01—Abstract
Summary
Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.
Omnicom Group Inc. reported 2017 revenue of $15,273.6 milliona, down $143.3 million, or 0.9%, from $15,416.9 million in 2016.
Acquisition revenue net of dispositions reduced revenue by $647.3 millionb (4.2%), primarily reflecting the sale of its specialty print media business, while organic growth added $461.1 million (3.0%) and foreign exchange added $42.9 million (0.3%). Operating profit rose $50.8 million to $2,059.7 million, lifting operating margin to 13.5% from 13.0%, and EBITA margin to 14.2% from 13.8%. Operating expenses decreased 1.4%, driven by a $190.9 million (1.7%) decline in salary and service costs.
Net income attributable to Omnicom Group Inc. fell $60.2 millionc, or 5.2%, to $1,088.4 million, and diluted EPS declined 2.7% to $4.65. The decline reflects a $106.3 million net increase in income tax expense from the Tax Cuts and Jobs Act, which reduced diluted EPS by $0.45. Excluding the Tax Act effect, the company's effective tax rate would have been 31.3%.
The effective tax rate for 2017 was 36.9%, compared with 32.6% in 2016. The balance sheet strengthened: cash and cash equivalents and short-term investments rose to $3,796.4 milliond, net debt fell $798.2 million to $1,128.3 million, and shareholders' equity increased to $2,615.1 million. Operating cash flow was $2,023.9 million, and the company repurchased $568.4 million of common stock and paid $515.2 million in common dividends.
Management expects 2018 revenue to increase modestly, and the Tax Act is expected to reduce the 2018 effective tax rate by 3.5% to 4.5%. The filing also discloses a Department of Justice Antitrust Division investigation into video production and post-production practices, which management does not currently believe will have a material adverse effect.
02—Key points
Key Highlights
- Revenue declined 0.9% to $15,273.6 million; organic growth of 3.0% was offset by a $647.3 million (4.2%) net reduction from acquisitions and dispositions, principally the sale of the specialty print media business.
- Operating profit increased $50.8 million to $2,059.7 million; operating margin rose to 13.5% from 13.0%, and EBITA margin rose to 14.2% from 13.8%.
- Net income attributable to Omnicom fell 5.2% to $1,088.4 million, and diluted EPS fell 2.7% to $4.65, due to a $106.3 million Tax Act charge ($0.45 per diluted share).
- The effective tax rate rose to 36.9% from 32.6%; management expects the Tax Act to reduce the 2018 effective tax rate by 3.5% to 4.5%.
- Cash and short-term investments increased to $3,796.4 million, and net debt decreased $798.2 million to $1,128.3 million; the Credit Facility leverage ratio was 2.1 times.
- Shareholder returns in 2017 included $515.2 million in common dividends paid and $568.4 million in share repurchases; dividends declared rose to $2.25 per share from $2.15.
- The U.S. Department of Justice Antitrust Division subpoenaed two subsidiaries in December 2016 regarding video production practices; management does not currently believe the matter will be materially adverse.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Omnicom Group kept $0.07.
- Revenue$15.27B100.0%
- Cost of revenue−$12.47B81.6%
- Gross profit$2.81B18.4%
- Operating costs−$721.8M4.7%
- Operating income$2.08B13.6%
- Interest, other & tax−$995.4M6.5%
- Net income$1.09B7.1%
Where FY2017 revenue went
$15.27B- Cost of revenue: $12.47B, 82% of revenue
- Net income: $1.09B, 7.1% of revenue
- SG&A: $439.7M, 2.9% of revenue
- Other operating costs: $282.1M, 1.8% of revenue
- Interest, other & tax: $995.4M, 6.5% of revenue
Kept 7.1% as net incomeNet income $1.09B · 7.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $15.27B$15.42B | −0.9% |
| Cost of Revenue | $12.47B$12.65B | −1.4% |
| Gross Profit | $2.81B$2.77B | +1.4% |
| SG&A Expenses | $439.70M$443.90M | −0.9% |
| Operating Expenses | $13.19B$13.39B | −1.5% |
| Operating Income | $2.08B$2.03B | +2.6% |
| Interest Expense | $248.60M$231.30M | +7.5% |
| Net Income | $1.09B$1.15B | −5.2% |
| EPS (Basic) | $4.68$4.80 | −2.5% |
| EPS (Diluted) | $4.65$4.78 | −2.7% |
| Shares Outstanding (Basic) | 232.30M237.90M | −2.4% |
| Shares Outstanding (Diluted) | 233.90M239.20M | −2.2% |
05—Questions
Frequently Asked Questions
Why did Omnicom's net income decline in 2017 even though operating profit increased?
Operating profit rose $50.8 million to $2,059.7 million, but net income attributable to Omnicom fell $60.2 million, or 5.2%, to $1,088.4 million. The main driver was the estimated $106.3 million net increase in income tax expense from the Tax Cuts and Jobs Act, which the filing says reduced diluted EPS by $0.45.
How much of the revenue decline was caused by acquisitions and dispositions?
Acquisition revenue net of disposition revenue reduced 2017 revenue by $647.3 million, or 4.2%, primarily reflecting the second-quarter 2017 sale of the specialty print media business. Organic growth added $461.1 million, or 3.0%, and foreign exchange added $42.9 million, or 0.3%.
What is Omnicom's financial position at year-end 2017?
Cash and cash equivalents and short-term investments totaled $3,796.4 million, and total debt was $4,924.7 million, leaving net debt of $1,128.3 million, down $798.2 million from 2016. Shareholders' equity was $2,615.1 million. The company held a $2.5 billion revolving credit facility expiring in July 2021, and it reported a leverage ratio of 2.1 times against a covenant maximum of 3 times.
What is management's outlook for 2018?
Management expects 2018 revenue to increase modestly, excluding foreign exchange effects, and expects long-term revenue growth to exceed weighted average nominal GDP growth in its major markets. It also expects the Tax Act to reduce the 2018 effective tax rate by 3.5% to 4.5%, excluding share-based compensation effects. The filing states that changes in foreign exchange rates at February 12, 2018 would increase 2018 revenue by approximately 2%.
06—Continue