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Advertising giant Omnicom sees share gains after Q3 EPS beat

Omnicom Group Inc.'s stock had gained over 5% as of midday Oct. 16 after the company beat consensus earnings per share expectations during a quarter that saw a number of changes to its advertising agency portfolio.

The group divested a total of 19 agencies during the third quarter, the largest of which was the sale of SELLBYTEL Group GmbH, a European sales support business, which closed on Aug. 31.

"The businesses were no longer aligned with our long-term strategy," CEO John Wren said during an Oct. 16 conference call with analysts to discuss earnings. "We continue to evaluate the portfolio of businesses to identify areas for investment in acquisition opportunities as well as to identify nonstrategic or underperforming businesses for potential disposition." The company is working to realign its business to a more technology-focused and data-driven model, executives said during the call.

Omnicom posted organic growth of 2.9% in the third quarter, or 3.3% after adjusting for the impacting of its dispositions. The net impact on quarterly revenue from the dispositions and a couple recent acquisitions was to reduce the group's third-quarter revenue by about $35 million, or 0.09%, CFO Philip Angelastro said during the call. Severance-related expenses also were higher than average as the company cut 7,000 positions and consolidated some of its real estate during the quarter.

Organic revenue in the U.S. grew 0.6% in the third quarter reversing the slight declines seen in the previous two quarters. Wren attributed the growth to U.S. clients spending more money, a trend he expects will continue going forward as the company brings in new business, such as Ford Motor Co. and AT&T Inc.'s newly formed Warner Media Group.

Omnicom reported stronger growth in international markets, led by the Asia-Pacific region, which reported third-quarter organic growth of 13.9%, with Australia, China and New Zealand all incurring double-digit growth.

In Europe, organic revenue was up 6.9%, led by France, Italy, Spain, Russia and the Czech Republic. On the downside, the U.K. declined 0.3%, the Middle East and Africa decreased 0.4% and other North America markets were down 5.4%.

Omnicom's worldwide revenue decreased 0.1% to $3.71 billion from about $3.72 billion in the third quarter of 2017. The adoption of the modified retrospective method FASB Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers," reduced revenue by 0.4%.

Third-quarter operating revenue increased 6.8% to $502.3 million from $470.2 million, with margin increasing to 13.5% compared to 12.6% for the third quarter of 2017. The impact from adopting ASC 606 increased operating profit by $3.6 million during the third quarter.

Net income attributable to Omnicom increased 13.4% to $298.9 million, or $1.32 per share, from $263.6 million, or $1.13 per share, in the prior-year period.

The S&P Capital IQ consensus EPS final estimate for the period was $1.20 on a normalized basis and $1.21 on a GAAP basis.