Omnicom to cut more costs as clients slash spending

During the hold co's Q1 investor call, CEO John Wren said disposition of agencies was an option, on top of measures already taken.
johnwren

Though Omnicom’s Q1 earnings beat analyst expectations, the holding company is preparing for that to be the last bright spot in its business for some time.

Omnicom’s worldwide revenue decreased 1.8% year-over-year in the first quarter, largely due to foreign exchange rates and disposition activity; organic revenue growth was flat at 0.3%.

However, the quarter – which ended on March 31 – only captures a portion of the impact COVID-19 will have on the holding company’s business. John Wren, CEO of Omnicom, said during an investor call on Tuesday that while organic revenue grew by 3% in January and February, it declined by 3% in March.

The company expects there to be a decline in revenue through the rest of the year as clients reduce spend. While it singled out the travel, lodging, entertainment, energy, automotive and non-essential retail categories, it expects all of its clients to be impacted in some way. Even though it said clients in healthcare, technology, telecommunications, financial services and consumer products have “fared relatively well” during the pandemic, the economic uncertainty means all marketers are looking to reduce expenditures.

To combat this loss of revenue, Wren said Omnicom will continue to reduce costs, on top of the pay reductions, furloughs and layoffs it has already conducted. More of those could come, and Wren said the company “will continue to evaluate our portfolio of agencies to identify businesses that are non-core or underperforming for potential realignment or disposition.” Each of its agencies are currently examining ways to align cost structures, including looking at staff reductions and tailoring services to better fit current client demand, though the company did not provide more details.

For the entirety of the quarter, healthcare was the only area of Omnicom’s business that saw significant organic growth, at 9.6%. PR grew by 0.2% and advertising fell by 0.1%, while its CRM Customer Experience and CRM Execution divisions were down by 1.3% and 0.9%, respectively. But Wren said that since the pandemic began, events and experiential have – unsurprisingly – been the hardest hit areas of business, exacerbated by the postponement of the Olympics and cancellation of sporting events; however, CRM, healthcare and PR have continued to perform well.

Organic growth for Omnicom in the “Other North America” region, which includes Canada, was 0.6% for the quarter.

Omnicom’s Canadian agencies include BBDO, DDB, Juniper Park\TBWA, Critical Mass, OMD and PHD.