Q1 2004 Omnicom Group Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the Omnicom Group conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. If you do need assistance during the call today please press the star followed by the zero. As a reminder this conference call is being recorded. I'd now like to turn the conference call over to the Executive Vice President and Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

RANDALL WEISENBURGER, EXECUTIVE VICE PRESIDENT, CFO, OMNICOM GROUP, INC.: Good morning. Thank you all for taking the time to listen to our first quarter 2004 earnings call.

We hope everyone has had a chance to review our earnings release. We've also posted to our Web site both the press release and a presentation that covers the information that we will be presenting this morning. This call is also being simulcast and will be archived on our Web site.

Before we start we need to provide one accounting reminder. As you're already aware effective January 1st, 2004, we adopted SFAS-123, which is "Accounting for Stock-Based Compensation". As a result, we're now including the cost of employee stock compensation in our reported results.

In connection with the adoption of SFAS-123, we've also restated our 2002 and 2003 annual results, and our 2003 quarterly results, to make them more comparable. Therefore, today's earnings release and our comments reflect the impact of this restatement.

For those of you who have not already reviewed it we filed a Form 8-K on March 15th that provides the detailed restated figures. That information is also available on our Web site.

Now with that out of the way we're going to begin the call with some brief remarks from John Wren. Following John's remarks we'll review our financial performance for the quarter in more detail and then both John and I will be happy to take your questions.

JOHN WREN, PRESIDENT, CEO, OMNICOM GROUP, INC.: Good morning, and thanks for joining us.

We're very pleased with our performance in the first quarter. For the first time in nearly three years advertising, specialty advertising, PR, and CRM all performed well and contributed to our overall growth.

From a geographic perspective, our businesses in North America, Asia, South America, were strong across the board, reflecting the improvements in those economies and the economies in those regions.

Growth in Europe was a bit slower. Specifically revenue from Germany and France were flat and we saw a continued weakness in the Netherlands. Besides those, except for those three markets, business virtually everywhere else was strong and seems to be improving.

As Randy will report in more detail, we also made further adjustments to our business in the quarter, and we believe we've re-established our cost models more in line with the way they were pre-recession, and we're very pleased with the individual efforts of our agencies around the world to get their costs in line with their revenue models at this point.

New business activity across the board in the first quarter was very strong and it remains strong into the second quarter. For the first time the trend to have clients review their full marketing accounts seems to be catching hold and increasingly as clients approach us they want to know more about the holistic services we can provide rather than the specific services we can provide, which if the trend continues, which I expect that it will, will be very good for companies like ours.

Clients' spending and budgets showed continued improvement, and the trends remain positive. As our clients' profitability improve, those budgets will be released, and we expect that trend to continue into the year as well.

At this point, I'll turn the call back to Randy, who will be a lot more specific and take you through the company and our performance for the quarter.

RANDALL WEISENBURGER: Thank you.

As John mentioned the first quarter remains strong and the year is off to a very good start. More importantly we're very pleased with the progress that our agencies have made over the past several quarters in both re-establishing their cost models and in business development initiatives. As a whole our agencies today are clearly better positioned and stronger than they were even several years ago when economic times were much more forgiving.

In summary, revenue for the quarter increased $294 million to $2.2 billion, which was an increase of 15.2%. Net income increased 17.4% to $135.6 million and diluted earnings per share increased 16.1% or 10 cents to 72 cents per share.

Analyzing our revenue performance, organic growth continued to be quite strong at 5.8%, accounting for $112.2 million of our revenue growth. Acquisition revenue totaled $52.2 million in the quarter, adding 2.7% to our revenue, and foreign exchange continued to have a significant positive impact adding $129.8 million to a reported revenue or about 6.7%.

As for our mix of business, traditional media advertising accounted for 43.8%, and marketing services 56.2% of our revenue. As for their respective growth rates, traditional media advertising grew 13.9% and marketing services grew 16.2%.

The breakdown of our marketing services revenue was approximately 33.6% CRM, 10.7% public relations and 11.9% specialty communications.

As for their respective total growth rates, CRM continues to be strong and steady, increasing 19% in the quarter, public relations, which began to recover in the second half of 2003, continued to gain momentum in the quarter growing 7.8%, and specialty communications, driven principally by the strong performance of our health care agencies, increased 16.6%.

Our geographic mix of business in the quarter was 54.7% U.S. and 45.3% international. The significant changes in foreign exchange rates, specifically the weakening of the U.S. dollar versus the euro and the British pound, have impacted these …