The big marcoms companies have rather enjoyed the sagging global economy over the past couple of years, managing to increase revenue and earnings by rather more than most other sectors, apart from freaky performances like Apple’s (Apple is almost a sector of its own these days).
Omnicom, number two by a narrow margin to WPP, has just announced its third quarter figures and they show a tiny increase in profit (from $203.7m to $203.9m) on revenue up 0.8 per cent to $3.41bn, just missing analysts’ forecast of $3.42bn. Operating margins increased from 11 per cent to 11.4 per cent.
More revealing perhaps, US revenue increased by 3.2 per cent while international revenue fell 1.7 per cent, suggesting that the sharp slowdown in the Far East, as well as continuing problems in the eurozone and wider European market, are having an effect.
It may be that Omnicom is showing some bruises from its relatively slow expansion in China and India, certainly in comparison to WPP and big recent spender Publicis Groupe. But it could be a sign that such markets are slowing for everyone, which will lead to a lot of analysts revising down their expectations for the marcoms companies as a whole.
Various reasons have been offered for the outperformance of the market as a whole by the marcoms mob. WPP’s Sir Martin Sorrell has suggested that the world’s big companies have been investing in advertising and marketing in preference to making big acquisitions and building new factories as they are unsure, if not downright fearful, about world economic prospects. In which case an improving world economy shouldn’t, logically, lead to an improving outlook for marcoms. Companies would start buying each other etc and cut their ad budgets. But it probably would.
Regarding Omnicom it seems pretty clear that there is an onus on the shrewd but cautious CEO John Wren to make a big acquisition, in the digital sector if he can find one. He’s extracting pretty close to maximum performance from his biggest agency network BBDO, under the capable management of Brit Andrew Robertson, while DDB and TBWA have produced mixed but far from disastrous performances.
Elsewhere he’s a bit short of big brands with just two in media and nothing really in digital. Omnicom missed out on both AKQA, which went to WPP, and LBi, which went to Publicis Groupe.
As we’ve said here before, French-based Havas must be in Omnicom’s sights. It owns a gaggle of smaller digital agencies as well as Havas Worldwide (formerly Euro RSCG), Arnold Worldwide (there seems to be a pattern here) and lively French outfit BETC.