Dive Brief:
- Omnicom Group reported organic revenue, a key measure of agency health, grew 11.9% year-on-year in the first quarter of 2022, per an earnings statement.
- The ad holding group notched gains across its core segments over the period, with advertising and media up 9.1% YoY, precision marketing up 20.3%, commerce and brand consulting up 13.8% YoY and experiential up 68% YoY.
- A strong start to the year came despite the war in Ukraine, which led the firm to pull back business in Russia, and ongoing supply chain and inflationary pressures. While executives cautioned that these factors and the pandemic will continue to create uncertainty, they raised their full-year forecast for organic revenue growth to between 6% and 6.5%.
Dive Insight:
Concerns that the war in Ukraine would deliver a significant blow to agency profits and losses are further allayed with Omnicom's latest earnings, which saw the group experience growth across its fundamental disciplines. The news follows similarly sturdy results from rival Publicis Groupe, which reported organic revenue grew 10.5% YoY in Q1.
Publicis, Omnicom and all of the other major global ad holding groups have wound down operations in Russia in a stance against the country's invasion of Ukraine, which has carried an increasingly grim humanitarian toll. Omnicom in mid-March said it was working with local affiliate agencies, which it relies on in the region, to "dispose" of its remaining investments and establish a continuity plan for its 2,000 Russian employees. Beyond serving as a form of protest, the mass agency pullouts arrive as client work has virtually dried up in the country.
At the outset of the war, there was some concern that marketers might adopt a cautious approach that could impact agencies' bottom lines, throwing cold water on much-needed momentum for the category. Steep ad spending cuts were common in the early days of the pandemic, for instance. That situation hasn't come to pass.
On a call discussing the Q1 results, Omnicom executives acknowledged that clients are aware of the uncertainties and prepping for further volatility in 2022. Similarly, inflation remains a major concern. Procter & Gamble, which recorded an impressive sales jump in Q2, warned that consumer tolerance for soaring coasts might only last so long.
However, Omnicom leadership seemed optimistic that inflation was nearing its peak and suggested the trend hasn't affected short-term media budgeting.
"Overall, we haven't seen any reductions in the spending plans of our clients at this point," said CFO Phil Angelastro during a Q&A portion of the analyst call. "[Clients] need to continue to sell stuff in an inflationary environment or in a non-inflationary environment."
Elsewhere, aspects of Omnicom's business benefited from a rebound. Experiential marketing was up substantially after dropping 33% in Q1 2021 amid a patchwork pandemic reopening. In-person gatherings have returned with the loosening of COVID-19 restrictions, as have brand activations.
Client demand for services in e-commerce and performance media also stayed steady. When an analyst brought up recent research indicating that e-commerce growth is leveling off with brick-and-mortar back in force, Omnicom executives sounded unconvinced.
"I have not noticed any deterioration at all in terms of e-commerce," CEO John Wren said.
