarter of 2020 decreased to 2.2% versus 15.4% for the second quarter of 2019.

Adjusting for the impact of the repositioning actions and net loss on dispositions discussed above, operating profit in the second quarter of 2020 would have decreased $233.3 million, or 40.7%, to $340.4 million from $573.7 million in the second quarter of 2019, while operating margin for the second quarter of 2020 would have decreased to 12.2% when compared to 15.4% for the second quarter of 2019.

For the second quarter of 2020, the company's effective income tax rate increased period-over-period to 143.1% from 24.9%. The increase was primarily attributable to the non-deductibility in certain jurisdictions of a portion of the repositioning costs and loss on dispositions. In the second quarter of 2019, income tax expense was reduced by $10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. The non-deductibility of a portion of the repositioning costs and loss on dispositions in certain jurisdictions with lower effective tax rates resulted in a loOmniComr tax benefit, which had the effect of increasing Omnicom's second-quarter 2020 effective tax rate from 26.2% to 143.1%.

Year-to-Date

Net income - Omnicom Group Inc. for the six months ended June 30, 2020 decreased $399.9 million, or 63.1%, to $234.0 million compared to $633.9 million in the same period in 2019.  Diluted net income per share - Omnicom Group Inc. for the six months ended June 30, 2020 decreased $1.77, or 62.1%, to $1.08 per share compared to $2.85 per share for the six months ended June 30, 2019.

Net income - Omnicom Group Inc. and diluted net income per share - Omnicom Group Inc. for the six months ended June 30, 2020 included a net after-tax decrease of $223.1 million and $1.03 per share, respectively, as a result of repositioning costs and a net loss on dispositions during the second quarter of 2020, as previously discussed above.

Adjusting for the impact of those items, net income - Omnicom Group Inc. for the six months ended June 30, 2020 would have decreased $176.8 million, or 27.9%, to $457.1 million compared to $633.9 million in the same period in 2019, and diluted net income per share - Omnicom Group Inc. would have decreased $0.74, or 26.0%, to $2.11 per share compared to $2.85 per share for the six months ended June 30, 2019.

Primarily due to the negative effects on Omnicom's revenue arising from the COVID-19 pandemic in the second quarter of 2020, worldwide revenue for the six months ended June 30, 2020 decreased 13.6% to $6,207.6 million from $7,188.7 million in the same period of 2019.  The components of the change in revenue included a decrease in revenue from the negative impact of foreign currency translation of 1.6%, a decrease in acquisition revenue, net of disposition revenue of 0.4% and a decrease in revenue from negative organic growth of 11.7% when compared to the same period of 2019.

Organic growth for the six months ended June 30, 2020 compared to the same period in 2019 in Omnicom's five fundamental disciplines was as follows: Advertising decreased 13.9%, CRM Consumer Experience decreased 14.0%, CRM Execution & Support decreased 13.7%, Public Relations decreased 7.0% and Healthcare increased 6.2%.

Across Omnicom's regional markets, organic growth for the six months ended June 30, 2020 as compared to the same period of 2019 was as follows: the United States decreased 9.8%, Other North America decreased 15.1%, the United Kingdom decreased 10.4%, the Euro Markets & Other Europe decreased 16.6%, Asia Pacific decreased 8.9%, Latin America decreased 15.0% and the Middle East & Africa decreased 33.2%.

Operating profit for the six months ended June 30, 2020 included a pre-tax decrease of $277.9 million due to repositioning costs, comprised of incremental severance charges, right-of-use asset impairments and other real estate costs of $252.8 million, and a net loss on the disposition of certain subsidiaries and other charges of $25.1 million. Operating profit decreased $519.9 million, or 51.9%, to $482.7 million from $1,002.6 million for the six months ended June 30, 2019. Omnicom's operating margin for the six months ended June 30, 2020 decreased to 7.8% versus 13.9% for the same period of 2019. 

