War in Ukraine impacts Omnicom revenue, operating profit in Q1

Omnicom posted 11.9% organic growth in the first quarter as its business continues to rebound from the pandemic. But the holding company wasn’t able to escape the impact of the war in Ukraine, which is continuing to roil the global economy. 

Omnicom suspended operations in Russia in March, handing over control of its majority-owned agencies in the market to local operators. It was also forced to shutter business in Ukraine as the local economy shut down. 

As a result, revenue decreased 0.5% year over year on a reported basis to $3.4 billion. Operating profit declined 24.5%, by $112.4 million, to $353m pushing margins down to 10.4% from 13.6% last year. 

Omnicom will continue to operate cautiously as uncertainty around the crisis in Ukraine, the pandemic, the supply chain and inflation persist, said CEO John Wren on the earnings call on Tuesday. 

“Clients recognize uncertainty,” he said. “They are not stepping back from their spending or investing in their brands, but there is uncertainty.” 

But strong organic growth, thanks in part to high inflation, led Omnicom to increase its forecast for the year to between 6% and 6.5% – the first time it has done so after Q1 in 26 years. 

Clients that are raising prices to stem inflation are spending more on media. CFO Phil Angelastro cited a $50 million “gain on sale of business” and said he expected “operating performance improvement” for the year, thanks in part to high prices. 

In the United States, 10.6% organic growth was led by precision marketing, advertising and media and PR. The United Kingdom grew 13.8% organically, and the rest of Europe grew 11.1%. In Asia Pacific, organic growth was 9.3% year over year.

“Most of our markets began to improve versus the prior year in March 2021, and the improvement continued through the first quarter of 2022 as clients substantially increased their spending on our services,” Wren said. 

By discipline, commerce and brand consulting services grew nearly 68% year over year, while advertising and media grew 20.3% year over year. PR also grew 14%, while healthcare grew 7.7%.

Precision marketing, a big investment area for Omnicom, grew nearly 14% year over year. Angelastro cited consultancy Credera as performing “exceptionally well,” and Wren spoke about the Omni ID, which the holding company has spent “quite a bit of money” testing and proving out to clients. 

“Privacy is going to be a constant theme for a good, long time,” he said.