01—Abstract
Summary
Summary of the 10-K filed February 11, 2020. Cited figures are marked; the original filing is the authoritative source.
Omnicom Group Inc. (NYSE: OMC) reported 2019 revenue of $14,953.7 milliona, down $336.5 million, or 2.2%, from $15,290.2 million in 2018.
The filing attributes the decline mainly to foreign exchange (which reduced revenue $315.9 millionb, or 2.1%) and acquisition revenue net of disposition revenue (which reduced revenue $445.1 million, or 2.9%), partly offset by organic growth of $424.5 million, or 2.8%. Operating profit was $2,122.3 million versus $2,133.5 million, with operating margin rising to 14.2% from 14.0%. Net income attributed to Omnicom Group Inc. rose $12.7 million, or 1.0%, to $1,339.1 million, and diluted EPS increased 3.9% to $6.06.
The 2018 results included a $178.4 millionc net gain on disposition of subsidiaries and $149.4 million of repositioning charges, so the company also presented non-GAAP comparisons. Balance sheet and liquidity were stable. Cash and cash equivalents and short-term investments totaled $4,309.3 million, long-term debt including current portion was $5,134.3 million, and net debt decreased to $835.1 million from $1,233.9 million.
Operating cash flow was $1,856.0 milliond. The company returned capital through $564.3 million of common dividends paid and $610.2 million of share repurchases. At year-end the Leverage Ratio was 2.2 times against a covenant maximum of 3 times, and the Interest Coverage Ratio was 10.4 times against a minimum of 5 times.
Management expects organic revenue to increase modestly in 2020, while foreign exchange is estimated to reduce first-quarter 2020 revenue by approximately 0.5%. Key risks flagged in the filing include exposure to client spending reductions and payment delays in economic downturns, the concentration of revenue in large clients (the 100 largest clients represented approximately 51% of revenue), currency fluctuations (international operations were approximately 46% of revenue), Brexit-related uncertainty, and goodwill impairment risk. KPMG LLP issued an unqualified opinion on the financial statements and on internal control over financial reporting.
02—Key points
Key Highlights
- Revenue declined 2.2% to $14,953.7 million; organic growth of 2.8% was offset by foreign exchange (-2.1%) and net disposition activity (-2.9%).
- Operating margin improved to 14.2% from 14.0%, and EBITA margin rose to 14.8% from 14.6%.
- Net income attributed to Omnicom Group Inc. increased 1.0% to $1,339.1 million; diluted EPS rose 3.9% to $6.06.
- Net debt fell to $835.1 million from $1,233.9 million, with cash and short-term investments of $4,309.3 million.
- Operating cash flow was $1,856.0 million; the company paid $564.3 million in common dividends and repurchased $610.2 million of common stock.
- Covenant compliance was strong: Leverage Ratio of 2.2 times (maximum 3 times) and Interest Coverage Ratio of 10.4 times (minimum 5 times).
- Management expects organic revenue to grow modestly in 2020 and estimates a roughly 0.5% first-quarter 2020 foreign exchange revenue headwind.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Omnicom Group kept $0.09.
- Revenue$14.95B100.0%
- Cost of revenue−$12.19B81.5%
- Gross profit$2.76B18.5%
- Operating costs−$637.4M4.3%
- Operating income$2.12B14.2%
- Interest, other & tax−$783.2M5.2%
- Net income$1.34B9.0%
Where FY2019 revenue went
$14.95B- Cost of revenue: $12.19B, 82% of revenue
- Net income: $1.34B, 9.0% of revenue
- SG&A: $405.9M, 2.7% of revenue
- Other operating costs: $231.5M, 1.5% of revenue
- Interest, other & tax: $783.2M, 5.2% of revenue
Kept 9.0% as net incomeNet income $1.34B · 9.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 11, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $14.95B$15.29B | −2.2% |
| Cost of Revenue | $12.19B$12.44B | −2.0% |
| Gross Profit | $2.76B$2.85B | −3.3% |
| SG&A Expenses | $405.90M$455.40M | −10.9% |
| Operating Expenses | $12.83B$13.16B | −2.5% |
| Operating Income | $2.12B$2.13B | −0.5% |
| Interest Expense | $244.30M$266.40M | −8.3% |
| Net Income | $1.34B$1.33B | +1.0% |
| EPS (Basic) | $6.09$5.85 | +4.1% |
| EPS (Diluted) | $6.06$5.83 | +3.9% |
| Shares Outstanding (Basic) | 219.80M226.60M | −3.0% |
| Shares Outstanding (Diluted) | 220.90M227.60M | −2.9% |
05—Questions
Frequently Asked Questions
How did Omnicom's revenue and profitability perform in 2019?
Revenue fell $336.5 million, or 2.2%, to $14,953.7 million. Organic growth of $424.5 million (2.8%) was more than offset by currency headwinds of $315.9 million and net disposition effects of $445.1 million. Operating profit was $2,122.3 million, a slight decline from $2,133.5 million, but operating margin improved to 14.2%.
Why are the 2018 and 2019 results not directly comparable?
2018 included a $178.4 million net gain on the disposition of subsidiaries and $149.4 million of repositioning charges, along with a $28.9 million Tax Act adjustment. The filing presents non-GAAP figures that adjust 2018 for these items; for example, non-GAAP diluted EPS for 2018 was $5.75, compared with GAAP diluted EPS of $5.83.
How is Omnicom's balance sheet and debt position?
Total assets were $26,783.4 million and shareholders' equity was $2,853.9 million at year-end 2019. Long-term debt including current portion was $5,134.3 million, and net debt decreased to $835.1 million. The company issued €1.0 billion of Euro Notes in July 2019, retired its $500 million 2019 Notes, and partially redeemed $400 million of its 2020 Notes. Its credit ratings were BBB+ (S&P) and Baa1 (Moody's).
What are the main risks to Omnicom's business according to the filing?
Key risks include reduced client spending or payment delays during economic downturns, the loss of large clients (the 100 largest represented about 51% of revenue), currency fluctuations (international operations were about 46% of revenue), Brexit uncertainty, cybersecurity threats, possible goodwill impairment, and potential losses on media purchases made on clients' behalf if clients default.
06—Continue