Alison Weissbrot
Oct 28, 2020

Omnicom ends voluntary pay cuts as Q3 results improve

Publicis and WPP have already phased out pay cuts.

John Wren
John Wren

Omnicom has said that it would end voluntary pay cuts across its agencies at the end of the year as its results slowly improve.

The holding company is still struggling from the impacts of COVID-19, but it’s doing better than last quarter. Worldwide revenue decreased 11.5% year over year in Q3 to $3.2 billion, compared to a 23% year over year decline in Q2 to $2.8 billion. And operating profit increased 5.9% year over year to $501.4 million in the quarter, an increase of $28 million. 

In addition to the voluntary pay cuts, Q2 results led Omnicom to cut 6,100 jobs, freeze hiring and participate in government subsidy programs in 35 markets. Improvements in the third quarter mirror IPG and Publicis, which also saw gains over Q2. IPG, however, said it will continue with executive salary reductions through 2021.

“I expect October to be the strongest [month], unless we see project business come in low at the end of Q4,” said CEO John Wren on the earnings call on Tuesday. “And that is up to things that are out of my control.”

Despite sequential improvements, organic growth continued to decline across most of Omnicom’s disciplines year over year, including advertising (-11.7%), CRM consumer experience (-19.3%), CRM execution and support (-19.4%) and public relations (-3.4%). CRM execution and support was particularly hurt by the events business, which has cratered this year due to the pandemic.

“The events businesses we have, when events come back, will be strong again,” Wren said. “So that's a pain we have to incur for the moment.”

Only the group’s healthcare practice grew by 3.8% year over year, as pharma and healthcare brands continue to spend. Technology brands also began spending more, while travel, entertainment, energy and non-essential retail continued to cut spend, said chief financial officer Phil Angelastro on the call. 

Organic growth declines at Omnicom improved sequentially from Q2 but extended across all regions, including an 11.4% year over year drop in the US, a 12.5% dip in the UK and 12.8% decrease in APAC.

The outlook for Omnicom, however, remains uncertain, due to three major factors: the trajectory of the virus, the outcome of the US election and government stimulus packages around the world, Wren said.

“All of these factors create greater uncertainty in our financial forecast and lower visibility than we’ve had in the past,” he said.

For agencies, Q4 is typically heavily dependent on project work, and it’s still unclear how brands will spend against the holiday season this year as COVID-19 cases spike again across the US and Europe. Omnicom typically makes between $200 and $250 million from project work in Q4, Wren said.

“I don't have any clue how Christmas will turn out,” he said. “We have alternative plans both for growth and for some bumps in the road we may hit.”

Because of the uncertainty, Omnicom is sticking to a cost reduction plan it put in place in Q2 that has already delivered $1.1 billion in free cash flow and aims to save $500 million this year. In addition to reduced spending on discretionary spending like travel, the company shed over one million square feet of real estate and expects those reductions to be permanent. 

Omnicom has also put together a committee to figure out how its agencies should operate post-COVID. 

“We've learned that things we didn't think we could do remotely, we actually can,” Wren said. “Even if people come back to the office, they may not have to come back five days a week. We may have a far more agile and flexible workforce as we move into the future.” 

(This article first appeared on CampaignLive.com)

Source:
Campaign India

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