Omnicom Group Inc. (NYSE: OMC) stock crashes on weak outcome

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Omnicom Group Inc. (NYSE: OMC) stock fell over 9.5% on July 17th, 2018 (as of 6:57 PM GMT-4; Source: google finance) after the company after the company fell short of expectations for revenue growth in the second quarter as U.S. clients put their marketing dollars elsewhere, which has sent the shares of the New York firm and rival global advertising agencies lower. The net income attributable to the company rose to $364.2 million, in the second quarter ended June 30, from $328.6 million, a year before. Profit grew due to the growth in Europe and lower U.S. taxes.

Omnicom Group in the second quarter of FY 18 has reported the adjusted earnings per share of $1.60, beating the analysts’ estimates for the adjusted earnings per share of $1.54. The company had reported the adjusted revenue growth of 1.8 percent to $3.86 billion in the second quarter of FY 18, missing the analysts’ estimates for revenue of $3.89 billion. The company reported a 2 percent rise in organic revenue, which is a closely watched measure that excludes foreign exchange rate changes and mergers. Analysts, on average, had expected a 2.3 percent rise, as per the research firm FactSet.

Moreover, the “Big Four” traditional ad companies are facing competition from consulting firms such as Accenture, IBM and Deloitte, which have built big marketing businesses in recent years through acquisitions. There has also been a shift in media consumption patterns as consumers move from traditional to digital media. OMC has showed signs of offsetting an almost 1 percent drop in organic revenue in North America with gains in Europe, where the measure grew 11.2 percent compared to a year earlier. In 2017, North America had contributed nearly 57 percent to Omnicom’s revenue, while Europe contributed 27 percent. In North America, the company had faced declines from several advertising and media client losses that occurred in the prior periods and reductions in scope. The CEO of the company expects the weakness in North America to subside “partially” in the second half of 2018 while adding a strong dollar would hurt revenue by 1 percent in the third and fourth quarters.

Additionally, the operating profit in the second quarter of 2018 has increased $10.8 million,to $582.3 million from $571.5 million in the second quarter of 2017. The operating margin for the second quarter of 2018 of 15.1% was unchanged when compared to the second quarter of 2017.  The impact from adopting ASC 606 reduced operating profit by $7.5 million during the second quarter of 2018.

Meanwhile, OMC last week rolled out its data driven marketing and insights platform – Omni, aiming to battle the rise of internet giants Google and Facebook, which have transformed the sector by using data to better target advertising.

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