Adjusting for the impact of the repositioning actions and net loss on dispositions discussed above, operating profit for the six months ended June 30, 2020 would have decreased $242.0 million, or 24.1%, to $760.6 million from $1,002.6 million for the six months ended June 30, 2019, while operating margin during the period would have decreased to 12.3% versus 13.9% for the same period of 2019.

Omnicom's effective tax rate for the six months ended June 30, 2020 increased period-over-period to 30.6% from 25.7%. The increase was primarily attributable to the non-deductibility in certain jurisdictions of a portion of the repositioning costs and loss on dispositions. In the same period of 2019, income tax expense was reduced by $10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. The non-deductibility of a portion of the repositioning costs and loss on dispositions in certain jurisdictions with loOmniComr effective tax rates resulted in a loOmniComr tax benefit, which had the effect of increasing Omnicom's effective tax rate for the six months ended June 30, 2020 from 26.1% to 30.6%.

Non-GAAP Financial Measures

Omnicom uses certain non-GAAP financial measures in describing Omnicom's performance. Non-GAAP 2020 Adjusted results, which exclude the impact of repositioning actions taken and a net loss on the disposition of certain subsidiaries in the second quarter of 2020, are presented in the second quarter and year-to-date results presented above and in the tables in this release. Omnicom believes that the Non-GAAP 2020 Adjusted results are useful measures for investors to understand the impact these actions had on Omnicom's reported results. 

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

COVID-19 Business Update

The COVID-19 pandemic has significantly impacted the global economy, Omnicom's business and the results of operations. Public health efforts to mitigate the impact of the pandemic include government actions such as travel restrictions, limitations on public gatherings, shelter in place orders and mandatory closures. These actions have negatively impacted many of Omnicom's  clients' businesses and in turn clients have reduced or plan to reduce their demand for Omnicom's services. As a result, Omnicom experienced a reduction in the company's revenue beginning late in the first quarter of 2020, as compared to the same period in 2019.  The reduction in Omnicom's revenue continued during the second quarter of 2020 and is expected to continue for the remainder of the year. Such reductions in revenue could adversely impact Omnicom's ongoing results of operations and financial position and the effects could be material.

While Omnicom expects the pandemic to affect substantially all of Omnicom's clients, certain industry sectors have been affected more immediately and more significantly than others, including travel, lodging and entertainment, energy and oil and gas, non-essential retail and automotive. Clients in these industries have already acted to cut costs, including postponing or reducing marketing communication expenditures. While certain industries such as healthcare and pharmaceuticals, technology and telecommunications, financial services and consumer products have fared relatively OmniComll to date, conditions are volatile and economic uncertainty cuts across all clients, industries and geographies. Overall, while Omnicom has a diversified portfolio of service offerings, clients and geographies, demand for Omnicom's services can be expected to decline as marketers reduce expenditures in the short term due to the uncertain impact of the pandemic on the global economy. During the second quarter of 2020, Omnicom realigned its agencies' cost structures, which included severance actions and furloughs to reduce the workforce, right-of-use asset impairments and other real estate costs, a net loss on the disposition of certain subsidiaries and other charges. These actions were taken to tailor their services and capabilities to changes in client demand.

As Omnicom previously reported, in March 2020 and early in the second quarter of 2020, it has taken numerous proactive steps to strengthen Omnicom's liquidity and financial position over the past several months that Omnicom expects will help mitigate the potential impacts of COVID-19, including:

  • The amendment and extension of Omnicom's $2.5 billion credit facility to February 2025,
  • The suspension of Omnicom's share repurchase program,
  • The issuance in February of $600 million 10-year 2.45% Senior Notes, which OmniComre used to finance the early redemption of the remaining $600 million of 4.45% Senior Notes that OmniComre due in August 2020,
  • The issuance in early April of an additional $600 million 10-year 4.20% Senior Notes, and
  • The completion in early April, of a $400 million 364-day revolving credit facility, which is in addition to Omnicom's existing $2.5 billion revolving credit facility that expires in February 2025.

Omnicom has no long-term debt maturing until May 2022.

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